Makers cut forecasts on yen surge, Thai floods

Bloomberg

Japanese makers of cars, chips and computers said profit would be less than previously expected this year as the stronger yen undermines a recovery from output setbacks caused by March 11.

Honda Motor Co., the nation’s No. 3 automaker; Toshiba Corp., its biggest chip-maker; and Fujitsu Ltd., the largest computer services firm, lowered their earnings forecasts Tuesday for the year ending March 31.

Toshiba said the stronger Japanese currency would probably reduce operating profit by ¥40 billion ($524 million). Costs from floods that shut factories in Thailand cut another ¥40 billion from the previous projection for ¥300 billion, Makoto Kubo, executive vice president, said Tuesday.

“The most important thing is the exchange rate for next fiscal year,” Masaru Hamasaki at Toyota Asset Management Co. in Tokyo, said Tuesday. He said he expects the yen to weaken to as far as 85 against the dollar in 2012.

The Japanese currency’s gain of about 9 percent against the euro and 5.5 percent versus the dollar last year reduced the value of earnings repatriated from overseas and made the country’s exports less cost-competitive.

Honda revised its outlook for the yen against the dollar to 78 from 80, and 106 from 112 versus the euro. The automaker has said it would build its new NSX supercar in Ohio as it shifts output to North America in response to the yen’s gains. Operating income declines by ¥15 billion for every ¥1 gain against the dollar, the company estimates.

The Thai floods will cost Honda about ¥110 billion this fiscal year, while the yen’s advance will shave about ¥57 billion from annual profit, it said in Tuesday’s statement. Operating profit, or sales minus the cost of goods sold and administrative expenses, will probably be ¥200 billion, 26 percent less than the previous forecast for ¥270 billion.

Canon Inc. fell by 4.2 percent, the most in 10 months, in Tokyo trading after forecasting annual profit that missed analyst estimates and saying its president will resign. The camera maker said Tuesday it would invest ¥18 billion to build a plant in the Philippines, joining companies, including Honda, Nissan Motor Corp. and Toshiba, that plan to expand overseas.

Canon President and Chief Operating Officer Tsuneji Uchida, 70, will step down from both posts after the company said net income this year will probably increase to ¥250 billion, less than the ¥304 billion average of 20 analyst estimates as of Jan. 30.

The company makes more than half of its sales overseas, and based this year’s estimate on the yen averaging 75 versus the dollar and 100 against the euro, appreciations of ¥5 and ¥11, respectively. The company is also investing ¥15 billion in Thailand for a new office-systems venture.

Thailand’s terrible floods may drag down full-year profits of listed Japanese manufacturers this fiscal year, SMBC Nikko Securities Inc. estimated in October.

The effect of the strengthening yen has been grinding down manufacturers’ competitiveness and profits all year, said Hamasaki at Toyota Asset. “These cuts in earnings forecasts could not be helped. The effects of a stronger yen are just too much, even for the best-run companies.”

“How much longer should we insist on producing in Japan?” Toyota Chief Financial Officer Satoshi Ozawa asked in May. “Our efforts may have exceeded the limits of what is possible in dealing with the yen’s impact.”