What To Take From Honda’s Q3 Results?

by Trefis Team
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Honda Motors (NYSE: HMC) recently released its December quarter results. The revenue for the nine months (ended December 2018) for Fiscal year 2019 was ¥11,839 billion ($107.7 billion). The operating margin has been under pressure due to real-term currency effects, one-time issues, and increased raw material prices. However, they are also a bit mitigated by the positive impact of cost reduction efforts, revenue and model mix, and other factors. Overall, we still expect the margin to decline compared to last fiscal year.

 

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The group recorded an increase in volume of sales year-on-year across all segments for the third quarter of Fiscal year 2019. The increase in motorcycle sales was led by countries like Vietnam, Indonesia, and Brazil, while the automobile sector got its growth mainly through the growth in China and Japan. We expect the volumes to have a positive growth in the last quarter of the year, too.

The operating profit has taken a big hit in the quarter with it being 40% less than last year. This has been attributed to the negative impact from the revenue and model mix, an increase in SG&A expenses, and negative FOREX effects despite the positive impact from cost reduction efforts and other factors.

The Financial services business has shown a growth in revenues in the 3rd quarter and the operating margin for the same is the highest in the last 7 quarters. We expect this to continue in the 4th quarter, too. Capital expenditure is expected to remain in the same range as last fiscal year. The company has also downgraded the volume forecast in motorcycles and power products by 3.4% and 1.7%, respectively. The company has increased the forecast earnings per share for Fiscal 2019 to ¥393.99 after the third quarter results.

Overall, Honda has met expectations in the third quarter results and we expect that to continue at the end of the Fiscal year 2019. We expect Honda to have a positive growth in sales while the margins will be a bit suppressed.

 

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