We reiterate our Neutral recommendation on Honda Motor Co. Ltd. (HMC), which is a leading manufacturer of automobiles and the largest manufacturer of motorcycles in the world. Headquartered in Tokyo, Japan, Honda is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products that incorporate its efficient internal combustion engine technologies ranging from small general-purpose engines to specialty sports cars.
Honda released its financial results on August 01, 2011 for the first quarter of its fiscal year ended March 31, 2012. The company posted an 88.3% fall in profit to ¥31.8 billion ($394 million) or ¥17.64 per share (22 cents per share) from ¥272.49 billion or ¥150.27 per share in the same quarter of the prior fiscal year. The decline in profit was attributable to the adverse impact from the earthquake and tsunami in Japan on March 11 and unfavorable currency translation effects.
Consolidated net sales and other operating revenues dipped 27.4% to ¥1.71 trillion ($21.24 billion) owing to the same factors outlined above, despite increased revenues in the motorcycle business. However, at constant exchange rates, revenues decreased 22.7% from the prior year.
Moreover, Honda’s cash flow deteriorated in the first quarter of fiscal 2012. In the quarter, cash flow from operations fell to ¥201.70 billion, mainly due to a drop in net income.
Keeping the present conditions in mind, Honda has projected revenues to fall 2.7% to ¥8.70 trillion in fiscal 2012. It also expects operating profit to decrease 52.6% to ¥270 billion and profit to decline by 56.9% to ¥230 billion during the fiscal year.
However, Honda’s initiatives to improve its business in the near future are expected to make positive additions to its results in the upcoming quarters. The company extensively focuses on the international markets through its joint ventures. Honda is planning the introduction and/or production of a number of products that would improve market share and profitability.
With tighter environmental regulations around the world and a rebound in demand in Japan and North America, Honda has decided to roll out more hybrid cars. The automaker will also roll out several models based on its existing hybrid systems technology within a year. The models include the third generation of Honda Civic Hybrids subcompact car and a hybrid version of the B-segment Honda Fit subcompact car.
HONDA MOTOR (HMC): Free Stock Analysis Report
Zacks Investment Research
