Honda Boosts Profit Forecast as SUVs Lead China Sales Surge

  • Deliveries climb more than 50% for both Vezel and XR-V models
  • China’s tax cut on smaller-engine models spurring demand

Pedestrians walk past a Honda Vezel.

Photographer: Kiyoshi Ota/Bloomberg

Honda Motor Co. raised its forecast for full-year profit as demand for Vezel and XR-V sport utility vehicle models surged in China, the carmaker’s second-largest market.

Net income will probably rise to 415 billion yen ($3.96 billion) in the fiscal year ending in March, more than the 390 billion yen forecast in May, according to a statement from the Tokyo-based automaker. The projection compares with the 491.8 billion yen average of 20 analysts’ estimates compiled by Bloomberg.

Honda boosted deliveries of the Vezel and XR-V models each by more than 50 percent, as carmakers selling in the world’s biggest auto market benefited from a sales tax cut for vehicles with smaller engines. China’s government is looking at extending the levy reduction set to expire this year, potentially helping Honda rebound from unprecedented recalls of faulty Takata Corp. air bags.

“Their redesigned models, especially the small crossovers, are giving them a strong boost,” said Seiji Sugiura, an analyst at Tokai Tokyo Research Center. “We expect the Chinese government to take some action, further supporting the industrywide growth, and Honda will continue to benefit.”

Honda shares fell 0.2 percent in Tokyo trading, before the company released earnings. The benchmark Topix Index was little changed.

Sales Outlook

While Honda also raised its forecast for operating profit this year to 650 billion yen, from 600 billion yen, it dialed back its projection for annual revenue. For the year ending in March, sales will probably decline to 13.4 trillion yen due to unfavorable foreign exchange rates.

The yen has strengthened about 15 percent against the U.S. dollar this year, eroding Japanese exporters’ repatriated earnings. Honda said Monday foreign exchange swings reduced operating income by 178 billion yen in the first half of the fiscal year.

Demand for vehicles with smaller engines paced Honda’s 26 percent gain in China sales this year through September. Industrywide deliveries began to recover late last year following the tax cut scheduled to expire Dec. 31. Passenger-vehicle sales have surged 15 percent to 16.75 million units in the first nine months of this year.

As sales climb, Honda has revived plans to expand production in China. The carmaker will begin work on a new plant this year that’s scheduled to begin operations in 2019.

U.S. Gains

The Japanese automaker’s sales in the U.S. rose 3.3 percent this year, outpacing industrywide expansion, helped by demand for models including the Civic and HR-V.

The carmaker is introducing a larger, redesigned CR-V SUV in December with a sportier look and expanded safety features. While the CR-V was America’s most popular SUV in eight of the past nine years, new models from Ford Motor Co., General Motors Co. and other automakers are challenging its dominance.

Honda has spent the last several years recalling Takata air-bag inflators that can deploy too forcefully, rupture and spray metal shards at vehicle occupants. As many as 17 deaths, including 11 in the U.S., have been linked to defective air-bag inflators made by the Tokyo-based company.

    Before it's here, it's on the Bloomberg Terminal.