Honda quarterly earnings jump 63% on CR-V sales

Honda quarterly earnings jump 63% on CR-V sales
Automaker wary of weakness in U.S. economy

Reuters
October 25, 2007 - 6:40 am ET

TOKYO (Reuters) - Honda Motor Co. posted a forecast-beating 63 percent jump
in earnings for the quarter ending Sept. 30 as strong sales of its new CR-V
crossover made up for higher raw material costs. The Japanese automaker
raised its full-year net profit forecast on a lower tax rate.

Honda's factories are running at full capacity around the world -- including
in Japan despite weak sales at home -- thanks to brisk demand for exports to
North America and Europe.

Orders at Japan's second-biggest automaker have been especially strong for
the remodelled CR-V from would-be SUV drivers hoping to go further with
expensive gasoline.

Honda, also the world's top motorcycle maker, said July-September net profit
was 208.5 billion yen ($1.83 billion), ahead of an average estimate of 185.8
billion yen from four brokerages surveyed by Reuters Estimates and above
last year's 127.9 billion yen profit.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management,
said the results were firm, but warned U.S. demand warranted close
monitoring.

"They rely quite heavily on the U.S. market and housing there right now is
very weak. Cars and housing are really linked, so we have to watch this," he
said, adding that a recent strengthening in the yen was also a potential
risk.

Honda Executive Vice President Koichi Kondo said that while the subprime
mortgage issue has had little impact on its U.S. car sales, it was dealing a
"significant" blow to motorcycle sales.

"It seems people are pulling back on leisure products," he told a news
conference, adding a further 10 billion yen of profit-eroding sales
incentives will be offered in North America.

For the year to March 31, 2008, Tokyo-based Honda lowered its dollar-yen
exchange rate assumption by 1 yen to 116 yen, pushing its revenue forecast
down 50 billion yen to 12.3 trillion yen. The yen is now around 114.3 to the
dollar.

But Honda kept its operating profit forecast at 880 billion yen ($7.69
billion), saying it would make up for the difference through cost cutting.
It raised its net forecast to 640 billion yen ($5.60 billion) from 625
billion yen on lower tax payments.

Consensus forecasts from 16 brokerages ahead of the results were for a net
profit of 639 billion yen and operating profit of 884 billion yen.

Robust overseas sales more than made up for a 16 percent plunge in domestic
sales, helping Honda expand its global sales by 6 percent in the quarter to
937,000 cars.

But the deeper-than-expected decline at home forced Honda to slightly lower
its global sales forecast for the full year to March 2008, by 25,000 cars to
3.935 million.

OVERSEAS MARKETS SUPPORT

Second-quarter operating profit, which excludes earnings made in China, grew
48 percent to 286.3 billion yen ($2.50 billion) as sales rose, particularly
of higher-margin vehicles,.

Rising commodity and depreciation costs erased the impact of cost-cutting,
while higher sales incentives and advertising spending also hurt.

A 2 yen rise in the dollar and 14 yen climb in the euro, meanwhile, added 27
billion yen ($236 million) to operating profit. Revenue for the quarter rose
13 percent to 2.971 trillion yen ($25.98 billion).

A powerful earthquake in northern Japan at the beginning of the quarter
disrupted production at all of the country's automakers, but was not enough
to dent profits.

Honda, which has never posted a loss, is hoping to reverse a domestic sales
slide with the launch on Friday of the revamped Fit subcompact, its
best-selling car in Japan.

Shares of Honda, the world's fourth-most valuable automaker behind Toyota
Motor Corp., Daimler AG and Volkswagen AG, fell 21 percent in the year to
Thursday, faring worse than Tokyo's transportation index, which has fallen
18 percent.