April 28, 2009 / 6:23 AM / 9 years ago

UPDATE 2-Honda forecasts small annual profit as costs cut

* Q4 operating loss 283 bln yen vs consensus 331 bln yen loss

* Honda profit f’cast contrasts with market expecting loss

* Expects 8.7 pct global sales fall, cutting capex by third

* Sees signs of U.S. auto demand bottoming

* Shares end down 2.4 pct before results (Adds executive comment, detail)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, April 28 (Reuters) - Honda Motor Co (7267.T), Japan’s No.2 automaker, forecast a small profit for the current year as it cuts costs to counter plunging car sales and a strong yen, surprising analysts who were expecting its first annual loss.

Car markers everywhere are being hammered by an acute downturn in demand brought on by the worst financial crisis in generations that has some rivals fighting for their very survival.

Honda has been relatively shielded by its manufacturing flexibility, line-up of fuel-sipping cars and its motorcycle business — the world’s biggest — but it is still burdened by a huge stockpile of unsold cars, especially in Europe.

The company, which until recently made more than half its operating profit in the United States, said it saw signs that demand there was levelling out after driving sales to a near three-decade low.

“The North American region isn’t quite on a recovery track yet, and the support will come from emerging markets. But we’re seeing a bottoming out of the overall U.S. market,” Executive Vice President Koichi Kondo told a news conference.

Risk factors remained, including the fate of Detroit’s Big Three and any impact of the outbreak of swine flu, he added.

Domestic rival Toyota Motor Corp (7203.T), which also relies heavily on the U.S. market, is expected to widen its operating loss this year, while Detroit’s Chrysler and General Motors Corp (GM.N) are finalising plans to reorganise or face bankruptcy. [ID:nN27530348]


Honda, the maker of the Accord and Civic models, reported an operating loss of 283 billion yen ($2.93 billion) in the January-March quarter, compared with a profit of 168.84 billion year ago and a consensus estimate of a 331 billion yen loss in a survey of 23 analysts polled by Thomson Reuters.

Its fourth-quarter net loss of 186.16 billion yen was a stark contrast to the profit of 25.43 billion yen a year ago.

For the financial year to March 31, 2010, Honda expects both an operating profit and a pretax profit of 10 billion yen, narrowly escaping its first loss since the company was founded in 1948.

For a graphic of the world's top automakers by ranking, click here

For a graphic on Honda's earnings and share price, click here


Honda expects its global car sales to fall 8.7 percent to 3.21 million this financial year and is scaling back capital spending by more than a third to 390 billion yen to preserve cash.

Production is also being cut to reduce inventory.

Its UK plant in Swindon is due to remain closed through May, while six factories in North America will also shut down for 13 days starting in May.

Honda is hoping for a big sales boost this year from the new Insight gas-electric hybrid car, although it will face stiff competition from Toyota, which has said it would price its next Prius to compete more effectively with the Insight.

Analysts say performance in the new year will depend largely on how much car sales suffer — or recover — in Honda’s key U.S. and Japanese markets, where the governments are considering cash incentives for consumers to scrap old cars and buy new ones.

Honda expects U.S. sales to slide almost 10 percent this year, with Japan largely flat. European sales are expected to tumble by 17 percent.

The swing in currency rates could also be the difference between a profit or loss.

Honda is assuming a dollar averages 95 yen and a euro averages 125 yen for this financial year, after they averaged 101 and 142, respectively, last year.

A survey of 12 analysts forecast Honda’s operating loss at 93.2 billion yen in the year to March 2010, but some see the company staying in the black if the dollar averages 100 yen.

Shares of Honda have risen 40 percent in the year to date, against a 36 percent rise in Tokyo’s transport sub-index .ITEQP.T.

Before the results were announced, Honda ended down 2.4 percent at 2,600 yen, broadly in line with the main index N225>. . (Editing by Lincoln Feast and Jean Yoon)

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