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Honda Profits Soar 72% in 2018; Maker Predicts 2019 Drop

Declining sedan sales, stronger yen and dollar to crimp 2019.

by on Apr.27, 2018

Honda's concerned about the falling sales of sedans in North America, and it predicted falling profits in 2019.

Honda Motor Co. gaveth with its fourth-quarter and full-year earnings report and it tooketh away with its 2019 forecast. The Japanese automaker reported a 12% jump in its quarterly profit while its full year profits soared 72% due to changes in U.S. tax policy.

For the final quarter, Honda reported a profit of 107.7 billion yen, or $988 million, up from 95.9 billion yen a year earlier. Revenue for Q4 was 3.9 trillion yen, or $36 billion, an improvement of 4%. For the full year, the company saw profits of 1.06 trillion yen, or $9.7 billion, on revenue of 15.3 trillion yen.

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The company sold nearly 5.2 million vehicles around the world for the fiscal year, up from 5 million the previous fiscal year. The result was just slightly short of its forecast of 5.22 million vehicles.

However, as quickly as the company spread good news, it threw a wet blanket on next year’s expectations. Revenues are expected to rise 1.6%, but the company predicted a 16% drop in operating profit to 700 billion yen, or $6.40 billion, for the year to March 2019.

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The Honda CR-V has helped the company keep up with the shift away from sedans and toward SUVs.

But it’s projecting annual profit to skid by about half to 570 billion yen, or $5.2 billion, a 46.3% decline, because of a stronger dollar, which erodes revenue for Japanese exporters too.

Analysts estimates called for an increase in profits, but Honda officials believe the company will be impacted substantially by currency fluctuations, particularly a stronger yen.

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“Last year our forex rate was 111 yen and this year we are expecting 105 yen, so we’ll feel a big currency impact from exports of auto parts and finished vehicles,” Honda’s senior managing director, Kohei Takeuchi, told reporters at a briefing.

A strong yen cuts into profits repatriated from abroad as well as raising the costs of exported vehicles and components, decreasing profit margins. Additionally, Honda’s largest market is North America and sales of sedans — a mainstay of Honda’s product portfolio — are dropping and that’s expected to further crimp profits.

(Honda a winner in best-for-families awards. Click Here for more.)

Honda expects slightly higher sales in Asia where its sales have doubled during the past five years, led mainly by China. Overall, the company expects to sell more vehicles in FY2019, predicting sales of 5.4 million units worldwide.

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