Honda raises full year profit forecast, avoids loss for first half despite industry slump

Honda raises forecast, avoids loss for first half

TOKYO — Japanese government incentives for green cars and strong sales in China helped Honda Motor Co. avoid red ink for the first half and raise its full year profit forecast.

Japan’s No. 2 automaker said Tuesday it now expects a net profit for the fiscal year ending March of 155 billion yen ($1.7 billion), nearly four times its initial outlook for a 40 billion yen profit.

Hit by a strong yen and weak global auto market, net profit for the July-September quarter fell 56.2 percent from a year earlier to 54.0 billion yen ($587.0 million) but was better than expected. For the first half, the automaker booked a net profit of 61.5 billion yen compared with its earlier projection for a 10 billion yen loss.

“The numbers were surprising,” said Yoshihiro Okumura, auto analyst with Chiba-gin Asset Management. “The better vehicle sales numbers are producing results.”

He said a bigger fall in profit was avoided by strong sales in Japan, driven by green incentives, and good sales numbers in Asia.

Honda has succeeded in weathering the global economic slump better than some rivals because it focuses on smaller fuel-efficient models such as its new Insight hybrid, which has been a big hit with the Japanese. All hybrids are now tax-free in Japan. The automaker stayed in the black in the fiscal year ended March 2009, while Toyota and Nissan Motor Co. slipped into losses.

Honda also raised its forecast for sales this fiscal year to 3.4 million vehicles. It expects more sales in emerging Asian markets and also in the previously sluggish Japan where tax breaks and government-backed discounts for green vehicles are helping along a recovery.

Honda in July forecast vehicle sales of 3.29 million but the new projection is still below the nearly 3.52 million vehicles it sold globally the previous fiscal year.

Honda, which makes the Insight gas-electric hybrid, Asimo robot and Accord sedan, said quarterly revenue fell 27.2 percent from a year earlier to 2.057 trillion yen ($22.4 billion).

A strong yen weighed on Honda’s results. Unfavorable currency exchange rates erased 79.7 billion yen ($866 million) from Honda’s quarterly operating profit, it said in a statement. The dollar bought 106 yen the previous year but has fallen to 90-yen levels lately.

Honda said auto sales grew in China and India, as well as in Japan during the quarter. Honda as well as rival Toyota Motor Corp. are enjoying the benefits of government incentives for fuel efficient and gasoline-electric hybrid cars.

Even in the U.S., where vehicle sales fell during the quarter, a cash for clunkers program also helped sales, Honda said.

Honda has also been helped by its strong motorcycle business, which has been enjoying growth in Vietnam and India.

Honda now expects to sell 665,000 vehicles in Japan for the full year, up 19.6 percent from the previous fiscal year.

It hopes to sell 910,000 vehicles in the rest of Asia, up 14.8 percent. Sales are expected to decline in North America to 1.31 million vehicles, down 12.8 percent from the previous year.

Toyota reports earnings Nov. 5, Nissan on Nov. 4.

Honda shares, which have been gradually gaining over the past year, slipped 1.9 percent to 2,845 yen ($31) in Tokyo Tuesday.