Honda Profits Up on Costcutting Justin Sullivan/Getty Images

Honda Profits Up on Cost-cutting

Sales dropped on-year for the six months to September owing to the stronger Japanese currency,but an increase in global vehicle sales and savings from cost-cutting, including accounting changes to its pension program, helped stem the impact.

Honda Motor Co. (IW 1000/19) said on Oct. 31 that  its cost-cutting efforts boosted profits even as overall revenue slumped, allowing it to upgrade annual profit forecasts in the face of a higher yen.

Sales dropped on-year for the six months to September owing to the stronger Japanese currency, the company said.

But an increase in global vehicle sales and savings from cost-cutting, including accounting changes to its pension program, helped stem the impact.

Tokyo-based Honda said it now expects a net profit of 415 billion yen (US$3.96 billion) for the full year to March 2017, up from an earlier estimate of 390 billion yen.

The fresh estimate marks a 20.5% jump from the firm's net profit in the year to March 2016.

The upgrade, however, fell short of the 491.8 billion yen average forecast by 20 analysts compiled by Bloomberg News. Honda also upgraded its operating profit forecast.

"The yen's strength remains a major factor to squeeze earnings in the Japanese auto sector," Shigeru Matsumura, analyst at SMBC Friend Research Center, said before the announcement.

A higher yen eats into exporters' bottom lines by making their products relatively more expensive overseas, while reducing the value of their overseas earnings when repatriated.

It said the scandal at supplier Takata, whose defective airbags are linked with at least 16 deaths in the industry's biggest-ever safety recall, impacted its earnings but that it could still not yet provide a full accounting. Honda is Takata's biggest airbag customer.

Honda's net profit for the first six months rose 12.1% from the same period in 2015 to 351.8 billion yen. Operating profit jumped 22.5%.

Revenue, however, fell 8.1% to 6.7 trillion yen and its latest forecast sees it hitting 13.40 trillion yen for the year, down from a previous projection of 13.75 trillion yen.

Sales volume for vehicles in the key North American market, Europe and Asia all rose, but Japanese sales continued to fall, Honda said.

The increased profit and higher forecasts came as Honda recovers from damage to factories in the southern Kyushu region of Japan, which was hit by two strong earthquakes in April that killed some 50 people.

Copyright Agence France-Presse, 2016

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