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Honda (HMC) Incurs Loss in Q4, Revenues Beat Estimates

Honda Motor Co., Ltd. HMC reported consolidated loss of ¥93.4 billion ($829 million) or ¥51.85 per share (46 cents per ADR) in the fourth quarter (ended Mar 31, 2016) of fiscal 2016 versus consolidated income of ¥81.9 billion ($0.73 billion) or ¥45.45 per share (40 cents per ADR) in the year-ago quarter. The Zacks Consensus Estimate was of earnings of 49 cents per share.

Consolidated net sales and other operating revenues went up 4.8% year over year to ¥3.66 trillion ($32.46 billion). The figure also surpassed the Zacks Consensus Estimate of $31.88 billion. The year-over-year improvement can be attributed to higher revenues from automobile and financial services business operations, which offset unfavorable foreign currency translation effects.

Consolidated operating loss amounted to ¥63.8 billion ($566 million), versus operating profit of ¥86 billion ($0.76 billion) in the prior-year quarter. The decline was due to an increase in selling, general and administrative (SG&A) expenses and unfavorable foreign currency effects, partially offset by benefits from higher sales volume and model mix, and continuous cost-reduction efforts.

Fiscal 2016 Performance

Honda’s consolidated earnings per share plunged 32.4% year over year to ¥191.16 ($1.70). Moreover, the figure missed the Zacks Consensus Estimate of $2.84.

Revenues for fiscal 2016 increased 9.6% to roughly ¥14.60 trillion ($129.58 billion). The figure also exceeded the Zacks Consensus Estimate of $121.78 billion. The year-over-year upside was driven by increased revenues from automobile and financial services business operations, which offset unfavorable foreign currency translation effects.

Segment Performance

Revenues in the Automobile segment increased 10% to ¥2.68 trillion ($23.74 billion) on higher unit sales, which offset unfavorable foreign currency translation effects. Unit sales rose 11.2% to 980,000 vehicles. Meanwhile, operating loss amounted to ¥114.7 billion ($1.02 billion), up 535.1% on an increase in SG&A expenses and unfavorable foreign currency translation, partially offset by higher sales volume and model mix, along with cost-reduction efforts.

Revenues in the Motorcycle segment decreased 15% to ¥437.2 billion ($3.88 billion) due to lower unit sales and unfavorable foreign currency translation effects. Consolidated unit sales declined 5.2% to 2.63 million motorcycles. Operating income fell 48.2% to ¥27.6 billion ($245 million) owing to lower sales volume and model mix as well as unfavorable foreign currency effects which offset the impact of cost-reduction efforts.

Revenues in the Financial Services segment improved 1% to ¥455.3 billion ($4.04 billion) on the back of higher revenues from operating leases, which offset unfavorable foreign currency translation effects. Also, operating income declined 19.6% to ¥43.5 billion ($387 million), attributable to higher SG&A expenses and unfavorable foreign currency effects.

Revenues in the Power Product and Other segment fell 4.3% to ¥89.9 billion ($798 million) in the reported quarter. The decline was due to unfavorable foreign currency translation effects. Unit sales in the segment dropped 3.3% to 1.96 million. The segment's operating loss shot up 498.5% to ¥20.2 billion ($180 million) due to higher operating expenses and costs incurred in other businesses.

Financial Position

Consolidated cash and cash equivalents amounted to ¥1.76 trillion ($15.6 billion) as of Mar 31, 2016, compared with ¥1.47 trillion ($12.2 billion) as of Mar 31, 2015.

In fiscal 2016, cash flow from operations rose nearly 36.3% to ¥1.39 trillion ($12.3 billion). This improvement was driven by an increase in cash received from customers, partially offset by higher payments for parts and raw materials.

Guidance

For fiscal 2017, Honda expects revenues to decline 5.8% to ¥13.75 trillion ($7.64 trillion). Operating income is likely to rise 19.2% to ¥600 billion ($175 million). Net income is projected to improve 13.2% to ¥390 billion ($269.23 million) or ¥216.39 (49 cents) per share.

Zacks Rank

Currently, Honda has a Zacks Rank #3 (Hold). Some better-ranked automobile stocks include Lear Corp. LEA, Superior Industries International, Inc. SUP and Oshkosh Corporation OSK. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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HONDA MOTOR (HMC): Free Stock Analysis Report
 
SUPERIOR INDS (SUP): Free Stock Analysis Report
 
LEAR CORPORATN (LEA): Free Stock Analysis Report
 
OSHKOSH CORP (OSK): Free Stock Analysis Report
 
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