Honda Motor (NYSE:HMC) said that its operating profit in the quarter that ended Sept. 30 rose 2.6% from a year ago, to 220 billion yen ($2.04 billion), as aggressive cost-cutting and strong results in Japan and China helped offset weakness elsewhere.

But Honda sharply reduced its guidance for the full fiscal year that will end on Mar. 31, 2020, on concerns about a stronger yen and slowing sales in India and North America.

The raw numbers

Like many Japanese companies, Honda uses a fiscal year that runs from Apr. 1 through Mar. 31. The quarter that ended on Sept. 30, 2019, was the second quarter of Honda's 2020 fiscal year.

All financial results are shown in billions of yen.

Metric Q2 FY2020 Change (YOY)
Revenue 3,729.1 billion yen (2.9%)
Automobiles sold 1,241,000 (0.4%)
Operating profit 220.1 billion yen 2.6%
Operating profit margin 5.9% 0.3 pp higher
Net profit 196.5 billion yen (6.7%)
Yen per U.S. dollar, average during the period 107 4 fewer yen per dollar

Data source: Honda Motor Co., Ltd. Automobile sales are rounded to the nearest thousand. YOY = year over year. Pp = percentage points.

What happened at Honda in the quarter

Honda reports results for four business units: automobiles, motorcycles, financial services, and a catch-all division currently called "life creation and other businesses." The latter includes Honda's power-products business, its aircraft business, and upcoming new mobility-related initiatives.

All financial results in this section are shown on an "operating" basis, before interest and taxes.

  • Automobiles: Operating profit in Honda's automobile unit rose 7.3% from a year ago, to 74.9 billion yen, on cost reductions and higher sales in the U.S. and China. Operating margin rose to 3% from 2.6% in the same period last year.
  • Motorcycles: Operating profit fell to 77.7 billion yen from 85 billion yen in the year-ago period. A 20% sales decline in India was the key factor behind a 4% overall drop in sales for the quarter, to about 5.1 million units. Operating margin fell to 14.9% from 15.8% a year ago.
  • Financial services: Operating profit of 66.3 billion yen was up 12.2% from a year ago on higher lease revenue in Japan, the U.S., and China. Operating margin of 10% was up 0.1 percentage point from a year ago.
  • Life creation and other businesses: Operating profit here rose to 1 billion yen from about 400 million yen in the year-ago period, despite a 5.9% decline in revenue, on lower costs and good results in North America. Operating margin of 1.3% was up from 0.5% a year ago.

Honda also announced that it will spend up to 100 billion yen ($916 million) to buy back up to 33 million shares, or about 1.9% of total shares issued, before the end of the current fiscal year.

A red 2019 Honda Civic, a compact sedan.

Honda's U.S. sales rose in the quarter, but so did its incentives. Image source: Honda Motor.

Looking ahead: Honda cuts full-year guidance

For the second quarter in a row, Honda reduced its guidance for revenue and net profit for the fiscal year that will end on Mar. 31, 2020. Investors should now expect:

  • Revenue of 15.05 trillion yen, down from 15.65 trillion yen in its prior forecast. (Fiscal 2019 result: 15.89 trillion yen.)
  • Operating profit of 690 billion yen, down from 770 billion yen in its prior forecast. (Fiscal 2019: 726.3 billion yen.)
  • Operating margin of 4.6%, down from 4.9% in the prior forecast. (Fiscal 2019: 4.6%.)
  • Net profit of 575 billion yen, down from 645 billion yen in its previous forecast. (Fiscal 2019: 610.3 billion yen.)

Honda now expects an average exchange rate of 107 yen for 1 U.S. dollar in the current fiscal year, versus 111 yen per dollar in fiscal 2019. That's down from 110 yen per dollar in the prior forecast.