U.S. sales up but margins down for Honda as the dollar continues to slide against the yen.
Honda is raising its profit forecast for the current fiscal year – even as the rising yen takes a toll on its current performance.
The maker forecasts it will earn 500 billion yen – or $6.2 billion – for the fiscal year ending March 31, 2011, a sharp increase from an earlier forecast of 455 billion yen. But the upside projection was tempered by news that second-quarter earnings fell 15%, largely as the result of a rising yen that has made it increasingly difficult to market products abroad, especially in key markets like the U.S., without slashing margins.
The project full-year numbers actually disguise the degree of trouble facing the maker, however. Honda has now earned 408 billion yen for the first half of the fiscal year. Net income for the final six months, it forecast, should slip to just 92 billion, despite a strong operating performance.
The upwards pressure on the yen versus and dollar and the yen versus the euro has created what Honda executives describe as an acute market crisis, despite the rise in the company’s operating income, which increased by 149.4% in the second fiscal second quarter, ending Sept. 30.
Honda executive vice president Koichi Kondo said Honda has already been working to procure lower-priced parts from overseas suppliers. “It is natural that the strong yen is accelerating this drive,” Kondo said at Honda’s earnings press conference.
Honda’s automobile unit sales totaled 898,000, an increase of 7.2% from the same period last year. In Japan, unit sales amounted to 177,000, up 12%, from the same period last year. Unit sales outside of Japan increased 6%, to 721,000, due mainly to increased demand in North America, which more than offset decreased unit sales in Europe.
Demand for Honda motorcycle increased in Indonesia, India, Thailand and Vietnam and sales of cars strengthened modestly in the U.S and increased more India and China. But the Japanese automaker faced some significant headwinds, prompting the company to reduce its sales forecast for fiscal 2011.
Honda’s earning per share also increased by 152.7% while net sales increased by 13.7%, paced by increases in motorcycles and power products.
Honda, Japan’s third-biggest carmaker by sales volume isn’t the only one worrying about the future. Mazda, the country’s fifth-largest automaker, said it expects slimmer profits than previously expected for the second half as it adjusts to a more unfavorable dollar-yen exchange.
Both companies now see the dollar becoming much weaker than they previously assumed against the yen.