Filed under: Earnings reports, Forecasts, Competitive strategy, Marketing and advertising, Toyota Motor Corp. (TM)
Despite a shaky economy where recession concerns deepen everyday, automobile demand is booming for at least one major auto maker. It looks like even in a recession people continue to need cars, and the good times are rolling for automobile maker Honda Motor Ltd. (NYSE: HMC), which reported that its profit rose 38.1% in the third-quarter. For this period, Japan’s second-biggest automakers counted strong sales for its fuel-efficient models in the U.S., Europe and Asia.
Honda’s third quarter profit climbed to 200 billion yen ($1.87 billion), compared with 144.8 billion yen in the same period last year year. Cost-cutting also made the automaker post a record gain in its earnings numbers during the fiscal third quarter.
One of Honda’s ideal competitive advantages is its strong reputation for providing more fuel-efficient cars. Thus, the recent surge in oil prices helped Honda’s sales to jump 10% to 3.045 trillion yen ($28.52 billion).
Analysts saw the company’s quarterly earnings as “spectacular,” but there are still some concerns about Honda’s future gains. One analyst at Credit Suisse, Koji Endo, expressed worries about the auto maker’s fiscal year that starts in April, citing a weak U.S. dollar.
A strong yen also could dampen Honda’s earnings by reducing the value of overseas earnings. According to the Japanese automaker, the dollar is expected to trade at 105 yen in the January-March period, which Endo sees as “tough even for Honda.”
On the other hand, the analyst believes North American automobile sales will continue to gain moderate growth, even during a subprime mortgage crisis.
Looking ahead, Honda anticipates a rise for its global sales. The company now anticipates a profit of 690 billion yen ($6.46 billion) for the fiscal year ending March 31, which is up 16.5% from fiscal 2006. For its sales number, the automaker forecasts an increase of 9.6% from the previous year, but it cut its fiscal year sales outlook to 12.150 trillion yen ($113.82 billion) from an earlier 12.300 trillion yen.
For the next year, Honda intends to create a new hybrid model that runs on gas and electricity, and its sales are expected to reach 200,000 cars a year. The company’s strategy based more on hybrid offerings should help Honda to face strong competition from rivals such as Toyota Motor Corp. (NYSE: TM). Honda also anticipates its sales will grow in South America, and it is planning to expand its production in Brazil and Argentina.
Honda shares are rising 2.9% in early morning trading.
Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.
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