Honda Motor Company Ltd. (NYSE:HMC) increased its full-year profit guidance after its net income rose nearly 18%, to 244.3 billion yen ($2.18 billion), in the quarter that ended June 30. The improvement over Honda's year-ago result was driven largely by increased SUV sales in the United States, which more than offset losses from unfavorable exchange-rate movements.
The raw numbers
Like many Japanese companies, Honda uses a fiscal year that runs from April 1 through March 31. The quarter that ended on June 30, 2018, was the first quarter of Honda's 2019 fiscal year.
The financial results in the chart below are shown in billions of yen. As of July 31, $1 = about 111.9 yen.
|Metric||Q1 Fiscal 2019||Q1 Fiscal 2018||Change|
|Automobiles sold (thousands)||1,305||1,267||3%|
|Operating profit margin||7.4%||7.3%||0.1 ppts|
|Yen per U.S. dollar, average during period||109||111||2 fewer yen per dollar|
How Honda's business lines performed during the quarter
Honda has four business units: automobiles, motorcycles, "power products" (including tractors, generators, and lawn equipment), and financial services.
Honda attributed its 11.2% year-over-year increase in operating profit to three key factors:
- Auto sales in North America, particularly the United States
- Increased sales of motorcycles in Asia
- Ongoing cost-reduction efforts
Revenue was up year over year in all four of Honda's business segments.
Honda's U.S. auto sales actually fell slightly (0.3%) in the quarter from a year ago. But its "mix" improved: Sales of what Honda calls "trucks" -- Honda and Acura SUVs, the Honda Ridgeline pickup, and the Honda Odyssey minivan -- rose 5.8% as a group, nearly offsetting a drop in sedan sales. That improvement in mix drove an 8.4% increase in revenue from North America, and an overall 8% increase in Honda's auto revenue, to 2,797.3 billion yen.
Honda's motorcycle unit also posted a nice gain, thanks to a 14.7% increase in sales in Asia, by far the unit's largest market. The key driver: increased sales of Honda's Activa, an urban scooter, in Indonesia, India, and Vietnam. Honda's global motorcycle sales rose 13.9% in the quarter, boosting the motorcycle unit's revenue 9% to 554.9 billion yen.
Honda's financial-services revenue rose 9.9% to 589.8 billion yen on increased lending worldwide. Power products revenue rose 5.5% to 81.9 billion yen.
Honda said that the revenue gains were offset somewhat by 25.6 billion yen in currency-related effects and increased spending (up 18.9 billion yen) on research and development.
Honda was still able to eke out a slight year-over-year increase in its operating margin, to 7.4%. That beat Ford Motor Company's (NYSE:F) cost-challenged 3.2% result, but trailed General Motors' (NYSE:GM) healthy 8.7% margin. Honda rival Toyota will report its earnings on Friday.
Looking ahead: Honda slightly boosted its full-year profit guidance
Honda updated its financial forecast for the fiscal year that will end on March 31, 2019, as follows:
- Revenue of 15,450 billion yen, a decrease of 150 billion yen from the prior forecast. (Fiscal 2018 result: 15,361.1 billion yen.)
- Operating profit of 710 billion yen, up 10 billion yen from the prior forecast. (Fiscal 2018 result: 833.5 billion yen.)
- Operating margin of 4.6%, up 0.1 percentage point from the prior forecast. (Fiscal 2018 result: 5.4%.)
- Net income of 615 billion yen, up 45 billion yen from the prior forecast. (Fiscal 2018 result: 1,059.3 billion yen.)
Honda slightly lowered its full-year automotive sales forecast. It now expects to sell about 5,285,000 autos in the 2019 fiscal year, a decrease of 90,000 from its prior forecast. But note that Honda's revised sales forecast still represents a 1.7% increase over its fiscal 2018 result.