Honda Ups Profits, Lowers Guidance - Analyst Blog
October 30 2012 - 11:40AM
Zacks
Honda Motor Co. (HMC) reported a 36.1% rise in
profits to ¥82.23 billion ($1.06 billion) or ¥45.63 (59 cents) per
share in the second quarter of its fiscal 2013 from ¥60.43 billion
or ¥33.53 per share in the year-ago quarter. However, earning per
share in the quarter lagged the Zacks Consensus Estimate by 33
cents.
Consolidated net sales and other operating revenues in the quarter
appreciated 20.4% to ¥2.27 trillion ($29.27 billion) driven by
higher revenues from the company’s Automobile segment with the
recovery from the impact of twin disaster in Japan in 2011, offset
partially by unfavorable foreign currency translation effects.
Consolidated operating profit jumped 92.1% to ¥100.87 billion
($1.30 billion) from ¥52.51 billion a year ago. The increase was
attributable to higher sales volume, favorable model mix and
positive impact from cost reduction measures, offset partially by
increased selling, general and administrative (SG&A) and
research and development (R&D) expenses, and unfavorable
foreign currency effects.
Segment Results
Revenues in the Automobile segment rose 32.5% to
¥1.77 trillion ($22.76 billion) on a 42.9% increase in unit sales
to 816 thousand, despite unfavorable currency effects. Operating
income was ¥37.14 billion ($478.57 million) in sharp contrast to an
operating loss of ¥29.14 billion a year ago due to higher sales
volume, favorable model mix and positive impact from cost reduction
measures, offset partially by increased SG&A expenses and
R&D expenses, and unfavorable foreign currency effects.
Revenues in the Motorcycle segment dipped 13.3% to
¥309.71 billion ($3.99 billion) due to unfavorable currency despite
higher unit sales. Operating income fell 34.8% to ¥25.40 billion
($327.32 million) from ¥38.93 billion in the same period last year
due to lower sales of exported parts for production from Japan and
unfavorable foreign currency effects, offset partially by lower
SG&A expenses.
Revenues in the Financial Services segment edged
up 3.1% to ¥130.40 billion ($1.68 billion) in the quarter. However,
operating income went down 10.6% to ¥38.28 billion ($493.26
million) from ¥42.83 billion a year ago due to gross residual
losses on leased vehicles.
Revenues in the Power Product and Other slipped
5.9% to ¥64.96 billion ($837.10 million) due to lower revenues in
other businesses and unfavorable foreign currency translation
effects, despite an increase in unit sales. The segment had a
meager operating profit of ¥53.00 million ($683 thousand) compared
with an operating loss of ¥114.00 million a year ago due to an
increase in sales volume and favorable model mix, despite increased
SG&A expenses and unfavorable foreign currency translation
effects.
Financial Position
Honda had consolidated cash and cash equivalents of ¥981.31 billion
($12.65 billion) as of September 30, 2012, compared with ¥1.25
trillion as of March 31, 2012. Total debt amounted to ¥4.01
trillion ($51.71 billion) as of September 30, 2012, translating
into a debt-to-capitalization ratio of 47.7%, compared with ¥4.11
trillion and a debt-to-capitalization ratio of 48.3% as of March
31, 2012.
In the six months of fiscal 2013, Honda’s cash flow from operations
fell to ¥309.81 billion ($3.99 billion) from ¥493.64 billion in the
year-ago period, despite a rise in profits. The decline was
attributable to increases in trade accounts and notes receivable
and inventories as well as a decrease in trade accounts and notes
payable. Meanwhile, capital expenditures increased to ¥282.33
billion ($3.64 billion) from ¥148.10 billion in the first half of
fiscal 2011.
Lower Guidance
Honda downgraded its revenue and earnings guidance for fiscal 2013
due to a negative impact from increased SG&A expenses and
R&D expenses, and unfavorable currency translation effect.
The company has projected revenues to improve 23.3% ¥9.80 trillion,
operating profits to rise 124.8% to ¥520 billion, net profit to go
up 77.3% to ¥375 billion and earnings per share of ¥208.07 for the
year. This compared with the prior outlook of a 29.6% increase in
revenues to ¥10.30 trillion, 168% rise in operating profits to ¥620
billion, 122.2% increase in net profit to ¥470 billion and earnings
per share of ¥260.78 for 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 #3 Rank, which
translates to a short-term (1 to 3 months) rating of Hold and we
have reiterated our long-term (more than 6 months) recommendation
of Neutral on the stock.
(Exchange Rate: $1= ¥77.60)
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