Published October 29, 2012
TOKYO – Honda Motor Co <7267.T> cut its full-year net profit forecast by a fifth after sales in China were hit by a popular backlash against Japanese goods, and warned it could be February before business in the world's biggest autos market returns to normal.
The cut, prompted by a slump in sales amid often violent protests in a dispute about ownership of islands in the East China Sea, makes it likely that bigger Japanese rival Nissan Motor <7201.T>, and possibly Toyota Motor <7203.T>, will follow suit when they report quarterly earnings early next week.
"It's likely Toyota and Nissan are going to cut forecasts in the same way. A cut was to be expected because the problems with China weren't factored into forecasts," said Fujio Ando, managing director at Chibagin Asset Management.
Demand for Honda, Toyota and Nissan cars slumped in China in September as tempers flared in the territorial dispute, with South Korea's Hyundai Motor <005380.KS> and Germany's BMW picking up market share. Toyota has said its China sales dropped 49 percent in September.
Sales by Honda and its China joint ventures dropped 40.5 percent last month. China is Honda's second-biggest market after the United States, accounting for 17 percent of 2011 sales.
Honda said on Monday that its two biggest China plants would continue to run on one shift, rather than two, until at least the middle of next month, with output then gradually picking up ahead of Chinese New Year in February - a traditional buying season. It cut its full-year China sales forecast by 17 percent to 620,000 vehicles, but said there would be no change to its investment there. Honda plans to invest $880 million to expand capacity at its plants in Guangzhou and Wuhan over the next few years.
"China is the world's biggest auto market and there's no doubt it will continue to grow. We will continue our current (investment) plan," Executive Vice President Tetsuo Iwamura told a results briefing.
Honda, whose models include the Accord, Fit/Jazz, Civic and CR-V, cut its net profit forecast for the year to March to 375 billion yen ($4.7 billion) from 470 billion yen. Last year, Honda reported net profit of 211.5 billion yen. It also cut its forecasts for annual operating profit and revenue, citing uncertain markets in China, Europe and India.
Shares in Honda - which fell 15 percent to near 9-month lows amid the China protests - ended 4.7 percent lower at 2,399 yen, their biggest one-day fall in nearly 5 weeks.
Honda released its quarterly earnings three hours earlier than planned, after accidentally posting the results on its website. It took down the numbers, but was told by the Tokyo Stock Exchange to bring forward the full announcement, a Honda spokeswoman said.
Net profit for July-September rose 36.1 percent to 82.2 billion yen ($1.03 billion), some way below the average estimate of 107.2 billion yen from six analysts polled by Thomson Reuters I/B/E/S. A year ago, Japanese manufacturers were still reeling from the March earthquake and tsunami.
Honda's quarterly profits were also dented by start-up and advertising costs for the new Accord sedan, which went on sale in the United States in September, but the refresh helped Japan's third-biggest automaker increase its share of the U.S. car and light truck market to 8.7 percent in September.
The fallout from the Japan-China dispute could run into the current and fourth quarters, analysts have warned. Takaki Nakanishi, an analyst at Bank of America Merrill Lynch in Tokyo, said the impact could, at best, last 3 months, and up to 6 months in a pessimistic scenario.
CEO Takanobu Ito, 59, an engineer who took charge three years ago, has set a demanding goal to nearly double global car sales to 6 million in four years. Worldwide production jumped 69 percent in April-September to above 2 million vehicles.
The carmaker on Monday trimmed its full-year global sales forecast to 4.12 million vehicles from an earlier estimate of 4.3 million. It said vehicle sales in July-September rose 47 percent to 996,000.
Toyota and Nissan report their quarterly earnings on November 5 and November 6, respectively.
Last week, Hyundai increased its quarterly net profit by 13 percent to $2 billion, but several European automakers felt the squeeze of the region's debt crisis, with Peugeot accepting state aid and even leader Volkswagen
($1 = 79.5600 Japanese yen)
(Additional reporting by Sophie Knight; Editing by Ian Geoghegan)