Japanese automaker Honda (HMC - Get Report) reported a worse-than-expected consolidated net loss of ¥344.5 billion ($3.16 billion) for the year ended March 31, 2016 owing mainly to costs stemming from the recall of models installed with faulty airbag inflators manufactured by Takata. Honda shares closed down 2.1% in Tokyo.
While the Tokyo-based manufacturer of the Civic and Accord models enjoyed year-on-year sales growth of 9.6%, operating profit dropped 24.9% to ¥503.3 billion. The company attributed the decline to currency effects and higher expenses, including recall-related costs, which together more than offset boosts from an improved sales mix and cost reductions. Net income fell 32.4% year-on-year, resulting in a 34% shortfall from its most recent target announced in January.
In February, Honda, which derives more than half of its vehicle sales from North America, recalled 442,997 vehicles for 13 models installed with Takata's faulty airbag inflators, which have reportedly been vulnerable to rupturing under stress of high heat, humidity and the strain caused by rapidly changing temperatures close to the engine. Models subject to recalls included Accord, Civic, Fit and Odyssey.
For fiscal year 2017, Honda expect sales to drop 5.8% but for operating profit to jump 19.2% to ¥600 billion. The company attributes the likely profit growth to boosts from an improved sales mix, costs reductions, and lower expenses. However, it also expects a drag of just above ¥300 billion from currency exchange effects. Honda assumes an exchange rate of ¥105 to the dollar for the year, compared with ¥120 for fiscal year 2015.
The car maker also experienced a worse-than-expected loss in the fourth quarter of ¥93.4 billion. In the January to March quarter of 2015 the company posted a profit of ¥81.9 billion.