Honda Motor Company, Ltd. (HMC)

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Honda Motor Company (HMC)

Q4 2010 Earnings Call

January 31, 2011 03:00 pm ET




Unknown Company Representative

Good morning, everyone. Welcome to Honda financial results audio presentation. On January 31, 2011, Honda Motor announced its financial results for the fiscal third quarter ended December 31, 2010. Through this audio presentation cast, we would like to review the financial results and discuss the major drivers of Honda's business during the period.

Honda also revised up its full-year earning guidance. So we would like to discuss the new earning guidance for the fiscal year ending March 2011. The earning press release and slide presentation were posted on the same website. For downloading presentation materials, please click the link on the new 2012 Civic four-door photo.

Did you find it? Folks, let's start.

Now I would like to start with financial highlight for the quarter. Please have a look at the slide three: Reviewing Global Economic Environment During the Quarter in the US Market.

Although there are some signs of gradual economic recovery such as consumer spending and capital spending continued to increase at a moderate rate, there are still concerns about US economy become stagnant due to the possibility of credit limit, and the high unemployment rate will be prolonged.

Economies in China and India continue to expand, and the economies of other Asian countries also achieved overall recovery at a somewhat slower pace. In Europe, the economy has bottomed as a whole, but concerns that recovery will slow remains.

As high unemployment rate continue, the weak economic environment in Japan remain unchanged despite the fact that capital spending slightly improved. The sluggish recovery of consumer spending and prolonged high unemployment rate are considered a sign that the condition remains severe.

Now I would like to elaborate business operation environment surrounding us. In motorcycle business, industry demand in India, Vietnam, Brazil and Thailand continued to expand significantly. The demand in Indonesia also continue expanded during the quarter.

However, leisure purpose demand and develop countries continued to decline. In automobile business, the industry demand in China and India experienced strong expansion while [MTHUS] and Brazil. The industry growth [one] has boosted significantly by strong demand.

However, in Japan, demand decreased with adversely effects after the government similar program ended. With regard to Forex during the period, Japanese yen appreciated against US dollar. Yen was JPY83 per dollar, JPY6 higher than last year. Euro was JPY112 per euro, JPY21 higher from the same period last year despite a negative currency effect along with declined automobile unit sales in Japan.

The overall results were largely exceeded the company's forecasts announced in October, thanks to favorable automobile business in North America and strong motorcycle business centered in Asia and South America.

Motorcycles unit sales posted 2,895,000 units, up 21.7% from the same period last year. Automobile unit sales totaled to 855,000 units, down 6.5% from the same period last year. Power product unit sales were 1,157,000 units, up 15.9% from the same period last year.

Financial highlight for this third quarter are seen in the middle of the slide. Net income attributable to Honda Motor totaled to JPY81.1 billion, a decrease of 39.7% from the same period last year. EPS was JPY45.01, which was a decrease of 39.3% from last year.

Revenue totaled JPY2,110,400,000,000. Operating income amounted to JPY125.6 billion, a decrease of 29% from the same period last year. Equity and income of affiliates totaled JPY43.4 billion, an increase of 32.4% from the same period last year.

For your information, with regard to corporate income tax rate due to the decrease in the amount of foreign tax credit expected to be utilized as of December 31, 2010, the company has reduced related deferred tax assets. As a result, the effective tax rate for the quarter differs from Honda's statutory income tax rate.

Now I would like to discuss about analysis of sales and operating profit for the quarter. Please turn to slide nine. Revenue decreased by JPY130.3 billion, down 5.8% from the third quarter last year to JPY2,110,400,000,000 due mainly to decreased revenue in the automobile business and the unfavorable currency translation effect.

Changes in revenue in respective businesses without currency translation impact are seen on the slide. Had the exchange rate remained unchanged, revenue would have been down JPY18.4 billion. [That] equivalent [is] a decline of 0.8%.

Now let me elaborate on variance and factors that affected the operating profit and income before income taxes. Please turn to slide 11. Operating income for the third quarter totaled JPY125.6 billion, as you could see at the bottom right-hand side of the slide, which was a decrease of JPY51.3 billion compared to the operating profit of JPY171 billion in the same period last year.

Income before income taxes amounted to JPY131.5 billion, as shown at the bottom on the right side, which was a decrease of JPY39.4 billion from the same period last year.

As seen on the top of the slide, if you can have a look at the second box from the left-hand side, it shows how much gross profit was affected by the change in top-line growth, increase of revenue to the favorable mix impact. This time, the mix means a geographical mix or a business mix as well as simply a model mix that provided the positive impact of JPY17.4 billion this quarter.

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