Don’t count Honda among Japanese exporters preparing for a financial bonanza from the yen that is falling in foreign currency exchange.
Unlike Nintendo and Japan Tobacco, which raised their profit forecasts this week, Tokyo-based Honda has cut its net income expectations for the year ending March, assuming the yen will trade at levels that have been outdated since November. Chief Financial Officer Fumihiko Ike said Honda is being “extra careful” with its yen forecasts because it doesn’t know what to expect in February and March.
The carmaker is not alone. Chubu Steel Plate Co. and NGK Insulators Ltd. are among dozens of companies this week that cut their profit projections by focusing on aspects such as sales in China and Europe rather than the benefits of a weakening yen. While conservative assumptions may give corporations extra room to beat their earnings forecasts, they may also undermine investor confidence.
“I can understand that they’re being conservative, but it would’ve been better if they’d maintained their forecast based on the current level of the currency,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., about Honda’s earnings. “This new figure makes me wonder if they have other issues, too.”
The maker of the Civic sedan revised its full-year outlook for the yen against the dollar to 81 from 80, and 105 from 103 versus the euro. The yen, which has weakened more than any currency since mid-November, is now trading at about 91 against the dollar and 123 versus the euro.
According to Honda, its operating income gains by 16 billion yen annually for every one-yen drop in the dollar rate, and 1 billion yen for each one-yen drop in euro rate.
Instead of reflecting the weaker yen’s added earnings, Honda lowered its full-year net income forecast by 1.3 percent to 370 billion yen ($4.1 billion), citing a slower-than-expected recovery in sales in China and weakness in European demand.
Though Honda is projecting the yen to be at 85 against the dollar and 110 versus the euro during the current quarter, the Japanese currency has never been that strong in 2013.
The yen has weakened against all currencies tracked by Bloomberg since Honda last reported earnings in late October, falling more than 12 percent against the dollar.
“The recent moves in the currency came all very suddenly, so our forecast may seem rather conservative,” Ike said. “We don’t know what the trend will be in February through March, so we want to be extra careful.”
In contrast to Honda, Japan’s weakening currency is boosting the earnings outlook at Nintendo and Japan Tobacco. Nintendo, creator of the Mario and Zelda game franchises, more than doubled its annual net income forecast this week.
At Honda, the maker of the Accord sedan maintained its projections for operating profit and revenue, while cutting its forecast for global deliveries to 4.06 million from 4.12 million. From January to December, it expects to sell a record 4.4 million vehicles.
In the U.S., where Honda gets more than 30 percent of its sales, deliveries surged 24 percent from October to December, according to researcher Autodata Corp. Market share in the U.S. increased 1.1 points to 9.93 percent.