Don’t count Honda among the exporters preparing for a financial bonanza from the tumbling yen.
Unlike Nintendo and Japan Tobacco, which raised their profit forecasts this week, Honda Motor Co. on Thursday cut its net income expectations for the year ending in March, assuming the yen will trade at levels that have been outdated since November.
Chief Financial Officer Fumihiko Ike said Honda is being “extra careful” with its yen forecasts because it doesn’t know what to expect in February and March.
The carmaker is not alone. Chubu Steel Plate and NGK Insulators are among dozens of companies this week that cut their profit projections by focusing on factors such as sales in China and Europe rather than the benefits of a weakening yen.
While conservative assumptions may give corporations extra room to beat their earnings forecasts, they may also undermine investor confidence.
“I can understand that they’re being conservative, but it would’ve been better if they’d maintained their forecast based on the current level of the currency,” Takashi Aoki, a fund manager at Mizuho Asset Management Co., said about Honda’s earnings. “This new figure makes me wonder if they have other issues too.”
Honda said it revised its full-year outlook for the yen against the dollar to 81 from 80, and 105 from 103 versus the euro. The yen, which has weakened more than any currency since mid-November, is now trading at about 91 against the dollar and 123 versus the euro.
According to Honda, its operating income gains by ¥16 billion annually for every ¥1 drop in the dollar rate, and ¥1 billion for each ¥1 drop in the euro rate.
Instead of reflecting the weaker yen’s added earnings, Honda lowered its full-year net income forecast by 1.3 percent to ¥370 billion, citing a slower-than-expected recovery in sales in China and weakness in European demand.
Though Honda is projecting the yen to be at 85 against the dollar and 110 versus the euro during the current quarter, the yen has not been that strong yet this year.
The yen has weakened against all currencies tracked by Bloomberg since Honda last reported earnings in late October, falling more than 12 percent against the dollar.
“The recent moves in the currency came all very suddenly, so our forecast may seem rather conservative,” Ike said in a briefing in Tokyo on Thursday.
“We don’t know what the trend will be in February through March, so we want to be extra careful.”
The yen will weaken by the middle of this year to about 100 to the dollar, while the Nikkei 225 average will reach about 13,000, according to Shun Maruyama, chief equity strategist at BNP Paribas SA. The yen will end 2013 at 91 to the dollar, according to the average estimate compiled by Bloomberg.
In contrast to Honda, the weakening currency is boosting the earnings outlook at Nintendo and Japan Tobacco.
Nintendo more than doubled its annual net income forecast this week to ¥14 billion. JT, Asia’s largest listed tobacco maker, raised its profit forecast to ¥330 billion from its previous forecast of ¥318 billion as the weaker yen boosts the value of overseas earnings.
Honda maintained its projections for operating profit and revenue while cutting its forecast for global deliveries to 4.06 million units from 4.12 million. From January to December, it expects to sell a record 4.4 million vehicles.
While Honda recovered from disruptions caused by the 2011 natural disasters, the company reported lower sales in China last quarter as the Senkaku territorial dispute fueled a consumer backlash in the world’s biggest auto market.
Deliveries in China declined a record 32 percent in the October-December period, based on Honda statements stretching back to 2006, to cap a 3 percent drop in full-year sales, according to the company.
The sales slump in China was more than expected and the market situation in Europe is “very tough,” Ike said.
Honda has said production at all five factories in China has resumed to double shifts as anti-Japan sentiment has faded.
The automaker cut its full-year Europe sales forecast to 185,000 units from the previous estimate of 205,000.
In the U.S., where Honda gets more than 30 percent of its global sales, deliveries surged 24 percent, according to industry researcher Autodata Corp. The automaker’s market share in the U.S. increased 1.1 percentage points to 9.93 percent in the October-December period, according to industry researcher Autodata Corp.
Honda was the first among Japan’s biggest carmakers to report financial results this earnings season. Toyota, which regained its global sales lead from General Motors last year, will report Tuesday. Toyota will probably say third-quarter net income climbed 71 percent to ¥138.4 billion, according to the average of eight analysts’ estimates compiled by Bloomberg.
Nissan, which relies on China more than Toyota or Honda, is expected to report profit last quarter fell 44 percent to ¥46.4 billion as Chinese consumers shunned Japanese brands, according to the average of six estimates.
Honda to exit LSE
Honda Motor Co. decided at its board meeting Thursday to apply for delisting its shares from the London Stock Exchange, citing low trading volume.
Honda’s stock is expected to be removed at the end of March, Honda said. Its shares will continue to be traded on the Tokyo and Osaka stock exchanges.
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