Honda Raises Forecast Despite Profit Drop

Updated from 2:41 a.m. EDT

TOKYO -- Honda(HMC Quote) raised its full-year profit forecast despite earnings diving by more than half last quarter with "green" car incentives and growth in China expected to further boost vehicle sales.

Net profit for the July-September quarter fell 56.2% from a year earlier to 54 billion yen ($587 million), the company said Tuesday, hit by a strong yen and the weak global auto market.

But Honda, Japan's No. 2 automaker, now expects a net profit for the fiscal year ending in March of 155 billion yen, nearly four times its initial outlook for a 40 billion yen profit.

The automaker also raised its forecast for sales this fiscal year to 3.4 million vehicles. It expects more sales in emerging Asian markets and also in previously sluggish Japan where tax breaks and government-backed discounts for green vehicles are helping along a recovery.

In July, Honda forecast vehicle sales of 3.29 million but the new projection doesn't reach the nearly 3.52 million vehicles it sold globally the previous fiscal year.

Honda, which makes the Insight gas-electric hybrid, Asimo robot and Accord sedan, said quarterly sales fell 27.2% from a year earlier to 2.057 trillion yen.

A strong yen weighed on Honda's results. Unfavorable currency exchange rates erased 79.7 billion yen from Honda's quarterly operating profit, the company said in a statement. The dollar bought 106 yen the previous year but has fallen to around 90 yen lately.

Honda said auto sales grew in China and India, as well as in Japan during the quarter. Honda and rival Toyota (TM Quote), with their reputations for green cars, are enjoying the benefits of government incentives for fuel efficient and gasoline-electric hybrid cars.

Even in the U.S., where vehicle sales fell during the quarter, a cash for clunkers program also helped sales, Honda said.