TOKYO – Honda Motor Co.’s operating profit climbed 12 percent in the latest quarter as cost cutting efforts and a better mix of higher margin vehicles offset foreign exchange losses and the impact of an earthquake in Japan that affected motorcycle output.
But a higher tax bill ate into net income, which slid 11 percent.
Operating profit climbed to 266.84 billion yen ($2.60 billion) in the fiscal first quarter ended June 30, Executive Vice President Seiji Kuraishi said.
Net income, however, decreased to 174.70 billion yen ($1.70 billion) in the three months, as the company paid more taxes. Profit before income taxes rose 6.1 percent, Honda in a statement today.
Revenue declined 6.3 percent to 3.47 trillion yen ($33.83 billion), despite a 5.8 percent increase in global retail sales to 1.21 million vehicles.
Honda’s operating profit was buoyed by stepped-up cost cutting efforts that added 45.7 billion yen ($445.5 million) to the bottom line. A decrease in warranty and other quality-related expenses also bolstered results by another 36.8 billion yen ($258.78 million).
Those factors combined with a better mix of products, including hot-selling passenger cars such as the redesigned Civic as well compact crossovers such as the HR-V in North America, to outweigh hefty losses from fluctuating exchange rates.
Honda also introduced the redesigned Ridgeline pickup, which bolstered volume and profits. It sold 2,472 of the pickups in June, up from just seven a year earlier.
U.S. light trucks
Kuraishi said Honda aims to sell more light trucks to tap the U.S. boom for the vehicles. Only 47 percent of Honda’s U.S. sales came from light trucks in the first six months of 2016, down slightly from a 48 percent share a year earlier.
“Models such as the Civic and Accord are selling well, and we released the new Ridgeline in June,” he said. “We will expand our lineup of light trucks,” he said.
Like other Japanese automakers, Honda booked a big hit from currency swings.
Shifting foreign exchange rates lopped 75.8 billion yen ($739.0 million) off operating profit, as the Japanese yen appreciated against other currencies, including the U.S. dollar and Thai baht, and the U.S. dollar rose against the Canadian dollar and the Mexican peso.
The dollar’s strength hits particularly hard in North America, which is traditionally Honda’s biggest market and one of the company’s biggest production bases.
An April earthquake in southwestern Japan also dented overall earnings as it knocked a Honda motorcycle plant out of commission. Operating profit at Honda’s motorcycle business tumbled 44 percent in the first quarter on falling sales as the factory lay idle.
North America was a profit center in the quarter. North American regional operating profit soared 57 percent to 171.2 billion yen ($166.91 million), while sales increased 2.6 percent to 510,000 vehicles, from 497,000 in the same quarter a year before.
Honda’s European business returned to a razor thin operating profit to 1.2 billion yen ($11.70 million) from an operating loss of 900 billion yen the year before. European sales rose 41 percent to 45,000 vehicles, from 32,000 the year before.
Looking ahead, Honda kept unchanged its outlook for the current fiscal year ending March 31, 2017.
Revenue is forecast to decline 5.8 percent to 13.75 trillion yen ($134.05 billion).
Operating profit is seen advancing 19 percent to 600 billion yen ($5.85 billion), and net income is seen increasing 13 percent to 390 billion yen ($3.80 billion).
Honda expects its global sales to increase 3.6 percent to 4.92 million vehicles.