TOKYO -- Robust sales in North America and China, along with lower recall costs, powered a 27 percent surge in operating profit at Honda Motor Co. in the latest quarter.
The sales increase and falling costs more than offset huge foreign exchange losses that hammered Honda, and other Japanese automakers, in the three months ended Dec. 31.
Honda also raised its profit and sales forecasts for the current fiscal year, citing a return to more favorable currency rates and higher-than-expected sales in Asia.
In the Japanese carmaker’s fiscal third quarter, operating profit climbed to 207.6 billion yen ($1.78 billion), from 163.0 billion yen ($1.40 billion) a year earlier.
Net income advanced 36 percent to 168.8 billion yen ($1.45 billion), Executive Vice President Seiji Kuraishi said while announcing financial results Friday.
Revenue fell 3.2 percent to 3.50 trillion yen ($29.99 billion) in the three months, hurt mostly by a negative foreign currency effect of translating dollars into Japanese yen.
Global retail sales rose 6.8 percent to 1.3 million vehicles in the fiscal third quarter.
Honda's operating profit was buoyed by stepped-up cost cutting efforts that added 51.9 billion yen ($444.7 million) to the bottom line in the fiscal third quarter.
Lower outlays for recalled Takata airbags also helped. Lower warranty spending and other quality related expenses chipped in another 86.6 billion yen ($741.9 million).
The Japanese yen’s appreciation over the past year is undermining the balance sheets of Japanese automakers. Mitsubishi Motors and Mazda Motor Corp. said swinging currency rates drove huge double-digit declines in operating profit.
Still to report results are Toyota, Nissan and Subaru-maker Fuji Heavy Industries.
But Honda managed to dodge the impact thanks to lower costs and rising sales in the key markets of North America and China. Honda said new models, including the redesigned Civic small car and Ridgeline pick in the United States, helped stoke the rising volume.
Kuraishi said model redesigns not only boost volume but profitability because Honda can cut costs through each model change by introducing more shared parts.
They also require less marketing outlays.
"We have changed the profitability of new models by using common parts and conducting value analysis and value engineering so that we manufacture competitive and attractive cars to boost profitability," Kuraishi said. “As for new models, we ended up postponing advertisements or using less advertisement expenses than initially estimated."
Still, shifting foreign exchange rates cut 82.9 billion yen ($710.2 million) off the carmaker’s quarterly operating profit. Losses came from the Japanese currencies climbed against the U.S. dollar, Thai baht and other currencies. Further losses came from the U.S. dollar’s appreciation against the Canadian dollar and the Mexican peso.
North America and Japan emerged as the main profit centers in latest quarter.
North American regional operating profit more than doubled to 83.77 billion yen ($717.7 million), while sales increased 9.4 percent to 510,000 vehicles, from 466,000 in the same quarter a year before. North America was Honda's most profitable market.
Regional operating profit in Japan nearly tripled to 80.38 billion yen ($688.7 million), as sales in the home market rose 13 percent to 170,000 vehicles.
Honda's European business remained stained with red ink, although Honda narrowed the regional operating loss to 4.64 billion yen ($38.8 million), from a 5.31 billion yen ($45.5 million) loss the year before. European sales stayed flat at 43,000 vehicles.
Looking ahead, Honda lifted its profit outlooks for the current fiscal year ending March 31, 2017. It cited a brighter sales outlook and expectations for more favorable exchange rates.
Revenue is now forecast to decline a less-then-expected 5.5 percent to 13.80 trillion yen ($118.2 billion) It had earlier forecast revenue to drop 8.2 percent.
Honda expects operating profit to jump 60 percent to 785.0 billion yen ($6.73 billion), up from an earlier prediction that called for only a 29 percent increase to 650.0 billion yen ($5.57 billion). Honda also sees net income gaining 58 percent to 545.0 billion yen ($4.67 billion). Its prior outlook targeted net income of just 415.0 billion yen ($3.56 billion).
Honda also improved its global sales forecast.
It now expects its global sales to increase 5.5 percent to 5.0 million vehicles, helped by higher sales in Asia. It had earlier forecast only a 1.3 percent to 4.98 million vehicles.
Naoto Okamura contributed to this article.