Honda Motors Q2 2018 Earnings Preview

by Trefis Team
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Honda Motors (NYSE:HMC) will report its Q2 2018 results on November 1st and we expect unfavorable currency fluctuations and increased expenditures to impact profitability. The company’s guidance for FY 2018 indicates that operating profit will decline by 16%. In this first quarter of FY 2018, the company registered a 0.9% increase in operating profit compared to the same period in the previous year, despite an increase in selling and general administrative expenses and Forex impact. These results led to a slight increase in the company’s guidance for operating profit for the fiscal year 2018.

While sales in both North America and Japan registered an increase in Q1 2018, the company’s operating profit declined in both these regions due to increasing expenses.

As sales of passenger cars in the U.S. and Japan slow down, China is likely to drive sales for the company in Q2 2018. Below is a summary of Honda’s worldwide production between July and September 2017:

From the above table it can be seen that the company is witnessing strong growth in China, which is likely to become Honda’s biggest market, replacing the U.S.  The softness in the passenger car industry in the U.S. has impacted Honda Motors significantly and this impact is likely to continue in the short term.

Click here to see our detailed analysis for Honda Motors, including the region-wise breakdown of revenues and market share.

Honda’s focus on electric vehicles continues and in September the company unveiled a pure electric concept car which will set the direction for technology and design to be used in Honda’s production vehicles in 2019. (Read A Closer Look At Honda’s New Urban EV(Electric Vehicle) Concept). The company has confirmed that the first vehicle produced using this technology will be launched in Europe in 2020 and subsequently in Japan.

We would be closely watching Honda’s operating performance and its revenues from China in Q2 2018. Our current price estimate for the company is $29.40 which is in line with the current market price.

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