TOKYO -- Honda Motor Co. posted a surprise rise in first-quarter operating profit Wednesday as it weathered a drop in North American sales, and it raised full-year forecasts thanks to a stronger-than-expected dollar.
Robust sales in Europe and Asia, plus a strong performance by its all-terrain vehicles in the United States and motorcycles in Asia, helped Japan's third-largest automaker report considerably better results than many analysts had expected.
"Honda's earnings seemed stronger than expected and proved that the company is now able to generate bigger profits outside the U.S. and Japan," said Takahiro Nakayama, a fund manager at Citigroup Asset Management.
For the year to March, Honda -- overtaken last year by Nissan Motor Co. as Japan's No. 2 carmaker -- raised its operating profit forecast by 20 billion yen to 580 billion yen ($5.23 billion), which would be down 3.4 percent from last year.
"This is mainly a reflection of our strong first-quarter results and partly due to currency rates," Executive Vice President Koichi Amemiya said in a news conference.
Although first-quarter earnings were hit by a 9-yen fall in the dollar's average value to 110 yen from the year before, the exchange rate was more favorable than its 105 yen assumption for the full 12-month period.
Honda now expects the dollar to average 107 yen this year.
Some analysts said the forecasts still looked conservative.
"Their sales volume forecasts, which were not revised up despite some strong results in areas like motorcycles, as well as their currency assumptions, are looking conservative," said Koji Endo, auto analyst at Credit Suisse First Boston.
Operating profit for April through June came in at 159.99 billion yen ($1.44 billion), up 0.3 percent from the year-earlier period.
Net profit grew 12 percent to 114.26 billion yen ($1.02 billion), lifted by profits from China, the world's fastest-growing automotive market. Sales rose 3.2 percent to 2.073 trillion yen ($18.61 billion).
INCENTIVES PRESSURE PROFITS
In the key North American market, however, a drop in Canadian sales weighed. Although U.S. vehicle sales rose, profits were pressured by a hefty increase in sales incentives to an average $840 per vehicle from around $250 in the same period last year.
Due to a dearth of new, high-margin models in the United States until later this year, analysts expect Honda to lag its domestic rivals.
Still, Honda's U.S. retail sales in the year to date are up 1.9 percent, better than a slight fall at General Motors and a 4.3 percent decline at Ford Motor Co.
The Big 3 are upping the ante on incentives, but Honda said its spending would fall to around $450 this quarter after its inventories were adjusted to sufficient levels.
At home, Honda has outperformed most rivals thanks to a string of product launches in the minivan segment, but analysts note sales still lack the pace needed to reach its 800,000-unit target in Japan this calendar year.
Honda's domestic sales for January through June totaled 370,056 units, down 0.8 percent from the year before.
The maker of the Accord sedan will look to offset any shortfall at home and in the United States with robust growth in China, where its main plant doubled capacity this year, and in Europe, where it will add more diesel-powered cars to its lineup.
In more positive news for shareholders, Honda said it would retire 35 million shares on Aug. 23, or 3.59 percent of ordinary shares outstanding. It will also buy back up to 7.5 million shares, or 0.77 percent of those outstanding, between Aug. 3 and Oct. 15, totaling up to 30 billion yen ($269 million).
Rival Nissan Motor Co. will report quarterly results on Thursday and leader Toyota Motor Corp. on Aug. 3.