TM Toyota Motor Corporation

Honda Motor Co. (HMC) posted a 5.8% rise in earnings to ¥75.8 billion ($805 million) or ¥42.03 (45 cents) per share in the fourth quarter of the fiscal year ended Mar 31, 2013 from ¥71.6 billion or ¥39.72 in the same quarter of prior fiscal year. However, earnings lagged the Zacks Consensus Estimate by 18 cents during the quarter.

Consolidated net sales and other operating revenues grew 14.1% to ¥2.7 trillion ($29.2 billion). The increase was attributable to improved revenues in automobile business operations as production recovered from the impact of Thai flood as well as favorable foreign currency translation effects.

Consolidated operating profit rose 21.4% to ¥136.0 billion ($1.4 billion) from ¥112.0 billion in the fourth quarter of fiscal 2012, driven by a positive impact from cost reduction measures and favorable foreign currency effects, partially offset by higher R&D and SG&A expenses.

Segment Performance

Revenues in the Automobile segment rose 15.8% to ¥2.1 trillion ($22.7 billion) on an 8.5% rise in unit sales to 902 thousand vehicles and favorable foreign currency translation effects. Operating profit surged 71.1% to ¥77.2 billion ($822.0 million), due to positive impact from cost reduction measures and favorable foreign currency effects, partially offset by increased SG&A expenses.

Revenues in the Motorcycle segment scaled up 4.7% to ¥375.4 billion ($4.0 billion), mainly due to favorable foreign currency translation effects. Unit sales rose marginally by 0.3% rise to 2.5 million motorcycles. Operating profit dipped 23.2% to ¥25.2 billion ($268 million) due to lower sales volume and model mix and increase in R&D expenses.

Revenues in the Financial Services segment increased 17.4% to ¥151.5 billion ($1.6 billion) due to an increase in revenues from operating leases and favorable foreign currency translation effects. Operating income rose 13.8%to ¥40.9 billion ($435.0 million) due to a fall in SG&A expenses and favorable currency effects.

Revenues in the Power Product and Other segment escalated 11.9% to ¥81.1 billion ($863.0 million) driven by favorable foreign currency translation effects, despite lower revenues in other businesses. However, unit sales in the segment slid 2.3% to 2.0 million. The segment had a broader operating loss of ¥7.4 billion ($79.0 million) compared with ¥2.0 billion in the prior year, driven by higher R&D expenses.

Annual Results

In fiscal 2013, Honda reported an impressive 73.6% rise in earnings to ¥367.1 billion ($3.9 billion) or ¥203.71 ($2.17) per share from ¥211.5 billion or ¥117.34 per share in the prior year. Consolidated revenues in the year improved 24.3% to ¥9.9 trillion ($96.7 billion), driven by higher revenues from the automobile business with the recovery in production from the impact of the Great East Japan Earthquake and Thai flood as well as favorable foreign currency translation effects..

Consolidated operating profit for the year more than doubled to ¥544.8 billion ($5.8 billion) from ¥231.4 billion in the prior year, driven by an increase in sales volume and model mix as well as positive impact from cost reduction measures, partially offset by increased SG&A and R&D expenses.

Financial Position

Consolidated cash and cash equivalents declined to ¥1.2 trillion ($12.9 billion) as of Mar 31, 2013 from ¥1.25 trillion as of Mar 31, 2012. Total debt amounted to ¥4.9 trillion ($52.4 billion) as of Mar 31, 2013, translating into a long-term debt-to-capitalization ratio of 49.3%, compared with ¥4.1 trillion or 48.3% as of Mar 31, 2012.

In the fiscal year, cash flow from operations improved to ¥800.7 billion ($8.6 billion) from ¥761.5 billion in fiscal 2012, primarily due to higher profits. Meanwhile, capital expenditures increased to ¥626.9 billion ($6.7 billion) from ¥397.2 billion in fiscal 2012.

Guidance

For fiscal 2014, Honda has projected revenues to increase 22.5% to ¥12.1 trillion. Operating profit is expected to surge 43.2% to ¥780 billion and profits are anticipated to jump 58.0% to ¥580 billion or ¥321.81 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) and operates globally like another Japanese automaker Nissan Motor Co. (NSANY). Currently, shares of Honda retain a Zacks Rank #4 (Sell).

While we avoid Honda from investment perspective, Peugeot S.A. (PEUGY) is worth to look for in the same industry with a Zacks Rank #2 (Buy).
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