The third-biggest auto manufacturer in Japan – Honda Motor Co. reduced its annual profit projection for the second consecutive quarter as a result of mounting costs tied to two sets of vehicle recalls.
According to Hondas statement, net income in the financial year ending March is expected to amount to JPY545 billion, down 5.1% from a year earlier, the first year-on-year drop in three years. This was a downward revision from its previous forecast for JPY565 billion and also trailed analysts expectations of about JPY591 billion.
The company said it lowered its profit projections to reflect the decline in sales in Japan and China and an expected increase in quality-related expenses mainly in North America.
Earnings were hammered by recalls related to defective air bags manufactured by its supplier Takata Corp, and the new gas-electric hybrid systems in the Fit compact car and Vezel SUV. Although the air bag withdrawals did not have a strong impact on Hondas sales in the US last year, Executive Vice President Tetsuo Iwamura said that the around four million vehicles recalled in the period from October to December had increased the companys expenses.
The carmaker also reported that net income fell by 15.1% to JPY136.5 billion in the third quarter ended December, slightly trailing analysts projections. Revenue was up 9% at JPY3.3 trillion. The company said it expects to sell 4.45 million vehicles worldwide, 3.7% less than its previous forecast for 4.62 million, attributing the revision to weaker-than-expected sales in the US, China and Japan.
Japanese carmakers have benefited from a weaker yen, with some analysts expecting Toyota to raise its full-year profit forecast when it releases Q3 results on February 4th. Meanwhile, Nissan, which is Japans second-biggest auto maker by sales, but trails Honda in profits, will likely narrow that gap as both Nissan and Toyota were buoyed by stronger sales in the US.
“So far, we are not seeing a decline in North American sales from the airbag issue,” Mr. Tetsuo Iwamura said. “For Honda, the boost (in profits) from the foreign exchange factor was offset by a decline in (car) sales volume, and the increase in quality-related costs led to a cut in full-year profit forecasts.”
Honda Motor Co. Ltd closed 0.78% lower on Friday in Tokyo at JPY3 581 per share, marking a one-year change of -8.25%. The company is valued at JPY6.54 trillion. According to the Financial Times, the 23 analysts offering 12-month price targets for Honda Motor Co Ltd have a median target of JPY4 200, with a high estimate of JPY4 800 and a low estimate of JPY3 100. The median estimate represents a 17.29% increase from the last price of JPY3 581.