TOKYO – Honda Motor Co. reported a 2.1 percent decline in operating profit in the latest quarter as falling sales, higher r&d outlays and swinging foreign exchange rates hit earnings.
Operating profit slipped to 166.6 billion yen ($1.53 billion) in fiscal third quarter ended Dec. 31, Honda said Friday in its earnings report.
Net income fell 31 percent to 116.4 billion yen ($1.07 billion) in the three-month period, partly because the company was hit by higher income tax expenses in the U.S.
Revenue decreased 5.7 percent to 3.75 trillion yen ($34.4 billion), as worldwide sales retreated 11.4 percent to 1.25 million vehicles in the October-December quarter.
Despite the downturn in operating profit, Honda raised its full fiscal year profit outlook, citing a return to more favorable foreign exchange rates and better-than-expected sales in Japan. But the company still expects global sales to decline 6.4 percent this fiscal year.
North America, Honda’s biggest second-biggest market after Asia, was the automaker’s biggest profit engine in the three months to Dec. 1. Regional operating profit more than doubled to 101.7 billion yen ($932.6 million) in the period, even as regional unit sales declined.
North American sales declined 4.8 percent to 474,000 units in the quarter.
In the key U.S. market, Honda notched a 0.2 percent sales increase in 2019, even as total demand fell 1.2 percent. Rivals Toyota, Nissan and Mazda, posted bigger declines than the market.
Although Honda’s U.S. passenger car sales fell, it achieved a 2.9 percent sales increase in higher-margin light trucks, tapping big demand for the Honda CR-V and HR-V crossovers. The CR-V alone booked monthly sales records in October and November, Honda said.
The addition of the Passport crossover to the lineup also bumped up business.
Honda is under-represented in light trucks compared to the overall U.S. market. They accounted for about 56 percent of American Honda’s total volume in 2019. Industrywide, crossovers, pickups, vans and SUVs comprised about 72 percent of total U.S. sales.
And that is just fine with Honda for the time being, Executive Vice President Seiji Kuraishi said. Honda will keep the production schedule roughly in lineup with the current mix.
“We don’t have any plans to change the lineup drastically,” he said.
But Honda is also turning to incentives more than before.
In the October-December period alone, average spiff spending on Honda and Acura brand cars by American Honda Motor Co. increased 20 percent and to $2,493, although the outlays were still well below the industry average of $4,123 per vehicle, according to figures from Motor Intelligence. Average industry outlays increased 11.0 percent in the quarter.
European sales fell 14.6 percent to 35,000 units in the quarter as the regional operating profit declined 8.4 percent to 1.2 billion yen ($11.0 million).
Global results were undercut by uncooperative foreign exchange rates.
The yen’s appreciation against the U.S. dollar and other currencies cut 40.0 billion yen ($366.8 million) off quarterly operating profit. An increase in r&d spending, to the tune of 35.2 billion yen ($322.8 million), also dented profits, as Honda ramped up investment in next-generation technologies such as electrification.
Honda aims to increase r&d spending 4.9 percent to 860.0 billion yen ($7.89 billion) this fiscal year. The investment in future technology will account for 5.7 percent of its expected revenue.
Looking ahead, Honda lifted its forecasts for the current fiscal year ending March 31, 2020.
Honda now predicts operating profit will increase 0.5 percent to 730 billion yen ($6.69 billion), rather than decrease 5 percent as forecast in November. Net income is now expected to fall only 2.5 percent, rather than the steeper 5.8 percent decline Honda earlier predicted.
Global sales are seen falling 6.4 percent to 4.98 million vehicles. That too is better than Honda’s earlier expectation for a 6.5 percent decline to 4.975 million units.
Honda predicted that North American sales will decline 4.6 percent to 1.865 million vehicles in the current fiscal year, while European sales fall 20 percent to 135,000 units.