Honda posted a 15.1% decrease in earnings to $1.13 billion or $0.63 per share in the third quarter of fiscal 2015. However, earnings surpassed the Zacks Consensus Estimate of $0.55. Consolidated net sales and other operating revenues grew 8.9% year over year to $27.3 billion. However, it fell short of the Zacks Consensus Estimate of $28.5 billion. The year-over-year increase can be attributed to higher revenues from the motorcycle businesses as well as favorable foreign currency translation. For fiscal 2015, Honda expects revenues to increase 8.9%. Operating income is likely to decrease 4% and net income is projected to drop 5.1%. We are maintaining our Neutral recommendation on the stock.
Honda Motor Co., Ltd. (HMC) is a leading manufacturer of automobiles and the largest producer of motorcycles in the world. The company is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products that incorporate its efficient internal combustion engine technologies, ranging from small general-purpose engines to specialty sports cars.
Honda operates through four business segments:
The Automobiles segment (77.1% of the total revenue in the first half of fiscal 2015) produces passenger cars, minivans, multi-wagons, sport utility vehicles (SUVs) and mini cars.
The Motorcycles segment (14.1%) produces motorcycles consisting of sports (trial and motocross racing), business and commuter models as well as all-terrain vehicles, personal watercraft and multi-utility vehicles. It produces motorcycles ranging from the 50cc class to the 1800cc class in cylinder displacement.
The Financial Services segment (6.3%) offers various financial services that include retail lending and leasing to customers, as well as other financial services, such as wholesale financing to dealers.
The Power Product and Other segment (2.5%) manufactures various power products, including solar cell batteries, power tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors (riding lawn mowers).
Honda's operations are spread across Japan, North America, Europe, Asia and other regions. Honda generates the majority of its revenues from North American and domestic markets in the automobile division. Asian countries such as China, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Taiwan, Thailand and Vietnam remain major contributors of revenues in the motorcycle segment.
Honda's operations are conducted in 33 factories worldwide, 4 of which are located in Japan. To maximize production efficiency, cost competitiveness and customer satisfaction, the company has located its operations in close proximity to customers. Automobiles are produced at two sites in Japan: Saitama and Suzuka. Major overseas production sites are located in Ohio and Alabama (U.S.), Ontario (Canada), Swindon (U.K.), Ayutthaya (Thailand), Haryana and Uttar Pradesh (India), and Sao Paulo (Brazil). The company uses its global network of 507 subsidiaries and affiliates to promote its "Made by Global Honda" strategy and supply its products globally.
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