Honda Motor Co., Ltd. (HMC -0.39%) said that its operating profit fell 16% in the quarter that ended on June 30, to 252.4 billion yen ($2.36 billion), on lower U.S. sales and an exchange-rate shift that weighed on overseas earnings.

But despite the decline, Honda maintained its profit guidance for the full fiscal year, saying that its ongoing cost-reduction efforts are on track.

A red 2019 Honda Civic, a compact sedan.

Honda's U.S. sales fell 4.3% in the second quarter. Image source: Honda Motor Co., Ltd.

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, 2019, was the first quarter of Honda's 2020 fiscal year.

All financial results shown are in billions of yen.

Metric Q1 FY2020 Change vs. Q1 FY2019
Revenue 3,996.2 (0.7%)
Automobiles sold 1,321,000 1.2%
Operating profit 252.4 (15.7%)
Operating profit margin 6.3% 1.1 ppts lower
Net profit 172.3 (29.5%)
Yen per U.S. dollar, average during period 110 +1 yen

Data source Honda Motor Company, Ltd. Automobile sales are rounded to the nearest thousand. Ppts = percentage points.

What happened at Honda in the second quarter

Honda reports results for four business units: automobiles, motorcycles, financial services, and what it now calls "life creation and other businesses." The latter includes Honda's former "power products" unit -- tractors, generators, and lawn equipment, as well as Honda's aircraft business -- as well as upcoming new mobility- and energy-related initiatives.

(Regarding the "life creation" name, Honda said, "This renaming of the business represents our intention to evolve our business as a function to create new value for 'mobility' and 'daily lives,' which includes our existing power product business as well as new businesses for the future, including energy business.")

The financial results in this section are presented on an operating basis, before interest and taxes.

  • Automobiles: Operating profit in Honda's automotive unit fell 20.6% from the year-ago quarter, to 120.3 billion yen, on a 4.3% decline in U.S. sales and higher recall-related costs. Operating margin fell to 4.4% from 5.3% a year ago.
  • Motorcycles: Operating profit fell here as well, by 24.2% to 69.8 billion yen. Total sales fell 8.1% to about 4,921,000 units, due largely to weakness in the important India market. Operating margin fell to 13.1% from 16.6% a year ago.
  • Financial services: Operating profit rose 15.1% to 65.7 billion yen on increased leasing revenue. Overall financial-services revenue rose 16.7% to 692 billion yen. But the unit's operating margin slipped slightly, to 9.5% from 9.6% a year ago.
  • Life creation and other businesses: This unit posted an operating loss of 3.5 billion yen, down from a 1.6-billion-yen loss for the former power products unit in the year-ago period. Unit sales, presumably of power products, fell 4.5% to 1.28 million units.

Looking ahead

Honda slightly reduced its guidance for revenue and net profit for the fiscal year that will end on March 31, 2020. It now expects:

  • Revenue of 15.65 trillion yen, down from the prior forecast of 15.7 trillion yen. (Fiscal 2019 result: 15.89 trillion yen.)
  • Operating profit of 770 billion yen, unchanged from the prior forecast. (Fiscal 2019: 726.3 billion yen.)
  • Operating margin of 4.9%, unchanged from the prior forecast. (Fiscal 2019: 4.6%.)
  • Net profit of 645 billion yen, down from the prior forecast of 665 billion yen. (Fiscal 2019: 610.3 billion yen.)

Honda still expects an average exchange rate of 110 yen for 1 U.S. dollar in the current fiscal year, versus 111 yen per dollar in fiscal 2019.