Honda Motor (HMC, Financial) recently released its Q1, 2015 results which were firing all guns. The company was helped by a weak yen to some extent and underperformance in some markets, although revenue increased. Let's see how the results were and what can be expected of Honda in the future.
Performance Improving
Owing to favorable foreign currency transformation Honda witness a revenue boost and even rise in unit sales both in automobiles and motor cycle segment. Consolidated net sales increased 5.4% year over year to $29.5 billion, but marginally failed to beat the consensus estimate of $29.7 billion.
Honda witnessed an increase in unit sales in the automobile segment that recorded 1.1 million. Total revenue $22.9 billion fetched from the automobile segments an increased by 5.6% year over year. The company also gained with a favorable foreign currency.
Revenues for the motorcycle segment grew by 2.7%, recording $4.02 billion. Consolidated unit sales also increased by 2% to 4.1 million motorcycles.
Journey Ahead
The company is optimist about its performance in the remaining fiscal 2015. Honda projects estimated revenue to increase by 12.8%. It also anticipates an increase in operating income to by 2.6% and net income to step up by 4.5%. The anticipated growth is based on the fact of Honda’s perception of favorable modal index and favorable raw material cost which can influence the bottom line.
Consumers in the U.S. are preferring pickups and SUVs manufactured by the Detroit carmakers such as Ford (F) and General Motors (GM), according to Honda management. The company has been unable to cash in on the trend of growing auto sales in the U.S. The sales drop in Japan is also a matter of concern. But the company expects to benefit from the positive trends in the U.S. by updating its MDX model.
The company is making an effort to cater to the needs of customers and the prevailing market conditions by updating its models and ramping up supply. Revamping the production system, building new plants for increasing production and adopting innovative techniques for upgrading might help Honda to improve capacity and sales during fiscal 2014.
The company is also looking to rescue its sales in Japan and expects better sales in the second half of the year when it releases the Fit compact. Despite the decline in this key market, the company has kept its outlook for the fiscal year intact. Also, the company is looking to increase its deliveries to 6 million units by 2017 has been incurring costs on building the required infrastructure. These efforts should reap benefits in the future but the company will need to offer better models in the lucrative market for pickups in the U.S.
Competitor
Nissan (NSANY, Financial) is a Japanese auto manufacturer and another rival of Honda. It is also benefiting from Yen's devaluation. Its sales are gaining strength in the US and its Nissan Leaf is the leading electric vehicle in the nation. Nissan's is also reviving an old brand -- Datsun -- for launch in emerging economies such as India, Indonesia, Russia, South Africa etc. This move should have a positive impact on its sales in the future as the emerging middle class in these markets purchases cars. The first time car buyers in these countries will have an eye on Datsun, since it would ideally suit their budget.
Conclusion
Honda is not among the best automakers but an investor can always consider investing in the company. Considering the fact, that the Board of Honda announced quarterly dividend keeps the interest of the investor covered. The company also expects to make annual dividend of ¥80 per share in fiscal 2014.
