Honda needs a little Insight
Nobody ever suggests that Honda isn’t anything but well run company, but even the best automakers can’t seem to escape the fallout from the plunge in global auto sales, which has left even the Japanese makers arch-rival, Toyota, struggling for footing.
The rating agency Standard & Poors suggested Monday that investors holding American depositary receipts, representing shares in Honda, might want to dump. Such rude comments are usually reserved for American companies like Ford Motor Co. or General Motors Corp., or mercurial European brands with stocks that go up and down like yo-yos.
Nevertheless, Standard & Poors noted that Honda had just cut its sales and profit outlook for fiscal year 2009, which ends March 31. Part of the reason for S&P’s gloomy recommendation was the belief that the market for new cars in Japan is no better than in the U.S.
“Since we expect near-term global industry sales to fall rapidly, including a 28 percent. year-over-year decline, in January, in HMC’s home market in Japan, and a likely double-digit January decline in the key U.S. market, we cut our FY 09 earnings estimate by 55 percent,” the S&P report noted.
Last week, Honda reported its consolidated net income for the fiscal third quarter ended December 31, 2008 dropped by 90 percent to $222 million.
Honda also confirmed its motorcycle business was growing but its automobile business was taking a serious beating as the demand for new vehicles shriveled up in Japan and the U.S., which have long been the company’s most dependable markets.
“Consolidated net sales and other operating revenue dropped 17 percent to $27,829 million from the same period in 2007, primarily due to decreased revenue in the automobile business and currency translation effects, although unit sales in motorcycle business increased,” Honda noted in its quarterly financial report.
Honda’s consolidated operating income for the quarter dropped 63 percent $1,125 million. Honda attributed the decline to a combination of rising raw material costs and an increase in fixed costs per unit as a result of reduced production and selling and general administrative expenses as well as the negative impact of currency effects caused by the appreciation of the Japanese yen. A dollar now buys only 90 yen, the least favorable exchange rate in years.
Consolidated income before income taxes, minority interest and equity income of affiliates for the quarter dropped 67 percent to $953 million.
With respect to Honda’s sales for the fiscal third quarter by business segment, motorcycle unit sales totaled 2,504 thousand units, an increase of 5.8 percent. Unit sales in Japan, though, dropped 18.5 percent compared to the same period last year but overseas sales increased 6.4 percent thanks to mainly to increased unit sales in India and Vietnam and Brazil.
Honda’s automobile unit sales fell 5.1 percent compared to the same period last year. Sales in Japan declined 6.9 percent from the same period last year, while overseas sales, which account for must of the company’s sales 4.8 percent to 805 thousand units from the corresponding period last year, due mainly to weak demand, primarily for light trucks, in North America, and decreased unit sales in Europe.