Honda Downgraded to Neutral - Analyst Blog


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We have downgraded the long-term (more than six months) recommendation on the shares of Honda Motor Co. ( HMC ) to Neutral from Outperform due to its disappointing results and grim outlook. The company's results are adversely affected by appreciation of the yen against foreign currencies and the catastrophic disaster in Japan last year, as well as severe floods in Thailand in the second half of 2011.

In the third quarter of fiscal 2012 (ended December 31, 2011), Honda reported a 41% decline in profits to ¥47.6 billion ($613.0 million) or ¥26.45 (34 cents) per share from ¥81.1 billion or ¥45.01 per share in the same quarter of prior fiscal year. It compared with the Zacks Consensus Estimate of 26 cents per share.

Revenues in the quarter dipped 8% to ¥1.9 trillion ($25.0 billion), driven by lower revenues due to disruptions in supply of parts caused by the diasaters in Japan and Thailand and due to continued appreciation of yen against dollar. At unchanged exchange rates, the company's revenues fell 1.7%.

Operating income slashed 64.7% to ¥44.2 billion ($570.0 million) from the prior year driven by a fall in sales volume, unfavorable model mix, increase in per unit fixed costs on the back of a decline in production, higher raw material prices and unfavorable foreign currency effect.

In the first nine months of fiscal 2012, cash flow from operations fell 33.7% to ¥508.0 billion ($6.5 billion) from ¥765.6 billion in the year-ago period, mainly due to fall in cash received from customers caused by lower unit sales in the automobile business, despite decreased payments for parts and raw materials primarily caused by a fall in automobile production.

The Zacks #4 Rank (Sell) company projected revenues to fall 12.2% to ¥7.9 trillion in fiscal 2012 ended March 31, 2012. Operating profit is expected to decrease 64.9% to ¥200 billion and net profit is anticipated to decline by 59.7% to ¥215 billion during the fiscal year.

However, Honda's compatriot Toyota Motor Corp. ( TM ) has upgraded its financial guidance for fiscal 2012 based on cost reduction measures and continued recovery in production. The company expects revenues of ¥18.3 trillion and net profit of ¥200.0 billion for the year, up from the prior forecast of ¥18.2 trillion and ¥180 billion, respectively.

HONDA MOTOR ( HMC ): Free Stock Analysis Report
TOYOTA MOTOR CP ( TM ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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