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Honda Profits Tumble 40%

Maker blames strong yen – but seafood subsidiary’s problems also hurt.

by on Jan.31, 2011

The Honda CR-Z - hurt by a strong dollar and the end of Japanese green car incentives.

Honda saw profits tumble by nearly 40% for the maker’s third quarter, largely due to problems with the weak U.S. dollar, but while sales are down, it upgraded its profit forecast for the full fiscal year, which ends on March 31.

Earnings for the October-December quarter slipped to 81.1 billion yen ($989 million), down from 134.6 billion yen a year earlier.  Quarterly sales of 2.11 trillion yen ($25.7 billion) were off 6%.

The maker has been hammered by a variety of factors, including the shift in exchange rates.  The rising yen has crimped sales in dollar-delineated markets, like the U.S., forcing the maker to either raise prices – and risk losing sales – increase incentives – or hold the line on prices and watch margins tumble.

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But there have been other problems, including a decline in home market sales triggered by the end of Japanese green car incentives.  And Honda’s net took a hit from a fluke problem with a seafood subsidiary that engaged in questionable business practices, last week triggering an apology from senior managers who warned of the impact on third-quarter earnings.  (Click Here for the full story on the seafood subsidiary’s problems.)

As for the full year, Honda now says it anticipates sales of 8.9 trillion yen ($108.5 billion), a 100 billion yen dip from its earlier forecast, but that would still leave it in better shape than in 2009, when the maker closed the fiscal year with sales of 8.58 trillion yen ($105 billion at the current exchange rate).

And despite the downward pressures, Honda actually increased its full-year earnings forecast by about 7%, to 530 billion yen, or $6.5 billion.  That’s about double the 268 billion yen, or $3.3 billion it earned in the fiscal year that closed March 31, 2010.

If anything, Honda expects the yen to continue gaining strength.  A year ago, it was trading at 89 to the dollar, falling to 83 during the company’s fiscal third quarter.  And the maker predicts that will slip further, to 80 during the January-March quarter of 2011.

Nonetheless, the maker is moderately optimistic about the recovery in the U.S. market – and downright bullish about opportunities in the boom markets of China and India.

Japan’s largest automaker, Toyota, and number two Nissan will report their own earnings over the next two weeks.  Nissan recently surged past Honda to become the second-largest of the Asian makers.

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