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Honda Q2 Earnings, Revenues Miss Estimates but Up Y/Y

Honda Motor Co., Ltd. (HMC) posted a 17.9% rise in earnings to ¥141.8 billion ($1.30 billion) or ¥78.73 (72 cents) per share in the second quarter (ended Sep 30, 2014) of fiscal 2015 from ¥120.4 billion or ¥66.79 per share in the year-ago quarter. Earnings per share missed the Zacks Consensus Estimate by 4 cents.

Consolidated net sales and other operating revenues grew 4.3% to year over year ¥3 trillion ($27.5 billion). However, the figure fell short of the Zacks Consensus Estimate of $31.6 billion. The year-over-year increase can be attributed to higher revenues from the automobile and motorcycle businesses as well as favorable foreign currency translation.

Consolidated operating income dropped 4.1% to ¥164.4 billion ($1.5 billion) from ¥171.5 billion in the fiscal second quarter, owing to decreased sales volume and model mix along with higher R&D expenses, partially offset by effective cost control and favorable foreign currency translation effects.

Segment Performance

Revenues in the Automobile segment rose 3.7% to ¥2.3 trillion ($21.1 billion) on a 2.3% rise in consolidated unit sales to 1.1 million vehicles and favorable foreign currency translation effects. Meanwhile, operating profit decreased 1.3% to ¥79.1 billion ($723 million) on spiraling expenses incurred on incentives in North America and R&D activities, partially offset by continuing cost reduction efforts, reduced SG&A expenses and favorable foreign currency translation.

Revenues in the Motorcycle segment scaled up 4.9% to ¥438.3 billion ($4 billion), owing to higher consolidated unit sales and favorable foreign currency translation effects. Consolidated unit sales rose 8.7% to 4.6 million motorcycles. Operating income dropped 16.3% to ¥38.1 billion ($348 million) owing to higher SG&A expenses.

Revenues in the Financial Services segment increased 13.5% to ¥192.9 billion ($1.8 billion) on the back of higher revenues from operating leases and favorable foreign currency translation effects. Also, operating income improved 3.6% to ¥48.2 billion ($441 million), attributable to positive foreign currency translation effects.

Revenues in the Power Product and Other segment stood at ¥73 billion ($667 million), in line with year-ago level. Unit sales in the segment went down 0.7% to 1.3 million. The segment recorded operating loss of ¥1 billion ($10 million), compared with loss of ¥829 million in the same period a year ago. The wider loss can be attributed to increased SG&A expenses, offsetting the effect of the cost-control initiatives.

Financial Position

Consolidated cash and cash equivalents decreased to ¥1.16 trillion as of Sep 30, 2014, from ¥1.17 trillion as of Mar 31, 2014. Total debt amounted to ¥6.28 trillion as of Sep 30, 2014, translating into a debt-to-capitalization ratio of 49.9%, compared with total debt of ¥5.86 trillion and a debt-to-capitalization ratio of 49.7% as of Mar 31, 2014.

In the first half of fiscal 2015, cash flow from operations dropped to ¥657.4 billion from ¥671.5 billion in the first half of fiscal 2014, due to increase in payments for parts and raw materials offsetting increased cash received from higher automobile unit sales. Meanwhile, capital expenditures contracted to ¥350.2 billion from ¥356 billion in the first half of fiscal 2014.

Guidance

For fiscal 2015, Honda expects revenues to increase 7.7% to ¥12.8 trillion. Operating income is likely to rise 2.6% to ¥770 billion. However, net income is projected to decrease 1.6% to ¥565 billion or ¥313.49 per share.

Currently, shares of Honda carry a Zacks Rank #4 (Sell).

Better-ranked automobile stocks worth considering include Toyota Motor Corp. (TM), Tata Motors Ltd. (TTM) and Gentherm Inc. (THRM), each sporting a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on HMC
Read the Full Research Report on TM
Read the Full Research Report on TTM
Read the Full Research Report on THRM


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