Honda Profit Rises 19% on Strong China Sales

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Honda Motor Company (NYSE: HMC) boosted its full-year profit guidance after its net income rose 19%, to 207.3 billion yen ($1.87 billion), in the quarter that ended on June 30 on strong sales in China and other Asian markets.

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Honda earnings: The raw numbers

Like many Japanese companies, Honda's fiscal year begins on April 1. The quarter that ended on June 30, 2017 was the first quarter of Honda's 2018 fiscal year. 

Metric Q1 Fiscal 2018 Q1 Fiscal 2017 Change
Revenue 3,713.0 3,471.7 7%
Automobiles sold (thousands) 1,267 1,213 4.5%
Operating profit 269.2 266.8 0.9%
Operating profit margin 7.3% 7.7% (0.4) ppt
Net profit 207.3 174.6 18.7%
Yen per U.S. dollar, average during period 111 108 3 more yen per dollar

How Honda's business lines performed during the quarter

Honda has four business units: automobiles, motorcycles, "power products" (including tractors, generators, and lawn equipment), and financial services. 

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Honda attributed its 7% year-over-year increase in revenue to strong results from its motorcycle and financial-services units, as well as positive exchange-rate movements. Its operating profit rose 0.9%, it said, on that revenue gain, a stronger "mix" of vehicle models sold, and cost-reduction efforts. 

Honda also noted that its results in the year-ago period were negatively impacted by the effects of the Kumamoto earthquake. 

  • Automobiles generated 140.3 billion yen in operating profit, down 24% from a year ago. Operating margin was 5.3%, from 7.3% in the year-ago period. Honda's sales of automobiles grew 4.5% in the quarter on increased sales in China and Japan, but that gain was offset by a year-over-year decline in more profitable sales in North America. Honda rolled out an all-new version of its Odyssey minivan in North America during the quarter. An all-new version of its huge-selling Accord sedan will arrive this fall. 
  • Motorcycles generated 78.8 billion yen in operating profit, up over 150% from a year ago, with a very strong 15.5% margin. The gain was driven by an 8% gain in sales, to about 4.7 million units. Sales rose in Japan, North America, Europe, and Asia, but fell slightly in the rest of the world. 
  • Power products generated 100 million yen in operating profit, down from 400 million yen a year ago, on increased expenses despite a 2.7% increase in revenue, to 83.1 billion yen. Its operating margin was 0.2%.
  • Financial services generated 49.8 billion in operating profit, down 1.4% from a year ago, due to an increase in administrative expenses, Honda said. Its operating margin was 9.2%.

Honda's automotive operating margin of 5.3% was thinner than those of rivals Ford Motor Company (NYSE: F), at 5.9%, and General Motors (NYSE: GM), which reported a strong 10% margin in its continuing businesses for the same period. Honda arch-rival Toyota reports earnings on Friday. 

Looking ahead: Honda boosted its full-year guidance

Honda boosted its financial forecast for the fiscal year that will end on March 31, 2018, as follows:

  • Revenue of 14,500 billion yen, up 300 billion yen from the prior forecast (fiscal 2017 result: 13,999.2 billion yen).
  • Operating profit of 725 billion yen, up 20 billion yen (2017: 840.7 billion yen).
  • Operating margin of 5% is unchanged from the earlier forecast (2017: 6%).
  • Net income of 545 billion yen, up 15 billion yen (2017: 616.5 billion yen). 

Honda's sales forecast is unchanged from its earlier guidance. It still expects to sell about 5.08 million automobiles and 18.77 million motorcycles in fiscal 2018, up from 5.03 million and 17.66 million, respectively, in fiscal 2017.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.