January 31, 2011 / 12:24 AM / in 7 years

Honda seen lifting guidance despite tough Q3

* Consensus puts Honda Q3 op profit at Y110 bln, -38 pct y/y

* Honda FY op forecast at Y500 bln vs consensus Y594 bln

* Civic remodelling, U.S. market recovery positive for 2011

By Chang-Ran Kim, Asia autos correspondent

TOKYO, Jan 31 (Reuters) - Honda Motor Co is expected to lift its cautious guidance on Monday even as a strong yen and sliding Japanese sales hit quarterly profits, confirming optimism about the automaker’s robust earnings potential for this year.

Japan’s top automakers are all expected to report a sharp decline in October-December profits as the end of subsidies to replace clunkers has hammered domestic sales since October. An 8-yen fall in the dollar and higher raw materials costs are also seen erasing the positive effect of global sales gains.

But Japanese car makers have also taken steps to reduce fixed costs and boost manufacturing efficiencies in what is expected to keep profit margins relatively healthy in the third quarter, boding well for future earnings as the key U.S. market recovers.

“Despite the very difficult macroeconomic environment in October-December with the dollar averaging about 82 yen, some of these companies will make an operating profit of 100 billion yen ($1.21 billion),” said Goldman Sachs auto analyst Kota Yuzawa.

“That will be telling when it comes to making projections for 2011/12,” he said.

Honda, Japan’s third-biggest automaker and the world’s top motorcycle maker, is expected to post a 38 percent drop in October-December operating profit to 110 billion yen ($1.33 billion), according to a poll of seven analysts by Reuters.

That would put its nine-month profit at 508 billion yen, exceeding the company’s most recent full-year forecast of 500 billion yen and making an upward revision a near-certainty.

A survey of 20 analysts by Thomson Reuters I/B/E/S forecasts a profit of 594 billion yen in the year ending on March 31, up 63 percent from 2009/10.

U.S. RECOVERY, MODEL REVAMPS KEY

Robust sales growth in emerging markets has helped global automakers weather a fall in mature regions such as Europe, and Honda has especially benefited from its lucrative motorcycle business in lower-income countries. Its global motorcycle sales jumped 19 percent to a record 17.95 million units in 2010.

But a convincing recovery in the U.S. car market -- Honda’s biggest -- is the main factor that has stoked optimism among investors recently, sending its shares up about 20 percent over the past three months, outperforming Toyota Motor Corp and Nissan Motor Co .

While South Korea’s Hyundai Motor Co stole rivals’ thunder in the United States last year with the biggest growth among major brands, analysts expect the upcoming revamping of the high-volume Civic and CR-V models to boost Honda’s market share this year.

Honda’s U.S. sales grew 7 percent last year, slower than the market’s 11 percent. Sales in China grew 13 percent, making it Honda’s second-biggest market ahead of Japan for the first time.

Hyundai last week reported a record quarterly profit, although analysts noted that competition would heat up for South Korea’s top automaker as other popular models such as Toyota’s Camry undergo a remodelling.

Honda will announce its third-quarter results at 3 p.m. (0600 GMT). Toyota will report on Feb. 8 and Nissan on Feb. 9. ($1=82.88 Yen)

Our Standards:The Thomson Reuters Trust Principles.
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