Honda beats Q1 estimates but sees tougher year ahead

By Chang-Ran Kim, Asia Autos Correspondent

TOKYO (Reuters) - Honda Motor Co's (7267.T: Quote, Profile, Research, Stock Buzz) quarterly earnings handily beat market estimates but it cut its annual profit and global car sales forecasts as it battles with rising costs for raw materials and a crumbling U.S. auto market.

Quarterly net profit at Japan's No.2 automaker and the world's top motorcycle maker showed a surprise 8 percent rise on Friday due mainly to a fall in allowances for U.S. sales incentives from the year before.

But like many other Japanese automakers due to follow with results in the coming weeks, Honda is suffering from a collapse in demand for big, gas-thirsty vehicles in the United States, its biggest market.

With supply of popular, fuel-efficient cars such as the Civic falling far short of demand, Honda cut its sales forecast in North America this business year by 1.4 percent to 1.745 million cars and its global sales target also by 1.4 percent to 4.08 million cars.

Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said the quarterly numbers were a positive surprise although rising costs clouded the outlook.

"The situation looks tougher over the whole year, what with the lower forecast," he said. "Usually you'd think they might revise their forecast upwards, but things over the short term probably look pretty tough."

Honda's April-June operating profit, which excludes earnings made in China, fell just 0.2 percent to 221.4 billion yen ($2.1 billion) despite a 16-yen fall in the dollar and soaring prices of steel, platinum, and other raw materials.

Net profit was 179.6 billion yen, ahead of an average estimate for a 19 percent fall to 135.4 billion yen in a Reuters poll of eight brokerages.