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Honda reports surging profit but trims forecast

Japan’s Honda Motor said that first-half net profit more than doubled to $2.7 billion, but its shares dived as the automaker warned full-year results would be much weaker than forecast.

Investors pushed the stock down more than 5.0 percent to 2,390 yen in Tokyo as they reacted to news that the maker of the Accord and Civic would report a profit that was 20 percent lower than previously expected.

Blaming a strong yen and weakening sales, Honda said it now expects to earn 375 billion yen ($4.7 billion) in its fiscal year to March 2013, down from an earlier 470 billion yen forecast, with sales also tipped to fall to 9.8 trillion yen, down from 10.3 trillion yen.

“We expect earnings to come below the estimates announced on April 27, 2012, due to a decrease in sales volume amid the changing business environment and the impact of currency exchange rates,” Honda said in a statement.

Yoshihiro Okumura, general manager of the research department at Chibagin Asset Management, said the move marked “a big downward revision”.

“The sales outlook is unclear,” he told Dow Jones Newswires.

Honda’s profit and sales downgrade stood in marked contrast to its latest half-year results which saw net profit soar to 213.96 billion yen, up from 92.23 billion yen in the same period a year ago, while sales were 4.71 trillion yen, up from 3.60 trillion yen.

The company credited its rosy first-half results largely to a rebound following last year’s quake-tsunami disaster.

Japanese automakers saw extensive damage to their supply chains as a result of the twin disasters in Japan and flooding in Thailand later in the year.

A high yen also ate into exporters’ sales and profits.

The country’s automakers have come under pressure from the value of the currency, which last year hit record highs against the dollar and remains strong, making exports relatively more expensive overseas and cutting the value of repatriated earnings.

While the number of vehicles that Honda sold rose strongly in the first half — including a 73 percent jump in the key North American market — revenue in Europe, the Middle East and South America all weakened “mainly due to unfavourable foreign currency translation effects”, it said.

The number of motorcycles that Honda sold in the first-half rose by about 7.0 percent on-year, it added.

Honda and rivals Nissan and Toyota have also been hurt by territorial tensions between Tokyo and Beijing, with the trio’s September sales in China, the world’s biggest vehicle market, plunging.

Honda sales dropped 40.5 percent to 33,931 units, it said earlier, but made no mention of the spat in its earnings announcement on Monday.

The two countries have been locked in a festering row over the islands in the East China Sea, controlled by Japan but claimed by China.

Japanese factories and businesses across China closed or scaled back operations in September over fears they or their workers could be targeted by mobs protesting against Tokyo’s nationalisation of the islands.