Honda's higher sales in China will help offset costs

July 31 (Bloomberg) -- Honda Motor Co., Japan's second- largest automaker, said growth in China, Russia and other emerging markets will help counter higher costs for steel and other raw materials.

Rising profits at Honda's Chinese ventures will help boost annual net income by 10 billion yen ($92.5 million) more than the company initially forecast, Chief Financial Officer Yoichi Hojo said in a Bloomberg television interview in Tokyo broadcast today. That allowed Honda to keep its net income goal unchanged even after lowering its operating profit forecast by 3.1 percent.

Expansion in China and Russia is reducing Honda's reliance on North America, where the Tokyo-based automaker gets about 70 percent of its operating profit. Honda increased sales in China by 15 percent and more than doubled sales in Russia in the fiscal first quarter, outpacing an 8 percent gain in the U.S.

"Honda is holding up with growth in emerging markets,'' said Koichi Ogawa, chief portfolio manager, at Tokyo-based Daiwa SB Investments Ltd., which manages $28 billion. "Those markets has been the only bright spots in the auto industry because of an economic slowdown in the U.S., Japan and Europe."

Honda rose 0.9 percent to 3,530 yen at the 11 a.m. trading break on the Tokyo Stock Exchange. The shares have fallen 5.9 percent so far this year.

Toyota, Nissan

"There is a global trend that consumers opt for more fuel- efficient cars, and this won't change,'' Hojo, 52, said, citing record oil prices. "The supply for our cars is tight worldwide."

Toyota Motor Corp., Japan's largest automaker, cut its global sales goal for 2008 by 3.6 percent to 9.5 million vehicles earlier this week.

U.S. gasoline prices, which topped $4 a gallon last month, eroded demand for large sport-utility vehicles and pickup trucks. In response, Toyota, Honda and Nissan Motor Co. are trimming production of light trucks in the U.S.

Honda reiterated its net income forecast for the current fiscal year on July 25. Honda expects net income may fall 18 percent to 490 billion yen in the full-year period. It cut its operating profit forecast by 3.1 percent to 630 billion yen, as rising raw materials costs will lower the profit by about 200 billion yen.

"We have factored in possible price increases for steel in the U.S. from next year," Hojo said.

China Earnings

Earnings from ventures in China and elsewhere rose 3.2 percent to a record 38.1 billion yen in the three months ended June 30. Among affiliates, Guangzhou Honda Automobile Co. and Dongfeng Honda Automobile Co. raised sales in China to 114,837 in the three months ended June 30. Profitability is also improving at ventures because of cost-cutting, Hojo said.

In Russia, sales more than doubled to 19,000 units in the same period, making Honda the fastest-growing Japanese automaker in the country. The company is also passing on higher raw materials costs in countries including Russia where demand is rising, Hojo said.