Honda's Sales Up, Profits Down

The Daily Auto Insider
Thursday, July 28, 2005
July 2005


Honda said its profits fell by three percent for the first fiscal quarter despite a surge in auto sales to a record high, the Associated Press reported. Group net profit for Honda Motor Co. for the quarter ended June 30 totaled 110.6 billion yen, or $983 million, down from 114.2 billion yen for the same period the previous year. Sales for the quarter totaled 2.26 trillion yen, or $20 billion, up 9 percent from 2.07 trillion yen a year ago, the AP said.

Although cost cuts helped boost Honda's profit, higher administrative and research expenses and losses from financial instruments caused by a drop in long-term interest rates reduced the company's income, it said.

Honda's sales in North America grew seven percent to 420,000 vehicles. It sold 167,000 vehicles in Japan for the first quarter, up eight percent from the same period a year ago. It sold 673,000 vehicles abroad, up nine percent from 2004, the story said.

Notice the cost cuts that was mentioned and still a loss... Interesting that they can sell a record amount of car and make less money.


So what does this mean to those of you who are planning to buy soon... Who knows since they have been moving the inventory but making less profit. I smell a price increase...

 

Notice the cost cuts that was mentioned and still a loss... Interesting that they can sell a record amount of car and make less money.

Wait until others report their numbers. Overcapacity and price cutting by GM and Ford have ramped up competition. Not hard for profits to go down on increased sales. They, like everyone else are trying to maintain or improve market share. Lower selling prices on the old Civic and Ugly Accord + start-up advertising on Ridgeline and some cutrate financining.

 

Still better than GM; they lost over a billion dollars.

Due to the weakening of the US dollar, Acura had to increase the prices of their cars by a few hundred bucks recently. This will continue to take a toll on the profits of import brand companies. It might go up again to compensate for the exchange rates, or it might not. But seeing as how the price increase was implemented just recently, I don't see a price increase any time soon, other than for inflation adjustment from model year to model year which are usually negligible amounts.

 

i did notice a $300-400 increase on the TL window tag when i was at a dealer last friday. hope they don't outsource the ohio plant. QA is bad enough as it is there, what more if it's sent to india

 

That was probably the combination of exchange rate increase, and the inflation adjustment increase.

I highly doubt they will outsource the Ohio plants. They were built here, just so that they can build the cars here in order to avoid the tariffs, other applicable taxes, and fast production/shipping time. Outsourcing these plants now would totally negate the purpose of building them in the first place. Nothing to worry.

 

True.

And if Honda does indeed increase their prices as suggested, then they'll add/change features to their cars at the same time. This means even if the price does go up, it will still be debatable whether or not they did so in order to offset the increases in other expenses/investment losses. After all, the article does not state that their profit on cars has declined.

 

A billion dollars isnt that bad for a 20 billion dollar company.

I have seen price rises too, mainly for imports. Also a lot of manufacturers are cutting the free maint. programs and offering maint packages that have to purchased instead. Lexus and Mercedes are two examples.....

 

I need to review their annual report - profits alone do not tell the whole story of how a Company's year has gone, it is nothing more than a superficial analysis, but certainly an important one. I generally look first at the P/E, then things like capital investment - the "wholesale price for everyone" has certainly made ALL the car makes competitive, but it has dug deeper into the Dealers' profits than others in the chain. Anyone playing the world's saddest song on the world's smallest violin for that gang? Those "MARKET ADJUSTMENTS" and non-negotiable "transaction fees" make it hard for this guy to boo-hoo - what goesd around, comes around, Mr. "A $199 fee will be added to all sales".

I would also look to see how Honda has invested in areas like R&D - they have a number of lines about ready for a new intro, and who knows what they have up their sleeve in terms of hybrid and other leadig-edge technology. Although Toyota seems to be the JDM leader in hybrids right now, it would be foolish to "deal" out Honda, and the might of its R&D. I look for great things in terms of NPI's. (NPI=New Product Introduction).

R&D is close to my heart, as I direct IT development, services, etc for that business area at my job. NPI R&D is something we are investing heavily in, as we develop "new old" products, as well as "new new" products that will represent the future of our industry. This includes a new Research and Tech Ctr a city block long, housing 600 scientists and est'd to be over $350M capital/expense. Plus our services (hey, why not just give me $1M while we are talking big Casino?).

 

HUH... profit is all the stock holders care about.. Sure might be short sighted in some cases.... but record sales and profits declining!!! That to me means mismanagement. I do not care what the reason is.

If you own stock and you get a report that the company had more sales and less profits, you want to know why and fix it fast!!!!

or you get to be junk bond status like GM!!!

 

Actually all that stock holders care about is the share price. As long as the price of a stock rises the average shareholder doesn't care how it gets there. In the case of the automotive industry declining profits on higher sales is the norm at this time. Look at GM, Ford, and Chrysler. They're giving away cars to gain market share hoping for return business. Get them in, get them hooked, and hope they become repeat customers.

 

I think this explains why the decrease in profits better.


Consolidated Financial Summary for the Fiscal First Quarter Ended June 30, 2005
Increased Japanese domestic and overseas sales lead to 5th consecutive all-time 1st quarter record for net sales and other operating revenue

TOKYO, Japan, July 25, 2005 – Honda realized a 5th consecutive all-time record for consolidated net sales and other operating revenue for the fiscal 1st quarter due to increased Japanese domestic and overseas sales. Operating income increased due to increased profit from higher revenue and cost reduction effects despite an increase in selling, general and administrative (SG&A) expenses and research and development (R&D) expenses. Income before income taxes decreased mainly due to a change in derivative instruments, as a result of a drop in long-term interest rates. Net income for the period decreased by 3.1%, although an increase in equity in income of affiliates was realized.

Results for Fiscal 1st Quarter Ended June 30, 2005
(Honda’s average rates: JPY 108 = U.S. dollar 1 JPY 136 = Euro 1)

(*record high for 1st quarter) Yen ( billions )
1st Qtr. ended
June 30, 2004 1st Qtr. ended
June 30, 2005 Difference
(% change)
Net sales and other operating revenue 2,073.1 2,264.5* + 191.4 (+ 9.2)
Operating income 159.9 170.3 + 10.4 (+ 6.5)
Income before income taxes 174.0 144.3 - 29.7 (- 17.1)
Equity in income of affiliates 18.8 21.1* + 2.3 (+12.3)
Net income 114.2 110.6 - 3.5 (- 3.1)


Basic net income per Common share JPY 121.65 JPY 119.75 - 1.90 (- 1.6)

• Record unit sales were realized in the automobile and power product business areas. (Totals include fully finished products made by Honda and its subsidiaries as well as unit sales of parts for local production at affiliates accounted for under the equity method.) Motorcycle sales totaled 2.581 million units, which is roughly equivalent to last year’s pace, mainly consisting of a decrease in sales in North America and an increase in sales in Asia. (This does not include the approximately 370 thousand motorcycles with local procurement rates of 100% which were produced and sold by affiliates in China and India, in conformity with U.S. generally accepted accounting principles.) In the automobile business, an increase in sales in each region resulted in a sales total of 840 thousand units (+8.8%). In the power product business, sales increased to 1.482 million units (+6.8%), primarily due to sales increases in North America and Asia.


• Consolidated net sales increased to JPY 2,264.5 billion (+9.2%), mainly due to an increase in domestic and overseas sales. This represents an all-time record for the first quarter for the 5th consecutive year.


• Operating income increased to JPY 170.3 billion (+6.5%) , reflecting increased profit from higher revenue and cost reduction effects despite an increase in SG&A expenses and R&D expenses.


• Income before income taxes decreased to JPY 144.3 billion (- 17.1%), primarily due to a change in derivative instruments, as a result of a drop in long-term interest rates.


• Net income for the period decreased to JPY 110.6 billion (- 3.1%), although an increase in equity in income of affiliates ( + JPY 2.3 billion , + 12.3%) was realized.




Forecasts for Fiscal Year Ending March 31, 2006

A 6th consecutive all-time record is forecast for consolidated net sales and other operating revenue based on a unit sales plan of 10.095 million motorcycles, 3.415 million automobiles and 5.81 million power products. (Unit sales of motorcycles, with local procurement rates of 100% which are produced and sold by affiliates in China and India, are expected to increase by 2.45 million units to 3.45 million units, but are not included in the sales plan total in conformity with U.S. generally accepted accounting principles.) The consolidated forecast for the fiscal year ending March 31, 2006 is as follows, based on average exchange rates of JPY 106 = U.S. dollar 1; JPY 132 = Euro 1 (second half of fiscal year: JPY 105 = U.S. dollar 1; JPY 130 = Euro 1.)

(Honda’s average rates : JPY 106 = U.S. dollar 1 JPY 132 = Euro 1) Yen (billions)
Year ended
March 31, 2005 Forecast for year ending March 31, ‘06 Difference
(% change) (Reference):
Previous Forecast
made on April 26
Net sales and other operating revenue 8,650.1 9,430.0 + 779.8 (+9.0) 9,300.0
Operating income 630.9 665.0 + 34.0 (+5.4) 650.0
Income before income taxes 656.8 620.0 - 36.8 (-5.6) 615.0
Equity in income of affiliates 96.0 91.0 - 5.0 (-5.3) 77.0
Net income 486.1 470.0 - 16.1 (-3.3) 450.0




Related Links

· Honda Motor Co., Ltd.
· Japan

 

I believe toyota just released statements of the same effect, higher sales but lower profits.

 

I guess I missed the part where it said Acura profits were down.