Honda Motor Profit Forecast Falls Short on Yen Appreciation

(Bloomberg) -- Honda Motor Co., which until last year was the fastest-growing car brand in China, gave a full-year profit forecast that trailed analysts’ estimates on a stronger yen as it halted sales of its popular CR-V crossover in the world’s largest vehicle market.

Operating profit will probably fall to 700 billion yen ($6.4 billion) in the year ending March 2019, from 833.6 billion yen last year, the company said in a statement Friday. Analysts predicted 870.8 billion yen, according to the average of 19 estimates compiled by Bloomberg.

The local currency’s 7 percent gain against the dollar since the end of 2016 has made Japanese products less competitive in overseas markets, denting sales. The temporary stoppage in CR-V sales is also a setback for Honda, leaving it without its top-selling model in what has been the company’s fastest-growing major market in terms of volume for at least three straight years. The carmaker announced the suspension on March 2 and said it’s working on a solution to address an engine problem.

Honda is the first of the three major Japanese carmakers to give its full-year forecast. Toyota Motor Corp. and Nissan Motor Co. are scheduled to announce their numbers next month.

The Tokyo-based automaker announced a plan to buy back 1 percent of its shares for 70 billion yen. The stock has declined about 2 percent this year following a 13 percent rally in 2017. The current year’s forecasts are based on an exchange rate of 105 yen to the dollar, compared with 111 last year.

Electrified Models

Beyond the recall hurdle, Honda is boosting production capacity to meet increasing demand in China. The company said this week it plans to introduce more than 20 electrified models in the country by 2025 as it competes with global rivals for a pole position in new-energy vehicles.

Honda first disclosed its recall plan for the CR-V equipped with a 1.5-liter turbo engine on Feb. 12, after consumers in northern China complained about a spike in engine-oil level on short trips in cold weather. The company intended to fix the glitch with a software update, but the recall plan was deemed insufficient by China’s authorities, triggering a voluntary halt in sales by Honda.

The carmaker will find a satisfactory fix to the CR-V issue and make up for temporary drop in sales in China, Chief Operating Officer Seiji Kuraishi told reporters on Friday.

Honda’s sales tumbled 13 percent in the first three months of 2018 in China, its largest market after the U.S. The company sold 187,641 CR-Vs and 176,457 Civics in China last year, the two best-selling models. Both cars are produced at a joint venture with Dongfeng Motor Group Co.

Other highlights from Honda’s report:

• Full-year net income to plunge by 46% to 570 billion yen
• Yen strength dented current FY forecast by 207 billion yen

To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net, Nao Sano in Tokyo at nsano3@bloomberg.net.

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Ville Heiskanen, Sam Nagarajan

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