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Currency Gains Helped Cushion a Profit Decline for Honda

By John Rosevear - Updated Feb 7, 2020 at 5:28PM

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Sales fell, but exchange rates softened the blow.

Honda Motor (HMC 0.04%) said that its operating profit in the quarter that ended on Dec. 31 fell 2.1% from a year ago, a better-than expected result that led the company to increase its guidance for the current fiscal year.

Honda's operating profit of 166.6 billion yen ($1.52 billion) outpaced the consensus Wall Street expectation of 149.5 billion yen as reported by Thomson Reuters, as exchange-rate shifts increased the value of the company's sales outside of Japan in yen terms. 

In part because of the weaker yen, Honda increased its profit guidance for the fiscal year that will end on March 31. 

A gray 2020 Honda CR-V, a compact crossover SUV.

U.S. sales of the Honda CR-V were up just 1.4% last year. Image source: Honda Motor Co., Ltd.

The raw numbers

Like many Japanese companies, Honda uses a fiscal year that begins on April 1. The quarter that ended on Dec. 31, 2019, was the third quarter of Honda's 2020 fiscal year.

Metric Q3 FY2020 YOY
Revenue 3.7475 trillion yen (5.7%)
Automobiles sold 1,247,000 (11.4%)
Operating profit 166.6 billion yen (2.1%)
Operating profit margin 4.4% 0.1 pp
Net profit 116.4 billion yen (30.8%)
Yen per U.S. dollar, average during period 109 4 fewer yen

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 called "life creation and other businesses," which includes Honda's power products, aircraft, and its emerging mobility-related businesses. 

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

  • Automobiles: Operating profit in Honda's automobile unit fell 18% from a year ago, to 33.7 billion yen, driven mostly by a parts shortage that limited sales in Japan. Operating margin of 1.3% was down 0.1 percentage point from the year-ago quarter.
  • Motorcycles: Honda's motorcycle unit generated 74.5 billion yen in operating profit, up 7.2% from a year ago. Cost reductions drove the gain, offset somewhat by weaker sales in India's slumping market. Operating margin of 14.1% was up 0.6 percentage points from a year ago. 
  • Financial services: Honda's captive-financing arm earned 64.5 billion yen in operating profit, up 7% from a year ago, on higher leasing revenue. Operating margin of 10.4% was down 0.3 percentage points from a year ago.
  • Life creation and other businesses: Honda's catch-all unit lost 6.1 billion yen on an operating basis, versus a 900 million-yen loss a year ago, on weaker sales of power products in the United States. Operating margin of negative 7.2% was down from negative 1% a year ago.

Looking ahead: Honda revised guidance upward

Honda increased its guidance for full-year revenue and profit, saying that it now believes cost cuts and a weaker yen will offset currency headwinds and issues in India and Japan. Auto investors should now expect:

  • Revenue of 15.15 trillion yen, up from 15.05 trillion yen in its prior forecast. (Fiscal 2019 result: 15.89 trillion yen.) 
  • Operating profit of 730 billion yen, up from 690 billion yen in its prior forecast. (Fiscal 2019: 726.3 billion yen.)
  • Operating margin of 4.8%, versus 4.6% in the prior forecast. (Fiscal 2019: 4.6%.)
  • Net profit of 595 billion yen, versus 575 billion yen in its previous forecast. (Fiscal 2019: 610.3 billion yen.)

Honda now expects an average exchange rate of 108 yen for US$1 in the current fiscal year, versus 111 yen per dollar in fiscal 2019. That's up from 107 yen per dollar in the prior forecast. 

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