Honda Triples Annual Profit Forecast

Points to cost cuts and government subsidies for fuel-efficient cars

Honda Motor, Japan's number two automaker, raised its annual profit forecast almost threefold on Oct. 27 on the back of cost cuts and government subsidies for fuel-efficient cars.

The company now expects a net profit of 155 billion yen (US$1.7 billion) for the year to March 2010, up 13.1% from the previous year and much better than a previous projection of 55 billion yen. Annual revenue was expected to slide 15.6% to 8.45 trillion yen.

The brighter profit outlook came despite a tough second quarter, when Honda's net earnings plunged 56% year-on-year to 54 billion yen.

Quarterly revenue dropped by 27.2% in the three months to September on the year to 2.06 trillion yen, hit by weak car sales and a stronger yen. Operating profit plunged 56%to 65.5 billion yen.

Honda, which announced in December its shock withdrawal from Formula One due to the credit crunch, said the outlook for the massive U.S. market was murky. "The U.S. economy's slide is seen to be ending," said Honda vice president Koichi Kondo.

But so far in the second half "we don't think that economic conditions have improved as much as we had earlier expected. We hope that by the middle of next year things will look up," he said.

Auto sales in several key markets, including the U.S., Japan, Europe and China, have been supported by government stimulus measures, but these are expected to come to an end in the coming months, he said. When that happens "we expect the backlash to be quite big," he said.

Honda said it had sold 838,000 automobiles worldwide in the second quarter, marking a decrease of 10.4% from the same period of last year. Sales, however, picked up in Japan thanks to tax breaks and government incentives for people to buy fuel-efficient cars.

Demand also grew in China and India, which have been less badly hit by the global slowdown than major Western economies

For the full year to March Honda expects to sell 3.40 million automobiles, down from about 3.52 million the previous year.

The company is expanding its line-up of fuel-sipping hybrids, and earlier this year rolled out a revamped model of its flagship Insight. Like other Japanese carmakers, Honda is pinning hopes on sales of less-polluting cars to help it recover from the fallout of the global downturn.

It was the only one of Japan's top three automakers to post a profit for the financial year to March 2009, outperforming Toyota and Nissan which suffered heavy losses.

For the six months to September, Honda posted a net profit of 61.5 billion yen, down 79.2% from a year earlier.

Operating profit plunged 74.8% on the year to 90.7 billion yen as revenue slid 28.7% to 4.06 trillion yen.

Kondo said that the strong yen was having a significant impact on earnings. "If this continues, we may need to shift production" outside Japan, he said.

Copyright Agence France-Presse, 2009

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