TOKYO -- Honda Motor Co. posted a better-than-expected 9.2 percent rise in second quarter operating profit thanks to brisk domestic and Asian sales and lifted its full-year forecast by 7 percent.
Honda, which kicked off the earnings season for Japanese car makers on Wednesday, outperformed rivals at home with a slew of new models such as the Elysion minivan, expanding sales by 8 percent in the second quarter from the same period last year.
Operating profit was 172.93 billion yen ($1.62 billion) for July-September, easily beating a consensus forecast of 155.1 billion from 11 brokerages.
Net profit slumped 7.5 percent to 127.12 billion yen after last year's earnings were exaggerated by valuation gains on financial derivatives, while sales rose 3.8 percent to a record 2.094 trillion yen.
"Profitability improved in most segments and on balance the results were mildly positive," said Marc Desmidt, fund manager at Merrill Lynch Investment Managers in Tokyo.
Toyota Motor Corp., the world's most profitable car maker, is expected to report a more modest 4 percent growth in its quarterly operating profit on Monday.
Providing further good news for investors, Honda, Japan's third-ranked car maker, raised its dividend forecast to 56 yen per share for the year to March 31, up 14 yen from last year. It also announced a buyback worth up to 25 billion yen ($234 million) over the next three months to boost per-share value.
Honda warned, however, that the sales environment in the crucial U.S. market was a risk as Detroit's Big 3 continue to pile up profit-eroding incentives to sell their cars.
Honda's North American sales shrank 4.9 percent last quarter, prompting it to lower its unit sales forecast in the region by 5,000 units to 1.56 million vehicles.
"The reality is that industry-wide sales are being supported by incentives," Executive Vice President Koichi Amemiya told reporters. "There's no room for optimism," he said, adding that higher gasoline prices were also gradually taking their toll.
Amemiya said Honda spent an average $500 in sales incentives last quarter and wanted to limit full-year spending to $550.
Incentive levels at General Motors and Ford Motor Co. at the end of September stood at $4,300 and $3,800, respectively, according to Autodata, as they tried to lure customers away from Japanese brands, which have chipped away at the light trucks segment traditionally dominated by Detroit.
Both GM and Ford reported big losses in their core automotive businesses in the July-September quarter.
Honda, also the world's top motorcycle maker, raised its operating profit forecast for the year to March to 620 billion yen from 580 billion and now expects net profit of 447 billion yen instead of 417 billion.
A revision had been expected since Honda traditionally adjusts its forecasts every quarter and it brought its projections more into line with the consensus forecast of a 2004/05 operating profit of 617 billion yen.
Honda altered its exchange rate assumptions for the second half to 107 yen for the dollar from 105 and 130 yen for the euro from 125 yen, against current levels of 106.65 yen and 136.05 yen respectively.
"The result was positive and normally it would be good for the shares," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"But the U.S. presidential elections are coming up and there's uncertainty about the direction of the U.S.'s exchange rate policy, so it's difficult to buy auto stocks at the moment."
Despite a healthy rise in domestic car sales, Honda lowered its sales forecast for the 12 months to March 31 by 30,000 units to 740,000 vehicles in Japan, which nudged its global sales volume forecast down by half a percent to 3.24 million units.
While sales are also expected to be slightly weaker in North America, Honda expects better sales in Europe and Asia. It also lifted its motorcycle sales forecast by 8 percent to 10.025 million thanks to robust demand in Asia.
Auto analysts have warned that a rise in steel and raw material prices could cap industry growth, although the impact may be muted for Japan's car makers this year as the softening dollar is still higher than levels built into most of their forecasts.