Honda (HMC) Lags Q3 Earnings & Sales Estimates, Ups View

Honda Motor (NYSE:HMC) reported fiscal third-quarter 2020 results on Feb 7. Earnings and revenues of the firm missed the Zacks Consensus Estimate, and declined from the year-ago quarter. Weaker contribution from ‘Automobile’ and ‘Life Creation and Other Business’ segments, along with unfavorable foreign currency translations resulted in tepid results. On Feb 6, Japan’s #1 automaker Toyota (NYSE:TM) released fiscal third-quarter 2020 results, wherein earnings topped estimates and improved from the year-ago figure.

Honda posted earnings of 61 cents per ADR, lagging the Zacks Consensus Estimate of 69 cents and decreasing from the year-ago earnings of 85 cents. The firm reported revenues of $34,470 million, missing the Zacks Consensus Estimate of $34,606 million and declining from the prior-year sales of $35,250 million.

Segmental Highlights

For the three months ended Dec 31, 2019, revenues from the Automobile segment declined 9.9% year over year to ¥2.57 trillion ($23.7 billion) amid lower sales in Japan, the United States and China. Consequently, the unit’s operating profit decreased 18.2% from the corresponding period of 2018 to ¥33.7 billion ($310 million). Lower sales and negative foreign currency translations more than offset the benefits of cost-cut initiatives.

Revenues from the Motorcycle segment came in at ¥530.2 billion ($4.9 billion), up 2.7% year over year. Higher sales units in China, Thailand and Brazil resulted in improved sales, partly offset by lower sales in India. The unit’s operating profit increased 7.2% from the comparable year-ago period to ¥74.5 billion ($685 million). Higher overall sales and decreased SG&A expenses aided the results.

Revenues from the Financial Services segment totaled ¥619.8 billion ($5.7 billion), up 9.8% year over year. The unit’s operating profit also increased 6.9% year over year to ¥64.6 billion ($594.2 million) on higher leasing revenues.

Revenues from the Life Creation and Other Business came in at ¥86.4 billion (794.4 million), down 13.1% year over year. The segment incurred operating loss of ¥6,184 million ($0.056 million), which widened from the loss of ¥992 million in the corresponding quarter of the prior year amid weaker sales of products in the United States.

Dividend & Financial Position

The company announced a quarterly dividend of ¥28 per share for its shareholders. For fiscal 2020, total annual dividend payment per share is expected to be ¥112.

Consolidated cash and cash equivalents were ¥2.44 trillion ($22.2 billion) as of Dec 31, 2019. Long-term debt was ¥4.2 trillion ($38 billion), representing a debt-to-capital ratio of 32.3%.

Guidance Up

Amid expectation of weaker yen and cost-control efforts, Honda increased its sales and operating profit view for fiscal 2020 (ending Mar 31, 2020).

This Japanese automaker expects revenues to be ¥15.15 trillion at the end of fiscal 2020, indicating a 4.6% year-over-year decline. However, the updated projection compares favorably with the prior guidance of ¥15 trillion. Further, operating income is now projected at ¥730 billion compared with the previous forecast of ¥690 billion. The estimated figure suggests 0.5% year-over-year growth. Operating margin is now anticipated to be 4.8%, upfrom the prior projection of 4.6%. Earnings per share at the end of fiscal 2020 are expected to be ¥339.64, up from the prior view of ¥329.64.

Zacks Rank & Stocks to Consider

Honda currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Auto-Tires-Trucks sector are Gentex Corporation (NASDAQ:GNTX) and SPX Corporation (NYSE:SPXC) , each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gentex has an estimated earnings growth rate of 6% for fiscal 2020.

SPX has an expected earnings growth rate of 8.1% for fiscal 2020.

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