Honda (NYSE:HMC) is delivering its earnings for the fourth quarter earnings Friday. The company had a challenging third quarter due to natural disasters and currency impacts. Its supply chain was badly hurt by the earthquake and tsunami in Japan, and Honda was the only company to have its car factory inundated by the historic floods in Thailand. The company reported a 65% fall in profits in the third quarter and had predicted the same drop for the entire year. Despite improving conditions we think that Honda’s results could still be weak from these production issues.
Honda (NYSE:HMC) competes principally in the automobile market with other global car manufacturers such as Toyota (NYSE:TM), GM (NYSE:GM), Ford(NYSE:F) and Hyundai (PINK:HYMLF). Our current price estimate of $44 for Honda’s stock is around 15% above the current market price.
Growth of Motorcycle Business in emerging markets
Honda has, for a few quarters now, seen considerable growth in its motorcycle business in the emerging geographies. Asia, and in particular India and Indonesia, have been particularly bullish for this business of the company.
The company has recently announced the opening of its fourth commercial motorcycle plant in Indonesia to increase its production capacity to 1,100,000 units per annum. The Indonesia motorcycle market has shown a growth of 109% in 2011 and Honda’s joint venture with Astra in the country has managed to increased its sales by 125% last year. Similarly, the company has been stepping on gas in the Indian market to record the second highest monthly sales among all the players in March. Honda’s sales stood at 210,383 vehicles, up 50% compared to same month in 2011. The company has set a target to increase India’s share of its global sales to about 30%, up from 13% currently. (( Announcement of Fourth Motorcycle Plant Construction in Indonesia, Honda, 13 March – 2012 ))
Rise in U.S. sales data
Honda has been trying to revive its sales in the U.S. market and has done a good job in the first two months of the previous quarter. It has improved its line-up by offering a revamped Civic and redesigned CR-V and Accord. The company is also building its new Acura NSX supercar in Ohio that is expected to boost sales.
Last year, Honda’s sales in U.S. had dipped by 6.8% to 1.15 million vehicles mainly on account of weakness in midsize Accord sedan and mid size Civic. In the current year, Honda increased its monthly production in U.S. by 31.5% to record levels of 108,222 units in January and by 38% to 112,791 units in February. This improved performance should augur well for company’s fourth quarter results.