Honda Raises Profit Outlook as U.S. Recovery Heats Up

Japan’s No. 3 automaker, Honda Motor Company, has raised its annual profit outlook thanks to a recovery in the U.S. market which helped offset decreased sales in Japan and the strengthening yen.

Last quarter, Honda reported a 29 percent decline in operating profits to 125.65 billion yen ($1.53 billion), down from 177 billion yen a year earlier.

Honda, which lost its title as Japan’s No. 2 automaker to Nissan Motor Company in 2010, raised its operating profit projection for the year ending on March 31 to 620 billion yen, up from 500 billion yen. The projection beat the average 594 billion yen forecast of 20 analysts surveyed by Thomson Reuters I/B/E/S. The company also raised its net profit projection from 500 billion yen to 530 billion yen.

Most analysts expect to see Japanese automakers report sharp declines in profits for the October-December period due to increases in the costs of raw materials and the sun-setting of a number of government subsidies for eco-friendly vehicles.

To offset these loses and maximize their profit margins, Japanese automakers have focused on improving their manufacturing efficiencies and reducing fixed costs.

Daiwa SB Investments portfolio manager Koichi Ogawa said, “Honda’s strong earnings were backed by strong growth in North America and Asia,” and added, “Robust motorcycle demand in emerging markets also helped Honda’s earnings. The recovery in the U.S. was especially positive for Honda.”

“Honda’s profits,” said Ogawa, “could rise even further by the end of March as it has also set very conservative currency rate forecasts of 80 yen against the dollar and 105 yen against the euro.”

Increased sales in emerging markets like China, India and Brazil have helped automakers weather lower demand in mature markets including the U.S. and Europe. Honda has also benefitted from increasing demand for motorcycles in emerging markets.  Last year, Honda reported that global motorcycle sales increased 91 percent to 17.95 million units – a new record for the company.

Over the past three months, Honda’s stock price has risen 20 percent as investors have responded to the recovery in the U.S.  — Honda’s largest and most lucrative market. In the U.S. Honda has outsold both Toyota Motor Corporation and Nissan Motor Company over the last three months.

Honda has reduced its global care sales forecast for the current business year from 3.615 million units to 3.58 million vehicles.  Honda’s sales forecast for the North American market remain unchanged at 1.475 million units.

In 2010, Honda lost North American market share to rival Korean automaker Hyundai-Kia, but many analysts expect the Japanese automaker to recoup much of its loses once it releases its revamped Civic and CR-V models.

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