Honda has posted a grim result for its third fiscal quarter ended 31 December with operating profit off 63% and net profit down almost 90%. The company cited falling vehicle sales and unfavourable currency exchange rates as the main reasons.


Operating income off 62.9% year on year to JPY102.4bn was also affected by increased raw material costs, increased fixed costs per unit as a result of reduced production, and increased selling, general and administrative expenses, the automaker said.


Consolidated net sales and other operating revenue fell 16.8% to JPY2,533.2bn.


Income before income taxes was down 66.7% to JPY86.7bn and net income plunged 89.9% to JPY20.2bn, a decrease of 89.9% compared to the same period a year ago.


Consolidated net sales and other operating revenue for the first fiscal nine months dipped 8% to JPY8.2 trillion, due mainly to exchange factors. Operating income fell 39.7% to to JPY472.6bn.

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Income before income taxes fell 37.1% to JPY471.3bn, and net income was off 43.8% at JPY323.1bn.


Third quarter automobile sales were down 5.1% to 940,000 units as a rise in Asia failed to offset falling North American volume.


Similarly, despite rises in Asia and Brazil, falling North American sales dragged the nine-month tally down 5.1% to 2,837,000 units.


Honda is forecasting full-year sales of 3,525,000 cars worldwide, down 10.2% year on year.


It has again revised its full year financial forecast and cut net profit expectations 56.8% to JPY80bn, with operating income down 22.2% to JPY140bn on sales down 2.9% to 10.1 trillion yen.


Half of that would likely come from its motorcycle business, Honda executive vice president Koichi Kondo told a news conference in Japan, noting the segment’s high level of local production and parts procurement helped to shield Honda more effectively against currency swings compared with other Japanese carmakers.


“The sales environment is changing faster than we were able to predict,” Kondo said, according to a Reuters report, while noting that four profit warnings in a single year was probably unprecedented in the automaker’s history.


“We don’t expect conditions in the US to improve in the first half of next year, and we can only hope they will start to recover in the second half,” he added.


That result would nonetheless be better than key Japanese rivals – Toyota has said it expects its first-ever operating loss this year and media reports and analysts have said Nissan also may book a loss.


Kondo also said it would likely take until June or July to bring global inventory down to appropriate levels.


Directors meeting today decided Honda would pay JPY11 per share for the fiscal third quarter dividend but would not decide on the full year pay-out until final results and 2009/10 fiscal year forecasts had been finalised.


Reuters noted that analysts have said automakers’ final results for this year could change dramatically depending on how much and how early they set aside reserves against financing losses and other costs to start the new year on a cleaner slate.


Honda said it now sees losses from soured credit and falling residual values of used cars to total almost JPY100bn yen this year, double what it had foreseen three months ago.


“Honda is relatively better positioned than Toyota because it has focused on smaller cars and hasn’t aggressively expanded its global operations like Toyota. It also helped that the Chinese market fared relatively well,” Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, told the news agency.


But he added: “The operating environment is still tough going forward as the US economy is unlikely to recover during the first half of this year, coupled with the strong yen.”


Reuters noted that Honda has never posted a loss in its 60-year history, although that record was likely to be broken next year if exchange rates stay around the current high levels of JPY90 to the dollar and JPY115 to the euro.