Honda Q4 Earnings Beat Ests, Up Y/Y - Analyst Blog

Honda Motor Co. Ltd. HMC posted a 125.1% rise in earnings to ¥170.5 billion ($1.66 billion) or ¥94.61 (92 cents) per share in the fourth quarter (ended Mar 31, 2014) of fiscal 2014 from ¥75.8 billion or ¥42.03 per share in the same quarter of the prior fiscal year. Earnings per share surpassed the Zacks Consensus Estimate of 88 cents.

Consolidated net sales and other operating revenues grew 12.8% to ¥3.1 trillion ($30.1 billion) but fell short of the Zacks Consensus Estimate of $30.8 billion. The year-over-year increase was attributable to higher revenues from the automobile and motorcycle business operations as well as favorable foreign currency translation effects.

Consolidated operating income surged 21.5% to ¥165.3 billion ($1.6 billion) from ¥136 billion in the fourth quarter of fiscal 2013, driven by higher sales volume and model mix along with favorable foreign currency effects and cost reduction initiatives. The increase was, however, partially offset by higher selling, general and administrative (SG&A) expenses and Research & Development (R&D) expenses.

Fiscal 2014 Performance

Honda's consolidated earnings per share rose 56.4% year over year to ¥318.54 ($3.10) per share from ¥203.71 year ago. Revenues for fiscal 2014 increased 19.9% to roughly ¥11.8 trillion ($115.1 billion) from ¥9.9 trillion in fiscal 2013. The year-over-year upside was supported by increased revenues from the automobile and motorcycle business operations as well as favorable foreign currency translation effects.

Segment Performance

Revenues in the Automobile segment rose 11.3% to ¥2.38 trillion ($23.1 billion) on a 3.4% rise in consolidated unit sales to 933,000 vehicles and favorable foreign currency translation effects. Operating profit decreased 5.6% to ¥72.9 billion ($709 million) due to increased SG&A and R&D expenses, which negated the effects of favorable foreign currency translations and cost reduction initiatives.

Revenues at the Motorcycle segment scaled up 19.5% to ¥448.5 billion ($4.4 billion), owing to higher consolidated unit sales and favorable foreign currency translation effects. Consolidated unit sales rose 9.6% to 2.7 million motorcycles. Operating income surged 70.3% to ¥42.9 billion ($417 million) on improved sales volume and model mix along with cost reduction initiatives and favorable foreign currency translation effects, partially offset by higher SG&A expenses.

Revenues in the Financial Services segment increased 23.9% to ¥187.7 billion ($1.8 billion) on the back of higher revenues from operating leases and favorable foreign currency translation effects. Operating income improved 19.3% to ¥48.8 billion ($474 million), attributable to favorable foreign currency effects.                            

Revenues in the Power Product and Other segment escalated 1.9% to ¥82.6 billion ($804 million) driven by favorable foreign currency translation effects and increased unit sales. Unit sales in the segment went up 1.4% to 1.99 million. The segment recorded operating income of ¥0.5 billion ($6 million), owing to improved sales and model mix in the power product business.

Financial Position

Consolidated cash and cash equivalents decreased to ¥1.17 trillion as of Mar 31, 2014, from ¥1.2 trillion as of Mar 31, 2013. Total debt amounted to ¥5.85 trillion as of Mar 31, 2014, translating into a debt-to-capitalization ratio of 49.7%, compared with total debt of ¥4.9 trillion and a debt-to-capitalization ratio of 49.2% as of Mar 31, 2013.

In fiscal 2014, cash flow from operations improved to ¥1.2 trillion from ¥800.7 billion in fiscal 2013, primarily on higher cash receipts due to better automobile sales, which offset the increase in payments for parts and raw materials. Meanwhile, capital expenditures increased to ¥29.9 billion from ¥4.3 billion in fiscal 2013.

Guidance

For fiscal 2015, Honda has projected revenues to increase 7.7% to ¥12.8 trillion. Operating income is expected to rise 1.3% to ¥760 billion and net income is projected to increase 3.6% to ¥595 billion or ¥330.14 per share.

Currently, shares of Honda retain a Zacks Rank #3 (Hold).

Better-ranked automobile stocks worth considering include CNH Industrial N.V. (CNHI), Volkswagen AG (VLKAY) and Fuji Heavy Industries Ltd. (FUJHY). CNH and Volkswagen carry a Zacks Rank #1 (Strong Buy), while Fuji carries a Zacks Rank #2 (Buy).