Honda's 4th-Quarter Profit Likely Rose 36%, Helped by New Truck

April 25, 2005; Kae Inoue writing for Bloomberg reported that Honda Motor Co., Japan's third- largest carmaker, will probably report fiscal fourth-quarter net income rose 36 percent helped by the introduction of the Ridgeline truck in the U.S. and higher sales in Asia.

Honda's net income will rise to 101 billion yen ($944 million) in the three months ended on March 31, from last year's 74.1 billion yen, according to the median estimate of five analysts in a Bloomberg survey. Honda will report earnings on April 26 at 3 p.m. in Tokyo.

President Takeo Fukui, 60, introduced the Ridgeline truck in the U.S. in February, increasing U.S. truck sales 11 percent in the quarter and taking market share from General Motors Corp. and Ford Motor Co. In China, where Tokyo-based Honda earns more money than any other Japanese carmaker, the company expects sales to rise 23 percent this year, helped by the introduction of the Odyssey minivan.

``Honda is benefiting from selling more light trucks including the Ridgeline, and the Pilot sport-utility vehicle in the U.S. and that's helping their earnings,'' said Atsushi Osa, who helps manage $110 billion at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Honda also has an advantage in Asia, as it has bigger presence than rivals in China.'' He declined to say whether he holds Honda shares.

Sales

Honda's fourth-quarter sales probably rose 7.5 percent to 2.3 trillion yen, according to the Bloomberg survey. Operating profit, or sales minus the cost of goods sold and administrative expenses, likely increased by 9.8 percent to 151 billion yen, while current profit, or pretax profit from operations, probably rose by 28 percent to 136.4 billion yen in the quarter, they said.

Honda shares, which have fallen 1.5 percent this year, rose 0.2 percent to 5,240 yen in Tokyo at 10:10 a.m.

The yen strengthened against the U.S. dollar gaining 2.5 percent to an average 104.52 yen in the January-March quarter, while the yen weakened against the euro, losing 2.3 percent to an average 137.04 yen in the same period.

The carmaker's annual operating profit falls about 12 billion yen for every 1 yen that the Japanese currency strengthens against the dollar, 2 billion yen for every 1 yen gain against the euro, according to Credit Suisse First Boston analyst Koji Endo.

U.S. Production

Honda is expanding production at its Lincoln, Alabama factory, where it builds the Ridgeline, and will run the plant at full capacity, Fukui has said. Honda, which ranks No. 5 in the U.S., will have annual capacity of 1.33 million units in 2005, up from 1.22 million units in 2004. Building vehicles in the U.S. helps shield Honda from currency fluctuations.

``We can expect Honda's profitability to improve further this year as its Alabama factory will be in full operation and as it releases new models,'' including the redesigned Civic compact car, Honda's second-best selling model, said Shotaro Noguchi, an analyst at Mitsubishi Securities Co.

An 11 percent increase in truck sales in the U.S. in the quarter, helped offset an 8.8 percent decline in car sales as the Civic model neared the end of its product cycle. Honda's total sales in the U.S. declined 1.2 percent in the quarter to 308,182 vehicles.

Honda Executive Vice President Koichi Amemiya on Jan. 28 said the automaker would spend $860 million on incentives in the U.S., or $80 million more than it forecast in October, in the 12 months to March as it tries to bolster sales against expanding rivals Toyota Motor Corp. and Nissan Motor Co.

``In the U.S., the compact market is very competitive and all automakers are boosting incentives in that segment,'' Amemiya said. Sales of the Civic compact car, which is in the final year of its model cycle plunged 17.9 percent in the U.S. in the quarter.

Honda plans to add a new small car based on the Fit compact car in the U.S. in 2006 priced at less than $15,000, while Nissan will launch a new small car in 2007.

Full Year

Honda's full-year net income probably rose to 493 billion yen from 426.6 billion yen in the previous year, according to the analyst survey. Honda has forecast full-year earnings of 480 billion yen.

The automaker will probably post its fifth consecutive record earnings in the year ending in March 2006, with net income rising 3.9 percent to 512 billion yen, the analysts said.