Honda’s profits for Q1 2015 fell 32% due to poor sales, recall costs

Article by Christian Andrei, on May 6, 2015

Honda Motor Co.’s profits in the latest quarter suffered a beating, with the automaker failing to meet its main targets for full-year earnings and unit sales, Executive Vice President Tetsuo Iwamura announced. This is said to be primarily due to lukewarm sales and high recall costs. In the January-March fiscal fourth quarter, its operating profit dropped 32% to 111.94 billion yen ($935.7 million) from the previous year’s 165.29 billion yen ($1.38 billion).

Honda’s net income also declined by 43% to 97.84 billion yen ($817.9 million), from the previous year’s 170.51 billion yen ($1.43 billion). In the quarter, its revenue rose by 8.3% to 3.35 trillion yen ($28 billion).

Meanwhile, worldwide sales climbed slightly by only 0.8% to 1.2 million vehicles, boosted by sales in mainland Asia and North America. Iwamura also said that earnings slumped because of its tepid sales volume and huge recall costs as well as the expenses related to ramping up the HR-V crossover at Honda’s new plant in Mexico.

He didn’t indicate the exact recall amount. However, these costs, which include the worldwide recall due to defective airbags, were considered as quality-related costs in 49.6 billion yen ($414.6 million) of selling, general and administrative expenses. Five fatalities in the U.S. have been linked to these faulty airbags while there has been one death in Malaysia.

Around the globe, Honda has recalled about 14.4 million units that have suspect airbag inflators built by Japanese supplier Takata Corp., higher than any other automaker. Of these recalls, around 9.87 million were in the U.S.

Global sales took a hit last year when Honda put off launching some its new models to double-check the quality, after five recalls were announced for its redesigned Fit Hybrid small car in one year because of defects related to drivetrain and computer control.

Honda’s sales in Japan fell 22% to 221,000 vehicles in the quarter, as consumers faced the brunt of an increase in its nationwide sales tax. In Europe, sales dropped 5.9% to 48,000 units. Asian sales volumes went up 15% to 464,000 vehicles.

In North America, Honda sold 397,000 units, leading to a 2.8% sales increase over the previous year. North America, which has typically brought in a lot of cash for Honda, fell to being the automaker’s third-biggest profit engine in the fourth quarter, trailing behind Asia and Japan.

Feeling the impact of the airbag recall costs, Honda’s regional operating income decreased 72% to 11.6 billion yen ($97 million). On the other hand, Asia’s regional operating profit rose 31% to 70.7 billion yen ($591 million) in the quarter.

In the first three months of the year, Europe reported a regional operating loss of 5.7 billion yen ($47.6 million), from the previous year’s operating profit of 14.9 billion yen ($124.6 million). For the full fiscal year ended March 31, the automaker’s overall operating profit slipped 13% to 651.68 billion yen ($5.45 billion), from the past year’s 750.28 billion yen ($6.27 billion).

As early as January, Honda had forecast an operating profit of 720 billion yen ($6.02 billion). Its annual net income decreased by 8.9% to 522.76 billion yen ($4.37 billion). This is lower than its earlier prediction of a net income of 545 billion yen ($4.56 billion). Since then, this outlook has been revised twice downward last year amid declining sales and mounting recall costs.

Topics: honda, profit, sales, recall

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