Honda Motor Management Discusses F2Q 2012 Results - Earnings Call Transcript

Honda Motor Co., Ltd. ( HMC)

F2Q 2012 Earnings Call

October 31, 2011 8:00 AM ET

Presentation

Unidentified Company Representative

Good morning everyone. Welcome to Honda’s Financial Results Audio Presentation. On October 31, 2011 Honda Motor announced its financial results for the fiscal second quarter ended March 31, 2012. Through this audio presentation, we would like to review the financial results and discuss the major factors affecting Honda's business during the period.

Please note that Honda is currently unable to reasonably calculate forecasts of the consolidated financial results for the fiscal year ending March 31, 2012 due to the impact of flooding in Thailand. Therefore Honda will release its forecast as soon as they become available. We have posted presentation materials at Honda Investor Relations website at http://world.honda.com/investors/. So please download the presentation material before listening further, by clicking the link on the all new 2012 CR-V photo to download the material. If you have got the material ready at hand, let's get started.

This audio presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements are based on management’s assumptions and beliefs taking into account information currently available to it. Therefore please be advised that Honda’s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors including general economic conditions in Honda’s principal markets and foreign exchange rates between the Japanese yen and the U.S. dollar, Euro and other major currencies as well as other factors detailed from time to time. The various factors for increases and decreases in income have been classified in accordance with a method that Honda considers reasonable.

Now I would like to start with the financial summary for the second quarter that ended on September 30, 2011. Please have a look at the slide three. Honda achieved an operating income of JPY52.5 billion and net income attributable to Honda Motor of JPY60.4 billion. Both of these speed profit forecasts which Honda announced on August 1, 2011 due mainly to strong profits posted by the automobile and financial services businesses in North America and the motorcycle business and the automobile business in emerging countries.

Despite decreased unit sales in the automobile business caused by the supply change disruption following the Great East Japan Earthquake that occurred on March 11, 2011 and an unfavorable currency effect by the yen depreciation. Motorcycle unit sales totaled 3,276,000 up by 20.0% from the same period last year. Automobile unit sales totaled 772,000 units, down by 14.0% from the same period last year. Power product unit sales were 1,276,000 units, up by 9.4% from the same period last year.

Financial highlights for this second quarter are seen in the middle of the slide. Net income attributable to Honda Motor totaled to JPY60.4 billion, down of 55.5% from the same period last year. EPS was JPY33.53, which was a decrease of JPY41.71 from the same period last year. Revenue totaled JPY1,885.8 billion. Operating income amounted to JPY52.5 billion, a decrease of 67.9% from the same period last year. Equity and income of affiliates totaled JPY15.5 billion, a decrease of 56.3% from the same period last year.

Now I would like to discuss an analysis of sales and operating profit for the quarter. Please turn to slide seven. Revenue decreased by JPY366 billion, down by 16.3% from the second quarter last year to JPY1,885.8 billion due mainly to decreased revenue in the automobile business mainly caused by supply chain disruptions from the earthquake. Changes in revenue in respective businesses without the currency translation impact are seen on the slide. Had the exchange rate remained unchanged, revenue would have decreased by JPY277.9 billion, which is equivalent to a decrease of 12.3%.

Now let me elaborate on variance and factors that affected the operating profit and income before income taxes. Please turn to slide eight. Operating income for the third quarter totaled JPY52.5 billion, as you can see at the bottom right hand corner of the slide, which was a decrease of JPY110.9 billion compared to the operating profit of JPY166.2 billion in the same period last year. Income before income taxes amounted to JPY76.5 billion, as shown in the bar on the right side, which was a decrease of JPY89.6 billion from the same period last year as seen on the top of the slide.

If you could have a look at the first box on the left hand side, it shows how much gross profit was affected by the change in top line sales and volume, a decline in unit sales mainly impacted by decreased production resulting from supply chain disruption triggered by the earthquake, brought negative JPY15.1 billion this quarter.

The second box on the left hand side shows cost reduction which is also associated with changes in gross profit. Cost reduction negatively impacted this quarter by JPY34.0 billion due mainly to an increase in fixed costs per unit as production output was reduced and raw material costs increased.

The third box on the left hand side demonstrates SG&A impact. Decreased SG&A expenses mainly due to smaller quality related expenses provided a positive impact of JPY9.1 billion this quarter. Increased R&D expenses provided a negative impact of JPY6.2 billion. Forex had a negative impact of JPY29.7 billion as the yen appreciated toward major currencies.

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