Honda Raises Profit Outlook as Weak Yen Makes Up for Cost Pressures

Masumi Suga, Bloomberg News

The Honda Motor Co. badge is displayed on the steering wheel of a vehicle at the company's showroom in Tokyo, Japan, on Tuesday, Aug. 1, 2017. Honda is scheduled to report first-quarter earnings figures today. , Bloomberg

(Bloomberg) -- Honda Motor Co. raised its full-year operating profit target, as a weaker yen helps to bolster income brought home and make up for rising material costs and supply chain constraints. The carmaker also unveiled a 100 billion yen ($741 million) buyback, for as much as 1.9% of its shares.

Profit for the year through March 2023 is forecast to reach 830 billion yen, the carmaker said in a statement Wednesday. That’s an upgrade from the outlook for 810 billion yen announced three months ago, and below the average analyst estimate of 909 billion yen.

Honda, like other global auto manufacturers, have seen their profits erode over the past year due to rising material and logistics costs, as well as from China’s Covid-19 lockdowns and a persistent shortage of semiconductors. While that forced them to issue cautious outlooks at the start of the latest fiscal period, they are now seeing signs of improvement, as well as reaping the benefits from a weaker yen. The currency has dropped 15% versus the dollar this year, the most among major currencies.

“The outlook remains unclear due to a shortage of semiconductors and the impact of inflation,” Executive Vice President and Chief Financial Officer Kohei Takeuchi said at a news briefing. Honda is sticking to outlook for 4.2 million vehicle sales for the current fiscal year, he added.

Takeuchi added that Honda is expecting semiconductor supplies to remain tight for the rest of the fiscal year, and that the manufacturer was increading stockpiles given recent geopolitical tension in the Taiwan Strait.

Honda also raised its sales forecast for the current year to 16.8 trillion yen from 16.3 trillion yen. Even so, Honda said the outlook remains uncertain because of the semiconductor supply shortages and Covid-19 resurgence. Honda also raised its foreign-exchange assumption for the year to 125 yen to the dollar, up from the prior level of 120 yen to the dollar.

For the quarter ended June, Honda reported operating profit of 222 billion on 3.8 trillion yen in revenue, topping analysts’ predictions for 200 billion yen and 3.7 trillion yen. The carmaker cited higher pricing, cost controls, fewer incentives and currency benefits for the profit result.

The shares of Honda closed up 1.1% before the earnings announcement, leaving the stock up about 6% this year.

(Updates with Honda CFO’s comments.)