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Honda forecasts profit will go down 65 per cent

Honda Motor Co on Tuesday forecast a worse-than-expected 65 per cent fall in annual operating profit as it struggles to recover from the March 11 earthquake.

Honda, like other Japanese automakers, had delayed providing financial forecasts because of uncertainty over when parts supplies would recover after the magnitude 9.0 quake in Japan's northeast. In late April, it announced a 52 per cent drop in January-March operating profit after production came to a virtual halt in the second half of March.

"These figures are pretty bad," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo, adding they could temporarily push Honda's stock lower.

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"They are very, very conservative and come in well below what analysts had expected. Honda had some R&D centres damaged by the quake and I had the impression that its recovery hasn't been as speedy as its peers."

The difficulty in procuring hundreds of components caused Honda to delay by three months the launch of its new Fit Shuttle model. The wagon, which will carry a hybrid option, debuts this week to take on Toyota's new Prius Alpha.

More worrisome is the loss in potential sales of the remodelled Civic in the key U.S. market after its limited launch in April. Honda has said it would not resume full production of the best-selling model until after summer.

Japan's third-biggest automaker said on Tuesday it expects an operating profit of ¥200-billion ($2.49-billion U.S.) in the business year to March 31, 2012, lagging by far a consensus forecast of ¥407.2-billion, according to a post-quake survey of 20 analysts by Thomson Reuters I/B/E/S.

It expects profit, which includes earnings from China, to decline 63 per cent to ¥195-billion, assuming an average dollar rate of ¥80 and a euro rate of ¥110 for the year - worse than the ¥86 and ¥114 averaged last year.

A rise in raw material prices and an estimated cost of ¥40-billion to repair damages to facilities will also pressure profit this year, Honda said.

Honda said it expects production in Japan to be "nearly normalized" late this month, while overseas output could take until August or September.

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It expects to sell 3.3 million cars this business year - 6 per cent fewer than last year - and projected a 10.8 per cent drop in North America due to a dearth of vehicle supply.

"The new Civic was supposed to contribute a big sales push for the full year, so the disruption is going to hurt quite a bit," said Barclays Capital auto analyst, Kei Nihonyanagi.

"We've seen U.S. brands and (South Korea's) Hyundai Motor Co. taking market share in May and we'll have to see how long this continues."

Honda's chief financial officer, Fumihiko Ike, stressed that Honda planned to ramp up production in the second half to cover as much of the early losses as possible.

"We're expecting sales of nearly 1 million vehicles in both the third and fourth quarters, out of the total 3.3 million this year," Mr. Ike told reporters. Honda will boost production mainly at its Indiana and Alabama factories to achieve a more than 20 per cent output rise beyond autumn, he said.

For the industry as a whole, a recovery in the supply chain has progressed faster than initially feared, prompting some automakers to project a sales increase this year and offer a surprisingly upbeat outlook.

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Mitsubishi Motors Corp. said on Monday it expects full-year operating profit to rise 25 per cent, saying initial concerns over a prolonged supply disruption had been dispelled.

Top-ranked Toyota Motor Corp., however, forecast a larger-than-expected 35 per cent fall in annual profit on Friday, saying it still expected a full, unrestricted return to normal production in November.

Having hit multiple-year highs before the March 11 earthquake on expectations for demand growth in its key U.S. market, Honda's shares have shed some 14 per cent after the disasters. That compares with Toyota's post-quake fall of 11.5 per cent and the Nikkei's slide of 8.5 per cent.

Before the forecasts were announced, Honda shares rose 0.7 per cent to ¥2,931.

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