Honda sees profit plunge 40% on strong yen

TOKYO, Jan 31, 2011 (AFP) - Honda Motor said Monday its net profit for the three months ended December fell nearly 40 percent from a year ago as the yen's strength overshadowed cost-cutting efforts and as demand in Japan slowed.

The profit plunge, Honda's first in five quarters, indicated that Japan's automakers may have felt the effects of a strong yen more in the months that followed the September expiration of government green car subsidies.

However, the automaker lifted its full year profit forecast to 530 billion yen, up 97.5 percent year-on-year, an upward revision from 500 billion yen forecast in October, with recovery seen in the key US market.

The maker of Accord and Civic vehicles posted a net profit of 81.1 billion yen ($995 million) for the October-December period, off a Nikkei forecast for a 93 billion yen net profit.

Sales fell 5.8 percent to 2.1 trillion yen.

"The impact of (an end to government) incentives was bigger than expected," said Honda's executive vice president Koichi Kondo, adding that the strength of the yen made it harder to compete with other carmakers overseas.

For Japan's automakers in particular, the yen's surge against the dollar and the euro has mitigated a post-financial-crisis revival in demand and undermined the benefits of earlier cost cuts and restructuring.

More companies are considering moving production overseas to stay competitive against rivals benefiting from weaker currencies in their home countries.

The strong yen reduced operating profit by 44.5 billion yen in the third quarter, Honda said. The unit hit a 15 year high against the dollar at 80.21 yen in November.

Honda's operating profit slumped 29 percent to 125.6 billion yen.

The automaker said the fall was "due primarily to the unfavourable currency translation effects and decreased sales in the automobile business in Japan".

It warned that the economy of its domestic market was "at a standstill", with the slow recovery of consumer spending and prolonged high unemployment still keeping demand at home weak.

However, the automaker said it expected its full year net profit to hit 530 billion yen, up 97.5 percent year-on-year, an upward revision from 500 billion yen forecast in October.

It saw a 10 percent increase in US sales in the nine-month period, pointing to recovery in the key market.

Honda's sales on two wheels continue to show growth in emerging markets, with third quarter motorcycle sales up 21.7 percent on year, it said.

Despite the third quarter setback, the automaker said net profit for the nine months ended December was 489.5 billion yen, up 149.5 percent from the same period last year.

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