A Weak Yen & Strong North American Performance Lift Honda’s Profits

-12.84%
Downside
37.23
Market
32.45
Trefis
HMC: Honda Motor logo
HMC
Honda Motor

Honda Motors (NYSE:HMC) reported strong fourth quarter and full year earnings. Total revenues for the fiscal year ended March 31 jumped 24% to 9.87 trillion yen ($100 billion) as the automaker recovered strongly from the lows seen in 2011/12 post the tragic Japan tsunami. Honda’s net income soared 73.6% to 367 billion yen ($3.7 billion). The automaker’s profits were helped by an impressive performance in North America combined with the yen depreciation. For the full year, Honda sold 4.01 million vehicles or 29% more than the previous fiscal, and it expects to sell 10% more cars in fiscal 2014. [1]

The company’s profit guidance for the next fiscal (April’13-March’14) at 580 billion yen is pretty aggressive. It takes into account the positive impact of a weak yen. For fiscal 2014, Honda expects an exchange rate of 95 yen to a dollar as opposed to 84 yen in the trailing twelve months. The election of Mr. Shinzo Abe in December along with the recent appointment of Mr. Haruhiko Kuroda as governor of the Bank of Japan has caused the yen to fall more than 20% against the greenback.

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See our complete analysis for Honda stock here

North America Surges On

Honda continues to perform strongly in North America, its biggest market by unit sales. The refreshed versions of the Accord, the Civic and the CR-V were a hit with the American customers. Unit sales in the trailing twelve months rose 30.8%. North America sales now account for more than 40% of its total sales.


Besides the effect of a weak yen, North American margins could get a boost from higher sales of the more profitable Acura brand. In order to reinvigorate its Acura brand, Honda is pumping in $1 billion which will see the automaker launch an array of refreshed models such as the RLX, the MDX sport wagon and the NSX super sports car. Although the luxury divisions often don’t make the headlines in terms of unit sales, their fatter margins make them an indispensable segment for the company. Acura sales are already up 15% through March in the United States. [2]

Asia Rebounds

Meanwhile, the company was able to grow its sales in Asia as a strong recovery in Thailand more than offset the Chinese woes. Sales of Japanese automakers have severely suffered in China in the last six months due to a wave of anti-Japanese sentiment. Unit sales were up 34% in the region. Asian sales last year were affected by a shortage of production caused by the Thai floods.

In emerging economies, Honda plans to boost sales by strengthening its portfolio of smaller cars to appeal to the more price sensitive customers. The newer version of Fit (or Jazz as it is called in some countries) will be launched next year. A new SUV and a refreshed City (sold outside North America), both of which will share a common platform with the Fit, will also be rolled out.

We have a $42 price estimate for Honda Motors, but we are in the process of revising our estimates to incorporate the latest earnings.

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Notes:
  1. Honda Motors Investor Relations []
  2. Acura USA March 2013 Sales Results, April 2, 2013, acuraconnected.com []