UPDATE 3-Honda slashes profit outlook on disasters, sees rebound

Tue Jan 31, 2012 6:33am EST

* Sees 2011/12 op profit at Y200 bln, below consensus Y283 bln

* Q3 operating profit drops to Y44.3 bln vs consensus Y81.2 bln

* "Unparalleled" difficulty at Honda this year - CFO

* Sees big leap next business year, return to growth track - CFO

* Investors eye anticipated rebound, Honda shares outperform

By Chang-Ran Kim

TOKYO, Jan 31 (Reuters) - Honda Motor Co slashed its annual profit guidance to the lowest level in three years as it counted the cost of natural disasters in Japan and Thailand and a strong yen. But it forecast a healthy rebound next year.

Japan's No.3 automaker was the slowest to recover from the supply chain disruptions after the Japanese earthquake and tsunami and it was the only carmaker whose factory was inundated by historic floods in Thailand, Southeast Asia's export hub.

Honda cut its expectations for operating profit for the business year to March 31 by a quarter to 200 billion yen ($2.6 billion), below the average forecast of 24 analysts polled by Thomson Reuters I/B/E/S of 283 billion yen. It marks a drop of 65 percent compared with year-earlier profits.

"Any way you look at it, this has been an extremely tough year for Honda," Chief Financial Officer Fumihiko Ike told a news conference on Tuesday after Honda released its results.

"We consider this to be a year of unparalleled, abnormal difficulty, and even though the global economy may not be looking good now, we'll see a big leap next year and beyond," he said.

In the face of the disasters, the firm's global output dropped last year by a fifth to 2.91 million cars, slipping below 3 million for the first time in eight years. Production at other Japanese automakers, except for Nissan Motor Co, also fell but not so severely.

Honda had withdrawn its previous operating profit forecast three months ago because of uncertainty over when production could restart following the floods. The dollar's estimated 8-yen fall to 78 yen also hurt profits.

Honda, whose bottom line has been propped up by its leading motorcycle business and a strong finance arm, expects net profit to fall 60 percent to 215 billion yen in the financial year. The figure, reported under U.S. accounting standards, includes earnings made in China.

"It was a tough year, with the earthquake and Thai disasters, so there is a sense out there that it's only natural for the numbers to look bad," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

While Honda's new forecast may trigger a temporary drop in its shares, he added that they were supported by solid demand.

Quarterly profit was also grim. The company said operating profit for the October-December quarter slumped 65 percent to 44.3 billion yen, well below an average estimate of 81.2 billion yen in a Reuters poll of nine analysts.

4 MILLION CARS

The Thai floods have hurt other Japanese companies as well. Toshiba Corp on Tuesday posted a 72 percent decline in quarterly operating profit, partly a result of the disaster.

Honda estimated lost sales owing to the Thai floods would add up to 260,000 vehicles this business year. It cut its worldwide sales outlook to 3.15 million from the previous forecast of 3.435 million.

It said the Thai plant should be up and running at full speed from April, when other affected Asian production would also return to normal.

Chief Executive Takanobu Ito has said he wanted Honda's global car sales to recover to at least 4 million in the business year from April.

"Their new guidance does imply a pretty good fourth quarter, and our expectations are for them to enjoy some pretty robust growth next fiscal year as they recover from the twin disasters of the earthquake and the flood," said CLSA Asia-Pacific Markets auto analyst Christopher Richter.

With production steadily recovering in the final months of 2011, investors have turned their attention to an anticipated jump in sales as Honda restocks its depleted inventory.

Honda's stock is the best performer among Japanese automakers so far in 2012, up 14.2 percent as of Monday, outperforming an 8.9 percent rise in the auto sector index.

LONGER-TERM WORRIES

Still, concern in the United States, Honda's biggest market, lingers over whether the Japanese car maker might be losing its edge after its the remodelled Civic got panned by critics last year.

Competition is set to heat up as resurgent U.S. giants Ford Motor Co and General Motors Co and South Korea's fast-rising Hyundai Motor Co flex their muscles in the sedan segment long dominated by Honda and Toyota Motor Corp .

While acknowledging some of the criticisms of the revamped Civic in the United States, Honda executives have stressed that the car had topped the country's compact sedan segment in the latest quarter, outselling Toyota's Corolla.

"Inventory for the Civic is finally back up above 60 days, so we expect it to finally start selling strongly from here," CFO Ike said, adding that Honda had placed priority on restocking the new car.

Overall, Honda had just 37 days worth of inventory at the end of December in the United States, according to Autodata, compared with the 55-60 days Honda considers healthy.

Honda is targeting a 25 percent jump in its U.S. sales this calendar year, also by shoring up its struggling Acura premium brand.

Honda's shares fell 0.6 percent in trading on Tuesday that ended before the results were announced. The benchmark Nikkei average ticked up 0.1 percent.

Honda is the first Japanese automaker to report third-quarter earnings. Toyota will report on Feb. 7 and Nissan on Feb. 8.