Honda Motor Company Ltd. (HMC -0.75%) boosted its full-year profit guidance after strong motorcycle sales and a good result for its financial-services unit helped push its revenue and profit above expectations.
Honda said that its net income in the quarter ended Sept. 30, 2018, was 210.7 billion yen ($1.87 billion), up 21% from a year ago. Revenue rose 1.7% to 3.84 trillion yen ($34.05 billion).
Honda also announced a small increase to its quarterly dividend.
Strong demand for Honda's Pilot SUV in the U.S. has helped offset declines in sales of its mainstay sedans. Image source: Honda Motor Co., Ltd.
Honda earnings: 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 Sept. 30, 2018, was the second quarter of Honda's 2019 fiscal year.
As of Sept. 30, $1 equaled about 113.7 yen.
| Metric | Q2 FY2019 | Q2 FY2018 | Change |
|---|---|---|---|
| Revenue | 3.841 trillion yen | 3.776 trillion yen | 1.7% |
| Automobiles sold (thousands) | 1,246 | 1,292 | (3.6%) |
| Operating profit | 214.4 billion yen | 152.9 billion yen | 40.2% |
| Operating profit margin | 5.6% | 4.1% | 1.5 ppts |
| Net profit | 210.7 billion yen | 174.0 billion yen | 21.1% |
| Yen per U.S. dollar, average during period | 111 | 111 | no change |
Data source: Honda Motor Co., Ltd. Ppts = percentage points.
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 40.2% year-over-year increase in operating profit to four key factors:
- Stronger sales lifted Honda's motorcycle revenue by 12% (excluding currency effects).
- Improved automotive product "mix," meaning that Honda sold a greater proportion of higher-profit SUVs (versus sedans) than it did a year ago.
- A good result for its financial-services unit.
- Honda's year-ago result was dented by a payment it made to settle litigation.
Honda's auto sales were down 3.6% from a year ago, hurt by flooding that shut down a Mexico factory and lower sales of the compact CR-V crossover SUV in China. Despite the sales decline, automotive revenue fell slightly (0.9%, to 2.62 trillion yen ($23.26 billion)), thanks to a stronger "mix" of products sold versus the year-ago period. In particular, Honda's Pilot SUV has sold very well in the United States, largely offsetting revenue lost from lower sales of sedans.
Honda's automotive operating profit rose 78% to 69.8 billion yen ($618 million), due largely to the non-repeat of a litigation settlement from a year ago. Honda's automotive operating margin was 2.6% during the period.
Honda's global sales of motorcycles rose 1.5% from a year ago, as gains in Europe, Japan, and other parts of Asia (particularly Indonesia and Vietnam) offset somewhat lower sales in North America. Motorcycle revenue rose 5.7% to 539.3 billion yen ($4.78 billion). Motorcycle operating profit rose 24% from a year ago, to 85 billion yen ($753 million), and operating margin rose 2.4 percentage points to 15.8%.
Revenue in Honda's power products business fell 1.6% to 81.7 billion yen ($724 million), but operating income rose to 413 million yen ($3.7 million) from a loss of 2.04 billion yen a year ago, thanks to cost reductions. The unit's operating margin rose to 0.5% from negative 2.3% in the year-ago quarter.
Honda's financial-services revenue rose 11.3% to 600.2 billion yen ($5.32 bilion). Simply put, the unit originated more leases and financing contracts than it did a year ago. Operating profit rose 25.3% to 59.1 billion yen ($523.9 million), and operating margin rose 1.1 percentage points to 9.9%.
Honda's overall revenue and profit were offset somewhat by unfavorable currency-translation effects. If exchange rates had been constant, revenue would have risen 3.6% from a year ago, and operating profit would have risen 44.4%.
Honda's overall operating margin of 5.6% outperformed Ford Motor Company’s 4.4% third-quarter result, but trailed General Motors’. GM surprised investors with a stout 8.8% third-quarter margin.
Looking ahead: Honda increased guidance and its dividend
Honda boosted its revenue and profit forecasts for the fiscal year that will end on March 31, 2019, as follows:
- Revenue of 15,800 billion yen, an increase of 350 billion yen from the prior forecast. (Fiscal 2018 result: 15,361.1 billion yen.)
- Operating profit of 790 billion yen, up 80 billion yen from the prior forecast. (Fiscal 2018 result: 833.5 billion yen.)
- Operating margin of 5%, up 0.4 percentage point from the prior forecast. (Fiscal 2018 result: 5.4%.)
- Net income of 675 billion yen, up 60 billion yen from the prior forecast. (Fiscal 2018 result: 1,059.3 billion yen.
Honda expects increased revenue from improved model mix, but said that unfavorable currency effects will likely more than offset the potential profit gain. It expects a small increase in motorcycle sales for the full year, but said that sales of autos and power products are likely to be roughly flat versus fiscal 2018.
As a result of the improved profit forecast, Honda's board of directors voted to increase the company's second-quarter dividend to 28 yen ($0.25) from 24 yen a year ago.
