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Honda Net Profit Jumps as Company Shows Signs of Rebound
Lower revenue offset by cost-cutting efforts and lower expenses related to recalls
By SEAN MCLAIN
Updated Oct. 31, 2016 5:40 a.m. ET
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TOKYO— Honda Motor Co. reported Monday a sharp rise in net profit for the fiscal second quarter on the back of strong China sales as the company begins to show signs of recovery after years of recall-related expenses’ weighing on profit.
The company said net profit rose to 177 billion yen (1.7 billion dollars) for the three months ended Sep. 30 compared with 127.7 billion yen a year earlier—a 38.6% increase.
“Our new models are very popular, particularly the Civic,” said Seiji Kuraishi, executive vice president at Honda.
Honda historically has been heavily reliant on the highly competitive sedan market, which forces car makers to offer steep discounts. Sedans represented close to half of Honda’s vehicle sales last year. By comparison, sedan sales represent about a third of Toyota Motor Corp.’s sales over the same period.
That is shifting as Honda ramps up production of SUVs. The company’s CR-V SUV now competes with the Civic in sales volume.
In the U.S., Honda’s new HR-V crossover is proving so popular that it decided to move production of the CR-V out of Mexico to make room for more of the smaller vehicle.
China is showing similar hunger for the HR-V. Earlier in October, one of Honda’s Chinese joint-venture partners, Dongfeng Motor Group Co., revived plans for a 780 million dollars plant in central China, a move that would boost production by 50%.
Sales of crossovers such as the HR-V are surging in China thanks to tax breaks.
The party may grind to a halt once those tax incentives go away, but Honda remains bullish on sales growth, particularly in inland China, where its new factory will be.
Honda has worked to rebuild its bottom line after setting aside 556 billion yen over the past two years to cover costs related to the recall of faulty air bags made by Takata Corp. The company’s efforts to cut costs and bolster profitability appear to be paying off.
The company’s revenue fell 9.9% in the second quarter to ￥3.26 trillion from ￥3.62 trillion yen last year, underlining the sharp rise in the company’s profitability.
Honda cut its full-year revenue expectations to ￥13.40 trillion from its prior projection of ￥13.75 trillion, but net profit is expected to increase by ￥25 billion yen to ￥415 billion yen as a result of lower costs.
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