Higher Sales Volume Drives Honda’s Q1 Results, Profitability Outlook For The Year Increased

by Trefis Team
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Honda (NYSE: HMC) released its first-quarter results and conducted a conference call with analysts on 31st July 2018. The company posted a strong set of quarterly results with its revenue displaying a year-on-year (y-o-y) growth rate of 8.4% and its operating profit displaying a growth rate of 11.2%. The company’s better than expected results in its first quarter was broadly driven by higher volume sales across its product offerings, a better product mix, and decreased SG&A expenses.

Honda reported a 5.8% y-o-y increase in its consolidated automobile sales in its first-quarter driven by higher sales in Japan and North America. The company additionally benefited from the sale of a better product mix, especially in its U.S. market, where the sale of the company’s higher-margin SUVs replaced the sale of its declining sedan variant as the company increased the output of the higher demanded SUVs. Furthermore, the significant rise in the company’s top line was driven by a higher volume of sales of motorcycles which displayed a y-o-y growth rate of 11.4%, driven by increased volume sales in its key markets of Asia, including Indonesia, India, and Vietnam. Honda’s Activa and X-Blade models continued to remain the bestsellers in these markets and drive volume growth.

Honda’s profitability improved as a result of higher volume sales and lower SG&A expenses. This increase was achieved despite negative currency impact and operational disruption encountered by the company due to floods at one of its Mexican facilities. Although the company has reduced its sales volume outlook for the year largely due to the negative production impact as a result of the aforementioned floods, the company has yet increased its full-year profitability estimates. Honda’s full-year profitability is still expected to be lower than FY2018 on a y-o-y basis, however, the company has upgraded its initial operating margin estimates by 10 basis points (bps) for its full-year 2019. This increase is largely due to a less drastic currency impact in comparison its initial estimates. Additionally, the company mentioned that it is not expecting a significant cost impact from the recently imposed tariffs in the U.S. as it manufactures a material quantity of its U.S. volumes in the domestic market itself. Per Bloomberg intelligence, this figure is estimated at around 75% of the company’s total U.S. sales.

Thus, after a strong first quarter, Honda is poised to sustain its current trend in the upcoming quarters. The graph below represents the company’s expected performance in FY 2019. These have been created using our interactive dashboard Honda Motor Company’s 2019 Expected Performance. You can make changes to the modifiable figures to arrive at your own EPS estimate for the company.


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