Honda profit surges 40% on more profitable mix and cost cutting

October 30, 2018 10:34 CET

TOKYO — Honda reported a 40 percent surge in operating profit in the most recent quarter as a more profitable sales mix and aggressive cost cuts offset foreign exchange losses.

Operating profit climbed to 214.4 billion yen ($1.89 billion) in the fiscal second quarter ended Sept. 30, the Japanese automaker announced in its Tuesday earnings report.

Net income advanced 21 percent to 210.7 billion yen ($1.85 billion) in the July-September period. Revenue increased 1.7 percent to 3.84 trillion yen ($33.78 billion), even as worldwide sales declined 3.6 percent to 1.25 million vehicles in the three-month period.

Results rebounded from the same quarter the previous year partly because last year’s earnings were undercut by outlays to cover a class action settlement involving defective Takata airbag inflators. Profits were not burdened by such a charge in the latest quarter.

North America, one of Honda’s biggest profit centers, also bolstered the company’s performance. North America booked a 53.48 billion yen ($470.4 million) regional operating profit in the quarter, reversing a 660 million yen ($5.81 million) operating loss the year before.

Honda was also able to better tap growing demand for higher-margin crossovers.

“As far as our four-wheeler business goes, we have since last year revised our production system in line with the demand of the market in North America, so that we were able to boost light truck sales,” Executive Vice President Seiji Kuraishi said while outlining results.

Improved wholesale volume and mix lifted quarterly operating profit by 78.3 billion yen ($688.8 million). Lower incentives teamed with more profitable financing to fuel the increase.

More aggressive cost cutting boosted results by another 16.2 billion yen ($142.5 million).

Those gains offset the Japanese yen’s appreciation against the U.S. dollar and other currencies. Exchange rates lopped 36.7 billion yen ($322.8 million) off quarterly operating profit.

Group sales in North America slide 5.3 percent to 428,000 vehicles in the quarter, partly because of crimped supply from Mexico. Honda suspended operations at its Celaya assembly plant in June, when it was inundated with water released from nearby dam that had filled to dangerous levels by torrential rain. The spill off caused a river next to the factory to overflow.

The Celaya factory, which opened in 2014, makes the Fit and HR-V as well as engine parts for the Insight assembled at Honda’s factory in Greensburg, Indiana. Honda suspended output of the Insight for several weeks in August because of the component shortage.

Honda resumed partial production at Celaya this month, but the factory will not be back to full production until mid-November. Honda said it expects a sales decline of about 75,000 units.

European sales fell 12 percent to 38,000 units in the three months as regional operating profit tumbled to 236 million yen ($2.08 million), from 2.53 billion yen ($22.3 million) a year earlier.

Citing improved profitability in model mix and stepped up cost reductions, Honda raised its global earnings outlook for the current fiscal year ending March 31, 2019.

Honda now predicts operating profit will fall 5.2 percent to 790.0 billion yen ($6.95 billion). It had earlier forecast a sharper 15 percent drop to 710.0 billion yen ($6.25 billion).

The automaker now expects net income to fall 36 percent to 675.0 billion yen ($5.94 billion). Its previous outlook called for a steeper drop in net income to 615.0 billion yen ($5.41 billion).

Honda kept its full-year global sales outlook steady but tweaked the mix. Sales are still seen expanding 1.7 percent to 5.29 million vehicles in the current fiscal year ending March 31, 2019. But Honda now expects to sell 5,000 more vehicles in Japan and 5,000 fewer vehicles in Europe.

Naoto Okamura contributed to this report

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