Honda Motor Co. (NYSE:HMC) posted a 40% decline in profit, reaching ¥81.12 billion ($995 million) or ¥45.01 (55 cents) per share in the third quarter of its fiscal 2011 from ¥134.63 billion or ¥74.19 per share in the same quarter of prior fiscal year. The fall in profit was attributable to decrease in automobile unit sales in all the regions, except North America.
Consolidated net sales and other operating revenues in the quarter slipped 6% to ¥2.11 trillion ($25.90 billion) on the back of unfavorable currency translation and lower automobile sales in Japan, despite increased revenues from the motorcycle business in the Asian countries. At constant exchange rates, Honda’s revenues decreased 0.8%.
Consolidated operating profit ebbed 29% to ¥125.65 billion ($1.54 billion) from ¥176.97 billion. This was attributable to increased selling, general and administrative (SG&A) and research and development expenditures as well as unfavorable foreign currency exchange movements that more than offset the positive impact from better model mix and ongoing cost reduction measures.
Sales in the Automobile segment shrank 6.5% to 855,000 units. In Japan, sales decreased 33% to 118,000 units. Outside of Japan, sales were flat at 737,000 units as higher sales in North America offset the lower sales in Europe.
Revenues from external customers in the segment dipped 8% to ¥1.61 trillion due to lower sales volume and unfavorable movements in currency exchange rates. Operating income was ¥68.4 billion, a 38% decrease from ¥110.43 billion in the same period last year, due to the above-explained factors affecting the consolidated operating income.
Sales in the Motorcycle segment grew 22% to 2.90 million units, driven by sales outside of Japan, particularly in Asia and Other regions including South America. In Japan, sales rose 35% to 46,000 units. Outside of Japan, sales appreciated 21.5% to 2.85 million units due to the same reason.
Revenues from external customers escalated 10% to ¥302.0 billion. Operating income almost doubled to ¥29.13 billion from ¥15.86 billion a year ago.
Revenue from Financial Services segment slid 10% to ¥136.44 billion due to unfavorable currency translation effects. Operating income fell 17% to ¥44.60 billion from ¥53.66 billion a year ago.
Honda Power Product and Other segment sales went up 16% to 1.16 million units. In Japan, sales rose 28% to 96,000 units. Outside of Japan, sales increased 16% to 1.07 million units, due to higher unit sales.
Revenues from sales to external customers in the segment inched up 2% to ¥68 billion due to higher sales volume, offset partially by unfavorable currency translation effects. The segment reported a narrower operating loss of ¥2.08 billion in the quarter compared with the year-ago level of ¥2.97 billion due to higher sales volume and favorable product mix, despite higher SG&A expenses.
Consolidated cash and cash equivalents was ¥1.16 trillion as of December 31, 2010, compared with ¥1.12 billion in the year-ago period. Long-term debt amounted to ¥2.98 trillion as of the above date, translating into a long-term debt-to-capitalization ratio of 40%.
In the first nine months of the fiscal year, cash flow from operations fell to ¥765.63 billion from ¥1.21 trillion in the year-ago period, despite an improvement in income. Some of the factors that led to the decline in cash flow were a fall in equity in income of affiliates, a decrease in dividends from affiliates, an increase in provision for credit and lease residual losses on finance subsidiaries-receivables, a decline in trade accounts and notes receivable, a rise in inventories and an increase in trade accounts and notes payable.
Meanwhile, capital expenditures reduced to ¥204.19 billion from ¥296.46 billion in the comparable period of 2009.
Honda, a Zacks #3 Rank (Hold) stock, has lowered its revenues guidance for the full fiscal 2011 based on lower outlook for unit sales in all the segments. However, the company has upgraded the outlook for operating profit, profit and earnings per share.
For the full fiscal year 2011 ending March 31, 2011, Honda projected a 3.7% increase in revenues to ¥8.9 trillion compared with the earlier projection of a 4.9% increase in net sales and other operating revenues to ¥9 trillion ($108.59 billion).
Unit sales are expected to rise by 1.9 million motorcycles to 11.54 million motorcycles in the Motorcycle segment; 188,000 vehicles to 3.58 million vehicles in the Automobile segment; and 866,000 components to 5.61 million components in the Power Product and Other segment.
These compared with the earlier guidance of a rise in unit sales by 1.19 million motorcycles to 11.49 million motorcycles in the Motorcycle segment; 233,000 vehicles to 3.62 million vehicles in the Automobile segment; and 821,000 components to 5.57 million components in the Power Product and Other segment.
Operating profit expected to increase 70.4% to ¥620 billion compared with the earlier projection of an increase of 37.4% to ¥500 billion. The net profit is anticipated to grow 97.5% to ¥530 billion compared with the earlier guidance of an 86.3% rise in profit to ¥500 billion. Earnings per share are expected to be ¥293.41 compared with the earlier outlook of ¥276.80.