Honda Falls Most in Four Years as Profit Forecast Lags Estimates

Honda Vehicles
Honda Motor Co. vehicles bound for shipment sit at a yard in Yokohama, Japan, on Dec. 15, 2014. Photographer: Akio Kon/Bloomberg

Honda Motor Co. fell the most in four years in Tokyo trading after forecasting profit that fell short of analyst estimates, as recall costs and weaker overseas currencies erode the carmaker’s earnings.

Honda fell as much as 7.7 percent, the biggest intraday decline since March 2011, to 3,999 yen and traded at 4,032.5 yen as of 9:15 a.m. Japan’s benchmark Topix index declined 1.4 percent.

Net income will probably be 525 billion yen ($4.4 billion) in the fiscal year ending March 2016, based on U.S. GAAP accounting standards, the company said in a statement Tuesday. That compared with the 661 billion-yen average of 25 analyst estimates compiled by Bloomberg. Japanese markets were closed on Wednesday for a public holiday.

Honda President Takanobu Ito will step down in June after quality problems led to the company’s biggest vehicle recalls in decades and delayed the introduction of new models. The carmaker predicts higher selling, general and administrative expenses -- which include quality-related costs -- will erode full-year operating profit by 90 billion yen, while unfavorable exchange rates may reduce it by another 85 billion yen.

Honda is getting less of a boost from a weakening yen than Japanese peers Toyota Motor Corp. and Nissan Motor Co., after moving more aggressively to localize production in foreign markets. While a stronger dollar may add 69 billion yen to Honda’s earnings, weaker currencies in markets including Brazil, Canada, Mexico and Europe will probably cut operating income by 154 billion yen, Honda said in a presentation Tuesday.

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