Honda Motor Co.’s (HMC) first-quarter fiscal 2014 (ended Jun 30, 2013) earnings per share dropped 7% to ¥67.97 (69 cents) from ¥73.09 earned in the corresponding period last year. Net income stood at ¥122.4 billion ($1,243 million), down from ¥131.7 billion in the year-ago quarter.
Consolidated net sales and other operating revenues rose 16.3% year over year to ¥2,834 billion ($28,746 million) driven by favorable foreign currency translation effects.
Consolidated operating profit rose 5.1% to ¥184.9 billion ($1,876 million). Favorable currency translation offset the unfavorable impacts of model mix, higher research and development (R&D) expenses and lower sales volume.
Segment Performance
Revenues in the Automobile segment rose 16.2% to ¥2,196.5 billion ($22.3 billion) on a 1.1% rise in unit sales to 858,000 vehicles and favorable foreign currency translation effects. Operating profit fell 4.3% to ¥96.3 billion ($978 million), due to higher R&D expenses, lower volumes and unfavorable impacts of model mix that offset the favorable changes in foreign exchange.
Revenues in the Motorcycle segment scaled up 14.5% to ¥396.8 billion ($4.025 billion) on the back of favorable foreign currency translation effects. Unit sales rose marginally by 0.2% to 2.4 million motorcycles. Operating profit rose 15.7% to ¥42.5 billion ($432 million) driven by lower selling, general and administrative (SG&A) expenses and positive foreign currency translation impacts that offset higher R&D expenses.
Revenues in the Financial Services segment jumped 26% to ¥165.3 billion ($1.7 billion) driven by an increase in revenues from operating leases and favorable foreign currency translation effects. Operating income rose 9.3% to ¥44.6 billion ($453 million) due to favorable currency effects that offset higher SG&A expenses.
Revenues in the Power Product and Other segment escalated 11.5% to ¥75.2 billion ($763 million) driven by favorable foreign currency translation effects. However, unit sales in the segment edged down 2.2% to 1.589 million. Operating income was ¥1.3 billion ($14 million), up 3.6% year over year driven by decreased SG&A expenses and positive foreign currency translation effects.
Liquidity Position
Consolidated cash and cash equivalents declined to ¥1,139.2 billion as of Jun 30, 2013, from ¥1,133.9 billion as of Jun 30, 2012. Long-term debt amounted to ¥2,915.5 billion as of Jun 30, 2013, translating into a long-term debt-to-equity ratio of 53%, compared with ¥2,710.8 billion or 52.1% as of Mar 31, 2013.
As of Jun 30, 2013, cash flow from operations improved to ¥304.1 billion from ¥182.7 billion as of Jun 30, 2012, primarily due to higher revenues from customers. Meanwhile, capital expenditures increased to ¥454.3 billion from ¥327.9 billion at the end of Jun 2012.
Guidance
For fiscal 2014, Honda reaffirmed its revenues and earnings projections. The company expects revenues to increase 22.5% to ¥12,100 billion in fiscal 2014. Operating profit is expected to surge 43.2% to ¥780 billion and net income is anticipated to jump 58% to ¥580 billion or ¥321.81 per share. The company expects higher revenues, favorable model mix and effective cost reduction measures to contribute to the increase in profits during the year.
Dividend
Honda’s Board announced quarterly dividend of ¥20 per share to shareholders of record as of Jun 30, 2013. The company is expected to make annual dividend payment of ¥80 per share in fiscal 2014.
Our Take
Honda is a leading automobile manufacturer and the largest manufacturer of motorcycles in the world. The company’s volume growth was restricted due to the macroeconomic impacts. In addition, higher SG&A and R&D expenses continue to affect Honda’s earnings.
Honda Motors currently retain a Zacks Rank #4 (Sell).
Nissan Motor Co. Ltd. (NSANY) with a Zacks Rank #1 (Strong Buy), Volkswagen AG (VLKAY) with a Zacks Rank #1 (Strong Buy) and Peugeot S.A. (PEUGY) with a Zacks Rank #2 (Buy) are worth considering for investment.
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