Earnings Preview: Honda Set To Close Out FY 2017 Strongly
Honda Motor Co. (NYSE: HMC) is set to report earnings for the fourth quarter of the fiscal year 2017 on Friday, April 28. The Japanese auto maker had an excellent close to 2016 and has continued its momentum into the fourth quarter. In the previous quarter, Honda saw its automobile sales grow by 6.8% compared to the same period in the previous year. The company increased new unit sales in Japan, North America, and Asia (excluding Japan). However, this increase in unit sales only translated into a 3.7% decline in reported sales in Yen terms. But as the yen appreciated relative to the U.S. dollar, the revenue in dollar terms increased by 7.8%. Overall revenue in dollar terms increased by 8.3%.
In 2016, Honda saw its sales grow by 4.1% year over year. Most of this growth came from the 27% growth in sales of light trucks even as sales of sedans grew by only 0.6% and SUV sales declined 0.5%. The 0.6% growth in sedan sales is remarkable as the passenger car market declined by 8% in 2016. So far this year, among the group of auto companies that sell around or over a million units per year in the U.S., Honda and Nissan are the only two companies to have reported a strong growth in sales on a year over year period. This despite the sales of Honda’s luxury brand Acura which have declined by 16% so far this year.
Sales of Honda’s two highest selling passenger cars Civic and Accord have declined by 6.5% and 9.4% so far this year. However, sales of Honda’s two highest selling SUVs, CR-V and HR-V, have increased by 32.9% and 26.9% so far this year. This reversal in Honda’s SUV sales trend is highly encouraging for the company as SUV sales are much more profitable than sedan sales. Along with over 9,000 uni sales of the truck Ridgeline, they have been responsible for the overall growth experienced by the company so far this year. Still somewhat worryingly for the company, sales of their commercial vans such as Pilot and Odyssey have declined in double digit rates so far this year.
In contrast to the U.S. auto market, the Japanese auto market has been weak for a while now. Japan has an aging population and new car sales have declined for a few years now. Honda has seen its sales decline in the country over the past few quarters. Honda’s strength in product quality and marketing has seen it take a strong position in some other markets such as China and India, and as a result the company is expected to post close to double digit growth in its international segment for the coming few years. This means that the company’s strong performance in North America, the strength of the Yen, and the growth in international markets should translate into higher profits for the company.
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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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