The Wall Street Journal (Tokyo) - Honda Motor Co. said its earnings are likely to suffer in the fiscal year that started in April due to the impact of the March 11 earthquake on the company's production capacity and persistent yen strength against the dollar.
Japan's third largest auto maker is unlikely to see full production volumes resume until sometime later this year and will remain at 50% of capacity at least through June as a result of a quake-instigated shortage in critical car parts, Honda's Chief Financial Officer Fumihiko Ike said Tuesday at the company's Tokyo headquarters.
That worst-case scenario of disruption in supply and the Japanese currency's sharp rise to levels around ¥80 to the dollar in recent weeks will weigh heavily on Honda's earnings outlook, he said.
"We're profitable at ¥85 to the dollar, but it's very tough for us at the ¥80 level," Mr. Ike said. "At this stage, it's hard to know if we can avoid red ink [for the full year,] but we are trying to avoid that at all costs."
A stronger yen erodes the value of dollar-denominated profits at Japanese manufacturers and makes exports less competitive overseas. In the quarter ended March 31, Honda said the currency averaged ¥82.34 to the dollar, up from ¥90.70 in the same period in the previous year.
Mr. Ike said the current bout of yen strength doesn't reflect weak Japanese economic fundamentals, adding that he hopes the currency will weaken in the weeks and months ahead.
The CFO also said Honda is compiling earnings estimates and expects to announce its full-year forecast for the fiscal year through next March before its annual shareholders meeting next month. Like many Japanese companies hurt by the earthquake, Honda declined to provide a full-year forecast on April 28 when it announced earnings results for the January to March quarter.
The earthquake disrupted a global supply chain because many components—and subcomponents—were sourced in northeastern Japan, where the damage was greatest. The lack of critical parts forced all Japanese auto makers to temporarily suspend their domestic plant operations. Most Japanese auto plants resumed partial production by mid-April, but operations remain far from fully recovered.
Although the number of components in short supply has declined sharply as parts makers hit hardest by the March quake recover, there are still three key areas where the problem has yet to be resolved: electronic components such as semiconductors, rubber items like "O" rings used to seal parts and specialized pigments for exterior paints, Mr. Ike said.
The financial officer said it was unavoidable that Honda and other Japanese auto makers would see their market share decline, but he added that core markets such as the U.S. and China would receive priority as production picks up.
Last month, Honda reported a net profit of ¥44.55 billion in the most recent quarter, down from ¥72.18 billion in the same quarter a year earlier. Honda said its sales fell 2.9% to ¥2.213 trillion from ¥2.280 trillion in the quarter ended March and operating profit sank 52% to ¥46.21 billion from ¥96.10 billion.
