Honda profit rises 3% on U.S. sales, cost control

TOKYO -- Honda reported a 2.6 percent advance in operating profit in the latest quarter as brisk North American earnings, aggressive cost containment and lower warranty outlays offset shrinking global sales and losses from unfavorable foreign exchange rates.

Operating profit increased to 220.1 billion yen ($2.04 billion) in fiscal second quarter ended Sept. 30, the Japanese automaker announced in its earnings report on Friday.

Net income declined 6.7 percent to 196.5 billion yen ($1.82 billion) in the three-month period, partly because the company was hit by higher income tax expenses in India.

Revenue retreated 2.9 percent to 3.73 trillion yen ($34.6 billion), as worldwide sales dipped 0.4 percent to 1.24 million vehicles in the July-September quarter.

North America was a profit engine, driving Honda higher on robust sales of not only light trucks such as the CR-V crossover but passenger cars such as the Civic small sedan.

"As the market shrinks the CR-V, the new Passport and light truck models are going very strong and will continue to grow our business to post even better results than last year," Executive Vice President Seiji Kuraishi said while announcing Honda's earnings results.

"We are being very successful in the market," he said. "That is our situation in North America."

In August, Honda posted an all-time monthly U.S. sales record.

North America, Honda's biggest second-biggest market after Asia, saw regional operating profit climb 43 percent to 76.2 billion yen ($706.2 million) in the quarter.

North American vehicle sales increased 1.2 percent to 433,000.

Honda has been on a roll in the U.S., posting a 0.6 percent sales increase through September, even as the overall market contracted an estimated 0.8 percent. Japanese rivals, including Toyota, Nissan, Mitsubishi and Mazda, posted bigger declines than the overall market.

But Honda is also turning to incentives more than before.

In the July-September period alone, average spiff spending on Honda and Acura brand cars by American Honda Motor Co. increased 15 percent and to $2,268, although the outlays were still below the industry average of $3,951 per vehicle, according to figures from Motor Intelligence.

Average industry outlays increased only 4.7 percent in the quarter.

European vehicle sales fell 11 percent to 34,000 in the quarter as the regional operating profit surged to 7.2 billion yen ($66.7 million) from just 200 million yen ($1.9 million) a year earlier.

Global results improved despite uncooperative foreign exchange rates.

The yen's appreciation against the U.S. dollar and other currencies lopped 32.9 billion yen ($304.9 million) off quarterly operating profit.

Despite the strong quarter, Honda trimmed its full fiscal year earnings outlook, citing lower sales in major markets, including North America.

Worsening foreign exchange rates, especially an anticipated appreciation of the yen against the U.S. dollar, will also take a bite.

Honda predicted operating profit will now decline 5 percent to 690.0 billion yen ($6.39 billion), rather than increase 6 percent as forecasted in August.

Net income is also expected to decline 5.8 percent to 575.0 billion yen ($5.33 billion), instead of rise 5.7 percent as originally outlined.

Global sales are expected to fall 6.5 percent to 4.975 million vehicles. That is worse than the 4 percent decline to 5.11 million units that Honda had earlier predicted.

Honda predicted that North American sales will decline 4.6 percent to 1.865 million vehicles in the current fiscal year, while European sales fall 17 percent to 140,000 units.

Naoto Okamura contributed to this report