Honda’s new markets give it record quarter

updated 3:27 p.m. ET July 25, 2008

TOKYO - Honda Motor Co. reported record profit for a fiscal first quarter Friday as sales growth in new markets offset the damage from a stronger yen and soaring material costs.

The results came a day after U.S. automaker Ford Motor Co. reported its worst quarterly loss ever.

Honda, Japan’s No. 2 automaker, earned a better-than-expected 179.6 billion yen ($1.68 billion) in the April-June quarter, up 8.1 percent from the same period the previous year. Analysts surveyed by Thomson Financial had forecast 131.3 billion yen ($1.2 billion) in quarterly profit.

Sales for the quarter dipped 2.2 percent from a year ago to 2.867 trillion yen ($26.79 billion), largely because the rising yen eroded the value of overseas earnings. If the yen’s value had held at levels of a year ago, sales would have jumped about 7 percent, Honda said.

Riding on its reputation for making cars with good mileage, the Tokyo-based manufacturer of the Civic and Accord compacts has racked up solid results despite worries among the world’s automakers about a U.S. slowdown and rising steel prices.

Honda sold more vehicles worldwide than in any other fiscal first quarter at 962,000 vehicles, up 1.7 percent on year.

Cost-cutting, the decrease of auto discounts in North America and a lift from equity-related income from Chinese affiliates added to a strong performance, according to Honda.

Demand for Honda products is booming in Asia, Brazil and other new markets, making up for declines in vehicle sales in the U.S., Europe and Japan, it said.

Honda was the only automaker to record better U.S. sales in June compared with a year ago, while others saw sales plummet in the worst June for the industry in 17 years.

Still, Honda lowered its vehicle sales forecast for the fiscal year through March 2009 to 4.08 million vehicles, less optimistic than its earlier prediction for 4.14 million vehicles. The lowered forecast marks a 3.9 percent jump from the previous year.

Video   Clarity hits U.S. June 18: Honda’s hydrogen-fueled, zero-emission ‘FCX Clarity’ comes to the United States next month. CNBC’s Phil LeBeau reports. CNBC

The forecast downgrade is largely because of faltering auto sales in North America, where Honda, like other automakers, is adjusting production away from trucks to smaller fuel-efficient models that are more attractive to buyers as gas prices go up.

Honda maintained its outlook for profit for the current fiscal year at 490 billion yen ($4.58 billion), down 18.3 percent from earnings for the year ended March 31, 2008. It expects fiscal year sales to climb 1.1 percent to 12.13 trillion yen ($113.36 billion).

Other Japanese automakers are also expected to be hurt by the rising yen and a U.S. slowdown.

Toyota Motor Corp., which beat General Motors Corp. in global vehicles sales for the first half, reports results next week. Nissan Motor Co., the nation’s No. 3 automaker, also announces earnings next week.

Japanese carmakers have avoided the deep losses of U.S. car companies, which are struggling to shift to smaller models.

On Thursday, Ford Motor Co. said it lost $8.67 billion in the second quarter and will retool two more North American truck and sport utility vehicle plants to build small, fuel-efficient vehicles.

GM, which lost $3.3 billion in the first quarter, is closing four North American assembly plants, cutting thousands of jobs, selling assets and suspending its dividend in an effort to raise cash.

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