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Saturday, July 26, 2008

Record quarterly profit can't dispel Honda's pessimism


Staff writer

Honda Motor Co. said Friday its group net profit rose 8.1 percent in the first quarter of business 2008 — but only because a technical factor pushed up profits that were eroded by the yen's appreciation and soaring raw materials costs.

For the three months to June, Japan's second-biggest automaker logged ¥179.61 billion in net profit — its highest-ever quarterly profit.

Group sales slipped 2.2 percent from a year earlier to ¥2.87 trillion and operating profit edged down 0.2 percent to ¥221.35 billion.

Honda was the first carmaker to report quarterly earnings results. It will be followed by Nissan Motor Co. and Toyota Motor Corp. early next month.

The results were in contrast with a recent streak of losses reported by U.S. rivals suffering from slowing demand in the United States.

But Honda is not optimistic about the future. "The overall situation is becoming very tough," Executive Vice President Koichi Kondo said.

Surging gasoline prices prompted many domestic and foreign automakers to shift production from light trucks and sport utility vehicles to more fuel-efficient small cars.

"Business in our large SUVs is getting difficult. On the other hand, sales of the Civic, Fit, CRV and Accord are increasing, but output hasn't caught up with demand," he said.

Kondo said Honda's net profit for the first quarter was boosted by a technical factor that meant the cost of about ¥30 billion in sales incentives paid to its dealers was not included in the results for the April-June quarter. The costs will instead be included in the next quarter, he added.

The stronger yen continued to negatively impact the quarterly earnings results. During the period, the dollar fell by ¥16 from the average of the same period in 2007.

Kondo also said rising costs of materials, including steel and rare metal, are undermining their profit forecast.

"The costs will rise by ¥125 billion from what we had initially expected (in April)," Kondo said.

Honda has lowered its earnings forecast for the 2008 business year to next March. It now expects a ¥630 billion group operating profit, down 33.9 percent from the previous year. Its previous profit forecast was for ¥650 billion. It also expects group sales of ¥12.13 trillion, up 1.1 percent from last year, against its previous forecast of ¥12.14 trillion.



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