TOKYO -- Honda Motor Co. posted a surprise fall in quarterly operating profit on Thursday as sales costs in the United States ballooned, but it lifted its full-year forecasts citing a weaker-than-expected yen.
Japan's third-largest automaker expects record sales this year after a recent revamp for the Civic sedan, its best-selling car after the Accord, but like its rivals it faces intense pricing pressure in the key U.S. market as competitors pile big discounts on SUVs and other gas-guzzling models.
Honda was cautious about the outlook for demand in the United States, but said it expected reduced spending on sales incentives in the second half as its stock of older vehicles dwindles.
"We expect the ratio of incentive spending in the first half versus the second half to be about 6 to 4," said Hideki Okada, general manager of Honda's accounting division.
For the full year to next March, Honda now expects to dish out as much as $1 billion on U.S. sales incentives instead of the $890 million forecast three months ago, but it said the extra outlay was booked in the first half.
Analysts were optimistic about Honda's prospects.
"The U.S. market is caught in a massive storm right now, and Japanese auto makers are naturally going to get splashed a bit," UBS auto analyst Takaki Nakanishi said.
"But Honda will be fine -- if there were worries about a company like that, there's no hope for anyone else," he added.
Honda continues to carve out a bigger slice of the U.S. market at the expense of General Motors and Ford Motor Co., which have reported big quarterly losses as sales declined at home despite massive spending on discounts.
FUEL EFFICIENCY SCORES
Industry watchers said Honda should outpace the industry thanks to its fuel-efficient cars at a time of high pump prices.
"With the rise in crude oil prices, it's very likely that we'll see greater-than-expected demand for fuel-efficient cars," Masaki Iso, chief investment officer at Yasuda Asset Management Co., said.
"The fact that (Honda) raised its top-line forecasts again -- that's pretty encouraging," he added.
Operating profit at Honda, also the world's biggest motorcycle maker, dropped 5.9 percent to 162.69 billion yen ($1.4 billion) in the fiscal second quarter that ended in September, short of the consensus projection of 177.92 billion yen in a survey of seven brokerages by Reuters Estimates.
Domestic rivals Nissan Motor Co. and Toyota Motor Corp. are also expected to report bigger quarterly revenues but limited or no profit growth due to increased U.S. sales costs, as well as higher spending on raw materials and research and development.
For the full year ending in March, Honda raised its operating profit forecast to 675 billion yen from 665 billion yen to reflect stronger dollar and euro assumptions in the second half, at 110 yen and 135 yen, respectively, instead of 105 yen and 130 yen. A weaker yen raises the value of profits earned overseas when repatriated.
Second-quarter net profit, which includes earnings from its Chinese and some other Asian operations, rose 5.2 percent to 133.71 billion yen, against market estimates of 130.29 billion yen mainly due to windfalls from derivatives gains.
Sales grew by 11.7 percent to 2.338 trillion yen on robust sales of the Odyssey minivan in North America and the diesel CR-V crossover in Europe, which made up for a domestic sales decline.
Honda now expects a record net profit of 490 billion yen for the full year, instead of 470 billion yen forecast in July, expecting cost-cutting efforts to absorb an expected rise in raw materials procurement.
Reflecting the rosier outlook, Honda lifted its full-year dividend forecast to 80 yen a share from 74 yen, which is up from 65 yen paid out last year.
GLOBAL SALES FORECAST LIFTED
Honda kept its North American sales forecast for the business year at 1.675 million units, projecting overall U.S. demand at 16.5 million to 16.8 million units.
Worldwide, it lifted its sales forecast slightly by 10,000 units to 3.425 million cars, expecting stronger sales in Europe, Asia and other markets to offset sluggish growth in Japan.
Sales of motorcycles are now expected to grow by 0.8 percent to 10.57 million units, rather than fall.
Japan's second-ranked Nissan will announce its results on Friday, Oct. 28, followed by Toyota on Nov. 4.