Strong North American sales and a weak domestic currency lifted
) second quarter earnings. The company's total revenues surged 27%
to 2890.2 billion yen (~$29 billion) while the operating income
climbed 70% to 171.4 billion yen ($18 billion). The company's net
income stood at 120.3 billion yen (~$12.5 billion), up 46% from the
previous years figure.
The company reaffirmed its guidance of selling 4.43 million
units and generating a net income of 580 billion yen (~$5.9
billion) in fiscal 2014. Note that Honda has a fiscal year
from April to March.
We have a $42 price estimate for Honda Motors
. We are in the process of revising our estimates in order to
incorporate the latest earnings.
Weak Yen Boosting Profits
Honda and other export dependent Japanese automakers' profits
are getting boosted by the yen devaluation. Ever since the Mr.
Shinzo Abe stepped into the PM's office late last year, the yen has
depreciated ~25% against the dollar. This has benefited the
country's automotive companies since the overseas profits now
translate back to more yen.
To take advantage of a weak currency, Honda added a new
manufacturing plant in Japan, which recently became functional. A
greater proportion of production in Japan will only benefit Honda's
margins now that the yen has depreciated against the dollar.
U.S. And Japan Lead The Way
Total automobile sales jumped 5.1% to 1.05 million units, helped
by strong sales in the U.S. and Japan. North American customers are
responding positively to the Accord, the Civic and the CR-V, all of
which were refreshed in 2012. Sales in the region were up 11% in
the latest quarter. North America is Honda's biggest market and
accounts for more than 40% of the unit sales.
In Japan, sales were buoyed by the introduction of the latest
version of the Fit (or Jazz as it is known in some countries).
Honda introduced the third generation Fit during the quarter and
received a staggering 62,000 orders within four weeks of its
launch, almost four times the company's expectations.
Fit Can Provide Impetus
Honda wants to sell 6 million vehicles annually by 2017 and the
vehicles refreshed/introduced on the Fit platform will account for
a majority of the incremental sales. In fact, Honda expects
the model's sales to pip those of Civic to become its largest
selling vehicle. The sales could even surpass 1.5 million units by
2016 as per the company's estimates.
The global launch of the Fit will be next year. Honda is
building a new manufacturing plant in Mexico that will be complete
by spring 2014. Once complete, the new plant will be able to churn
out 200,000 Fits annually and will act as a hub for distribution to
North America and Brazil. Honda's unit sales could accelerate in
the second half of 2014, when the model has been launched in major
markets across the world.
Uncertainty Still Looms In China
In China, things are still tricky for Japanese automakers as the
public is still hesitant to buy Japanese cars after a wave of
anti-Japanese sentiment spread out throughout the country following
tensions between the two nations over claims on the disputed
islands. Honda's sales through September are up 5.8% but they keep
fluctuating from month to month. It's still not clear whether sales
have normalized or not.
But Honda is optimistic about China in the long run. It has
already introduced two China specific models, namely the Crider and
the Jade, this year. Earlier in the year, the automaker also
announced that it will step up R&D expenses in China in order
to develop vehicles tailored to the needs of the Chinese people.
Before the end of 2015, the automaker plans to roll out 12 new
models in China.In fact, Honda is so confident about the success of
its upcoming models that the automaker intends to double the sales
to 1.3 million units annually by 2015.
See our complete
analysis for Honda stock here
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