Honda Profits More than Double - Analyst Blog

Honda Motor Co. (HMC) showed a profit of ¥135.93 billion ($1.62 billion) or ¥75.24 (90 cents) per share in the second quarter of its fiscal 2011, which more than doubled from ¥54.04 billion ($644.81 million) or ¥29.78 (36 cents) per share in the year-ago period (at constant exchange rates).

Consolidated net sales and other operating revenues in the quarter gained 9.5% to ¥2.25 trillion ($26.85 billion) driven by higher revenues in the Automobile segment, offset partially by unfavorable currency translation effects. At constant exchange rates, Honda's revenues increased 14.4%.

Consolidated operating profit increased more than two fold to ¥163.47 billion ($1.95 billion) from ¥65.54 billion ($782.07 million). This was attributable to higher sales volume, favorable product mix, benefits from cost reduction measures, and reduction in costs per vehicle on account of increased production, offset partially by increased research and development expenses and unfavorable currency translation effects.

Segment Performance

Sales in the Automobile segment went up 7.2% to 898,000 units. In Japan, sales increased 12% to 177,000 units. Outside of Japan, sales inched up 6% to 721,000 units due to improved sales in North America that more than offset the lower sales in Europe.

Revenues from sales to external customers in the segment rose 10% to ¥1.72 trillion ($20.52 billion) due to increased sales volume. Operating income was ¥86.39 billion ($1.03 billion), an increase of ¥72.68 billion ($867.27 million) from ¥13.71 billion ($163.6 million) in the same period last year, due to the factors affecting the consolidated operating income (explained above).

Sales in the Motorcycle segment grew 13% to 2.73 million units, driven by sales outside of Japan. In Japan, sales dipped 10% to 47,000 units. Outside of Japan, sales appreciated 14% to 2.68 million units due to higher sales volume in Asia and South America.

Revenues from sales to external customers escalated 14% to ¥312.8 billion ($3.73 billion). Operating income more than tripled to ¥30.01 billion ($358.1 million) from ¥9.32 billion ($111.21 million) a year ago.

Revenue from sales to external customers in the Financial Services segment fell 9% to ¥141.42 billion ($1.69 billion) due to unfavorable currency translation effects. Operating income was almost flat at ¥47.43 billion ($565.97 million) compared with ¥47.18 billion ($562.98 million) a year ago, due to a fall in allowance for losses on credit and lease residual values.

Honda Power Product and Other segment sales zoomed 24% to 1.17 million units. In Japan, sales rose 28% to 96,000 units. Outside of Japan, sales increased 23% to 1.07 million units, due to higher unit sales.

Revenues from sales to external customers in the segment augmented 15% to ¥75.78 billion ($904.26 million) due to higher sales volume, offset partially by unfavorable currency translation effects. The segment reported a narrower operating loss of ¥355 million ($4.24 million) in the quarter compared with the year-ago level of ¥4.67 billion ($55.73 million) in the same period of last year due to higher sales volume and favorable product mix.

Financial Position

Consolidated cash and cash equivalents was ¥1.27 trillion ($15.15 billion) as of September 30, 2010, compared with ¥945.76 billion ($11.28 billion) in the year-ago period. Long-term debt amounted to ¥3.04 trillion ($36.28 billion) as of the above date, translating into a long-term debt-to-capitalization ratio of 41%.

In the first six months of the fiscal year, cash flow from operations fell to ¥682.89 billion ($8.15 billion) from ¥975 billion ($11.63 billion) in the year-ago period, despite an improvement in income.

The decline in cash flow was primarily attributable to a decline in equity in income of affiliates, a fall in dividends from affiliates, an increase in provision for credit and lease residual losses on finance subsidiaries-receivables, a decline in trade accounts and notes receivable, a rise in inventories and an increase in trade accounts and notes payable. Meanwhile, capital expenditures reduced to ¥136.01 billion ($1.62 billion) from ¥205.13 billion ($2.45 billion) in the first half of 2009.

Guidance

Honda, a Zacks #1 Rank (Strong Buy) stock, has kept its revenue guidance almost unchanged for the full fiscal 2011 while upgrading the outlook for unit sales, operating profit, profit and earnings per share. The improvement in guidance can be mainly attributed to favorable product mix (excluding negative currency translation effects) and benefits from cost reduction actions and positive impact from fluctuations in raw material costs.

For the full fiscal year 2011 ending March 31, 2011, Honda projected a 4.9% increase in sales to ¥9 trillion ($107.39 billion) compared to the earlier projection of a 6.1% increase in net sales and other operating revenues to ¥9.1 trillion ($108.59 billion).

Unit sales are expected to rise by 233,000 vehicles to 3.62 million vehicles in the Automobile segment; 1.19 million motorcycles to 11.49 million motorcycles in the Motorcycle segment; and 821,000 components to 5.57 million components in the Power Product and Other segment.

Operating profit expected to increase 37.4% to ¥500 billion ($5.97 billion) compared with the earlier projection of an increase of 24% to ¥450 billion (5.37 billion). The profit is expected to grow 86.3% to ¥500 billion ($5.97 billion) compared with the earlier guidance of a 69.5% rise in profit to ¥455 billion ($5.43 billion). Earnings per share are expected to be ¥276.80 ($3.30) compared with the earlier outlook of ¥251.23 ($3.00). 

(Exchange Rate: $1=¥83.80)

 
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