TOKYO - Weighed down by the effects of a stronger yen, sluggish sales overseas and a big loss in Europe, Honda Motor Co. Ltd. said its second-quarter net income fell 8.5 percent from a year earlier to ¥58.1 billion, or about $538 million at current exchange rates.
Revenue dipped about 1 percent to $13.9 billion on a 2 percent decline in worldwide unit sales.
'We had a big impact from the stronger yen in the quarter,' which ended Sept. 30, said Koichi Amemiya, executive vice president.
The results are consolidated, meaning they include profit or losses from most overseas subsidiaries.
Honda generates more than 70 percent of its sales from overseas and more than 50 percent from the United States, so it is especially vulnerable to currency moves. The yen rose 9 percent against the dollar from a year earlier and 21 percent against the euro.
A stronger yen means Japanese carmakers receive less revenue from every dollar or euro taken in from sales abroad.
The weaker dollar and euro cut operating profit by $185.2 million and $138.9 million, respectively, in the second quarter, Honda said.
'I didn't expect the euro to fall like this,' said Amemiya. 'We can't cope with that.'
The currency damage, together with an increase in r&d costs, undermined the company's cost cuts and reductions in marketing expenses, which saved $249 million. Honda estimated that revenue for the quarter would have increased by 4.3 percent had the exchange rate remained the same as a year earlier.
But worldwide vehicle sales also fell in the period: to 606,000, from 618,000 a year earlier. Sales in North America dipped to 306,000, from 311,000, but tumbled 76 percent in Europe to 46,000.
Reflecting the severity of the downturn, Honda posted an operating loss of $170.4 million for its European operations for the first half.
Meanwhile, sales at home inched up to 184,000, from 179,000. In the U.S. market, Honda spent $280 per vehicle in incentives in September, compared with an industry average of $1,660, said Amemiya.
'I can't tell if the U.S. economy is turning into a recession until I see November (sales),' said Amemiya. October sales in the United States were broadly weaker across the industry.
Amemiya said the company expects to sell 130,000 new Civics in the U.S. market for the second half of the fiscal year ending next March 31, compared with sales of 200,000 new and old Civics in the first half.
Honda said it expects to report worldwide net income of $2.04 billion for the year ending March 31, down 16.2 percent from a year earlier. Honda said it expects the U.S. economy to slow and its business in Europe to remain under pressure because of the weak euro.
Overall sales probably will fall 2 percent to $57.6 billion, it said.
But those estimates are better than earlier projections. In May, Honda said it expected consolidated net income to be $1.8 billion on sales of $57.4 billion. The revision reflects Honda's cost cuts in marketing, higher automobile sales at home and in the U.S. market, and the slightly higher dollar against the yen.