Earnings Review: Honda Posts Strong Bottom Line Growth On Robust North America Performance
Honda Motor (NYSE: HMC) reported results for the second quarter of the fiscal year 2017 (ends with March) on Monday, October 31st. The Japanese auto maker has seen its first half revenue decline by 8.1% in reported Yen terms, but as a result of the appreciation of the yen relative to the dollar, its revenue in reported dollar terms has increased by around 10% for the first half of the fiscal year. Moreover, the company has seen its operating margin expand by 180 basis points for the first half of the year resulting in a 34.1% increase in reported Earnings Per Share (EPS) for the first half of the year.
Overall, the company has seen its new vehicle sales grow by 6.3% in the first half of fiscal 2017 compared to the first half of the previous fiscal year. This has happened despite a 4.1% decline in unit sales in Japan, the company’s second biggest market. Honda’s performance in North America has been decent considering the decline in passenger car market in the region. Traditionally, Honda has dominated that market with its sedans Accord and Civic. Through the first nine months of the year, Civic sales have increased by 13.6% on the back of the launch of a new model, while Accord sales have declined by 2.3%. This is an especially strong performance by the company in a market that has declined by 8.7% on a year to date basis. Honda also has one of the top selling SUVs in the U.S. car market with the CR-V, but in general it is under represented in this segment and pick-up trucks, the two segments driving growth in the slowing U.S. auto market.
Going forward, the company has downgraded its full year revenue forecast to 13,400 billion Yen, a decline of 350 billion compared to the previous forecast. This suggests that the company expects pricing difficulties. In the first half of the year, its average transaction price has declined slightly and given the impending removal of the 5% sales tax in China and weak economic conditions in Europe, and emerging markets in Asia and South America, transaction prices are likely to trend downward. Fortunately for the company, it expects to be able to cut costs faster than transaction prices decline and forecasts its operating margin to expand to 4.9% for the full year compared to 3.4% in the previous year.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor
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