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Honda Reports Solid Earnings in Fiscal 2018—Outlook Might Hurt

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Honda’s fiscal 2018 earnings

Honda Motor Company (HMC) reported its fiscal 2018 results on April 27, 2018. The company reported a 10% YoY (year-over-year) rise in its revenue to 15 trillion Japanese yen, or ~$140 billion.

HMC’s fiscal 2018 adjusted EPS (earnings per share) were at 590.79 yen, or ~$5.42, a rise of 54% YoY and better than Wall Street analysts’ consensus of $5.36. With this, Honda’s ADR (American depositary receipt) fell to $34.21, a 1.6% fall from the previous day’s close, on the day it reported its fiscal 2018 results.

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Segment revenues and operating profit

In fiscal 2018, Honda’s Motorcycle segment’s sales rose 10.7% YoY to 19.5 million units. The upward trend in the company’s motorcycle sales was primarily driven by solid sales growth of 22.2% YoY seen in the Indian market. Similarly, HMC’s Automobile segment’s sales rose 2.3% YoY. Rises of 2% and 11.5% were seen in the company’s Japanese and Chinese market sales, respectively, during the year, while its US auto sales fell 0.4% YoY.

In terms of profitability, Honda’s fiscal 2018 operating profit fell 0.9% YoY last fiscal year to 833 billion yen, or ~$7.6 billion. Moreover, its operating margin also contracted to 5.4% in fiscal 2018 compared to 6.0% in fiscal 2017.

Costs related to a litigation settlement for faulty airbag inflators in Honda’s cars and the impact of pension accounting treatment pressurized Honda’s operating profits in fiscal 2018.

According to 2017 US auto sales volume, Honda was the sixth-largest automaker (FXD) in the United States. General Motors (GM), Ford Motor Company (F), Toyota Motor (TM), and Fiat Chrysler Automobiles (FCAU) were in the first, second, third, and fourth positions last year, respectively.

Fiscal 2019 outlook

In fiscal 2019, Honda expects its revenue to remain firm at $15.6 trillion yen, reflecting a 1.6% rise over its fiscal 2018 revenue. On the negative side, the company’s operating profit is expected to fall 16% YoY in fiscal 2019 to 700 billion yen. Similarly, HMC has cautioned investors that expected strength in the Japanese yen might also result in lower operating margins in fiscal 2019.

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