Honda Forecasts 71% Profit Drop on Car Sales Plunge

April 28 (Bloomberg) — Honda Motor Co., Japan’s second- largest carmaker, forecast profit will drop 71 percent this fiscal year as the global recession and tighter credit cripples demand for cars.

Net income will drop to 40 billion yen ($417 million) in the year ending in March, compared with net income of 137 billion yen a year earlier, the company said in a statement today. Sales will fall 16 percent to 8.37 trillion yen.

Rising unemployment has hammered sales of Honda’s Civics and Accords in the U.S., Japan and Europe. Still, the Tokyo- based company’s earnings will likely be better than those of Toyota Motor Corp. and Nissan Motor Co. because of its motorcycle unit, the world’s largest.

“Things will start to look better from the second half of the year, but don’t expect consumer spending to be very strong in the U.S.,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $3.1 billion. “Motorcycles are a bit of a plus for Honda.”

Toyota will forecast a net loss of 284 billion yen for the current year, according to the median of 19 analyst estimates compiled by Bloomberg. Nissan will forecast a net loss of 314 billion yen, according to the median of 18 analyst estimates.

Fourth-Quarter Loss

Honda posted a 186 billion yen net loss for the three months ended March, compared with net income of 25.4 billion yen a year earlier, it said.

The carmaker dropped 2.4 percent to 2,600 yen at the close of trading in Tokyo. The shares have increased 36 percent this year compared with a 26 percent gain for Toyota and a 46 percent rise for Nissan.

Honda’s U.S. sales plunged 36 percent in March to 88,379 units, as industrywide sales of cars and light trucks in the U.S. plunged 37 percent. The country’s jobless rate rose to a 25-year high of 8.5 percent last month.

The stronger yen, which gained about 10 percent on average against the dollar last quarter from a year ago, has also hurt Honda’s earnings, as the carmaker traditionally gets more than half its operating profit from North America. The stronger currency cut the company’s fourth-quarter operating profit by 26.8 billion yen.

Dividend Cut

Honda will cut its quarterly dividend to 8 yen a share. For this fiscal year, it will pay a total of 32 yen a share compared with 63 yen last year.

In addition to motorcycle demand, the company is also benefitting from growth in China. Honda’s sales in the country may rise 10 percent in 2009, twice the pace of the overall market, after it introduced revamped City and Fit compacts and Accord sedans, according to Senior Managing Director Atsuyoshi Hyogo.

Honda started selling the new Wave 110i small motorcycle in Thailand in January and will also introduce the model in Indonesia and Vietnam later this year.

Toyota, the world’s largest carmaker, will report earnings on May 8. Nissan, Japan’s third-largest automaker, will report earnings on May 12.

Sourced via bloomberg.com