TOKYO -- Plunging sales hammered North American profits at Honda Motor Co. in the carmakers fiscal first quarter but werent bad enough to scuttle the companys earnings outlook.
Honda, one of the few automakers still expecting to be in the black this year, lifted its net and operating profit forecasts on the back of cost cuts and slowly improving demand.
But in the quarter ended June 30, North America was the trouble spot, as rising unemployment and tight credit markets discouraged people from visiting dealer showrooms.
Operating profit in North America tumbled 92.5 percent to 7.18 billion yen, or $74.3 million at current exchange rates, from a year earlier.
Regional sales fell 34.6 percent to $10.21 billion (975.7 billion yen).
The North American market is still a weaker than we expected, Executive Vice President Koichi Kondo said today while announcing financial results.
Local earnings were hurt partly by production cuts that boosted fixed costs, he added. Honda has slashed output in the United States to bring production in line with sagging demand.
North America is traditionally Hondas most profitable market. But Kondo said he sees full-year sales continuing their decline and lowered his outlook. Honda now expects its regional sales to fall 13.1 percent to 1.3 million vehicles in the full fiscal year ending March 31, 2010.
Three months ago, Honda was predicting North American sales of 1.35 million.
Kondo said Honda has seen an uptick in orders under the new cash-for-guzzlers incentives. But it is too soon to tell whether the federal scrapping program will have any meaningful effect, he said. Total U.S. volume is likely to be around 10.0 million units this year, Kondo added.
On a global basis, operating profit at Honda fell 88 percent to $263.7 million in the April-June quarter, against a profit of $2.20 billion a year earlier.
But the results beat a consensus estimate for a $1.11 billion loss in a survey of four analysts polled by Thomson Reuters.
Like most Japanese automakers, Honda is expected to see its earnings improve as production volumes return from the low levels posted in late 2008. Thats when sales plunged after the collapse of U.S. bank Lehman Brothers, squeezing the auto loans market and prompting job losses.
Still, most auto executives have yet to see a convincing recovery in demand and are trying to battle a sales decline with cost-cutting as much of the demand in developed markets is artificially supported by government programs to encourage consumption.
In the first quarter ending June 30, Honda posted net income of $79.5 million , compared with a profit of $1.81 billion a year ago.
For the financial year to March 31, 2010, Honda expects an operating profit of $732.6 million and net profit of $575.6 million . In April, it had forecast the profits at $104.7 million and $418.6 million .
The maker of the popular Accord and Fit models lifted its global car sales forecast to 3.295 million vehicles from 3.210 million, for the year to March 2010.
While Honda has fared better than many rivals in Japan and China this year, as government incentives helped sales of its smaller, fuel-efficient vehicles, investors are keen to see signs of a recovery in the United States and Europe, where its sales lag the market with sharp double-digit declines.
Its new Insight hybrid car has sold well at home, but it faces competition in the United States where Toyota Motor Corp.'s new generation Prius has been stealing the show with a roomier, bigger and more fuel-efficient alternative at a deep discount to the previous version.
Honda has deliberately held back shipment of the Insight to the United States to meet robust orders in Japan where the model is more profitable at current currency exchange rates, making it difficult to gauge latent demand in North America.
Shares in Honda have risen 44 percent in the year to date, in line with Tokyo's transport sub-index.
Reuters contributed to this report