HMC Honda Motor Co Ltd

Honda Motor Co. (HMC) revealed a steep 61% increase in profits to ¥71.6 billion ($871 million) in the fourth quarter of the fiscal 2012 ended March 31, 2012 from ¥44.6 billion in the same quarter of prior fiscal year. On per share basis, profits were ¥39.72 (48 cents) in the quarter versus ¥24.72 in the prior year, missing the Zacks Consensus Estimate of 62 cents.

Consolidated net sales and other operating revenues grew 9% to ¥2.4 trillion ($29.3 billion), despite unfavorable foreign currency translation effects. The improvement was attributable to higher revenues from motorcycle and automobile businesses.

Consolidated operating profit more than doubled to ¥112.0 billion ($1.4 billion) from ¥46.2 billion in the fourth quarter of fiscal 2011, driven by increase in sales volume and model mix and lower selling, general and administrative (SG&A) expenses, despite higher research and development (R&D) expenses and unfavorable foreign currency effect.

Segment Performance

Revenues in the Automobile segment rose 12% to ¥1.8 trillion ($22.4 billion) on a 15% rise in unit sales to 988 thousand vehicles. The automaker saw higher unit sales in North America and Japan that more than offset lower unit sales in Asia on the back of severe flooding in Thailand in the second half of 2011. Operating profit amounted to ¥45.1 billion ($549.0 million), an increase of ¥84.3 billion ($1.0 billion) from a loss of ¥39.2 billion in the prior year driven by higher sales volume and better model mix, and lower SG&A expenses, despite increased R&D expenses and unfavorable foreign currency effects.

Revenues in the Motorcycle segment inched up 1.5% to ¥358.5 billion ($4.4 billion) on an 18% rise in unit sales to 3.5 million motorcycles, driven by higher sales in Asia and other regions including South America. Operating profit dipped 32% to ¥32.9 billion ($400 million) from ¥48.1 billion a year ago due to an adverse impact of a one-time gain related to licensing agreements in the fourth quarter of fiscal 2011, higher SG&A expenses and unfavorable foreign currency effects, which more than offset the positive impact from higher sales volume and better model mix.

Revenues from Financial Services segment slid 4% to ¥129.0 billion ($1.6 billion) due to unfavorable foreign currency translation effects. Operating income fell 9% to ¥36.0 billion ($438.0 million) from $40.0 billion a year ago due to the increased allowance for losses on credit and the unfavorable foreign currency effects.

Revenues from Power Product and Other segment ebbed 9% to ¥72.5 billion ($883.0 million) driven by lower revenues in other businesses and unfavorable currency translation effects. However, unit sales in the segment rose 15% to 2.0 million due to strong demand in North America and Asia. The segment had a narrower operating loss of ¥2.0 billion ($25.0 million) compared with ¥2.4 billion in the prior year, driven by higher sales volume and model mix, despite increased SG&A expenses.

Annual Results

In fiscal 2012, Honda reported a sharp 60% decline in profits to ¥211.5 billion ($2.6 billion) from ¥534.1 billion in the prior year. On per share basis, profits fell to ¥117.34 ($1.43) from ¥295.67 in the prior year.

Consolidated revenues in the year tumbled 11% to ¥7.9 trillion ($96.7 billion), driven by lower revenues from the automobile business caused by temporary suspension of production and adjustments in production on the back of earthquake in Japan and flooding in Thailand in 2011 as well as unfavorable foreign currency translation effects, despite higher revenues in the motorcycle business.

Consolidated operating profit for the year slashed 59% to ¥231.4 billion ($2.8 billion) from ¥569.8 billion in the prior year, driven by lower sales volume and model mix, higher R&D expenses and unfavorable foreign currency effects, despite a fall in SG&A expenses.

Financial Position

Consolidated cash and cash equivalents were ¥1.2 trillion ($15.1 billion) as of March 31, 2012, a decline from ¥1.3 trillion as of March 31, 2011. Long-term debt amounted to ¥4.1 trillion ($49.7 billion) as of March 31, 2012, translating into a long-term debt-to-capitalization ratio of 48%, which was flat compared with the year-ago level.

In the fiscal year, cash flow from operations deteriorated to ¥737.4 billion ($8.9 billion) from ¥1.1 trillion in the fiscal 2011, primarily due to a fall in profits. Meanwhile, capital expenditures increased to ¥397.2 billion ($4.8 billion) from ¥318.5 billion in fiscal 2011.

Guidance

For fiscal 2012, Honda has projected revenues to increase 30% to ¥10.3 trillion. Operating profit is expected to jump 168% to ¥620 billion and profits are anticipated to surge 122% to ¥470 billion or ¥260.78 per share. The company expects higher revenues, favorable model mix and effective cost reduction measures to contribute to the increase in profits during the year.

Our Take

Honda is a leading manufacturer of automobiles and the largest manufacturer of motorcycles in the world. It is the second largest automaker in Japan following Toyota Motor Corp. (TM).

The company is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products that incorporate its efficient internal combustion engine technologies ranging from small general-purpose engines to specialty sports cars. Currently, it retains a Zacks #4 Rank, which translates to a short-term (1 to 3 months) rating of “Sell”.

 
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