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How Honda’s Fundamentals Look

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Mar. 26 2018, Updated 10:30 a.m. ET

Honda Motor

In the previous part of this series, we discussed how Toyota (TM), the largest Japanese auto company, has managed to nearly double its earnings in fiscal 3Q18. Toyota’s solid financial performance in recent quarters also encouraged its management to raise its fiscal 2018 guidance. Now let’s move on by analyzing the recent financial data of the second-largest Japanese automaker, Honda Motor Company (HMC).

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Currency tailwinds have boosted Honda’s and Toyota’s profit in the recent quarters due to continued strength in the US dollar against the Japanese yen (or JPY). In contrast, the dollar’s strength against the JPY has acted as a headwind for US automakers’ (IYK) profitability including General Motors (GM) and Ford (F) in the last few quarters.

Recent fundamentals

In its fiscal 3Q18 (ended December 31, 2017), Honda’s consolidated motorcycle and automobile sales rose 15.7% and 0.8% YoY (year-over-year), respectively. This drove the company’s revenues higher by 13% YoY and boosted operating profits by 37% YoY for the quarter. With this, the company’s fiscal 3Q18 earnings more than doubled to 318.50 JPY or $3 per share. During its fiscal 3Q18, Honda’s operating margin improved significantly to 7.2% from 5.9% a year earlier.

Mixed sentiments

As of March 20, Honda’s ADR (American depositary receipt) was trading on a flat note with a 1% rise in 2018 so far. Honda, like its Japanese peer Toyota Motor (TM), is not directly listed on any stock exchange in the US market, but the ADRs of both companies are traded on the NYSE.

In the last couple of quarters, the US dollar’s strength against the Japanese yen has helped Honda to boost its earnings apart from the company’s improved product mix. In February 2018, Honda’s US car sales fell 6.9% YoY while its trucks sales dropped 4.6% YoY. Consistent weakness in HMC’s truck sales could have a negative impact on its upcoming quarterly earnings as trucks tend to yield higher margins as compared to cars.

In the next part, we’ll look at America’s key auto parts retailers’ recent financial performance.

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