Honda warns of rising costs, forecasts weaker annual profit

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Bangkok International Motor Show

By Satoshi Sugiyama

TOKYO (Reuters) -Japan’s Honda Motor on Friday forecast a 7% fall in annual earnings, instead of an expected rise, and warned that the long chip crunch and rising raw material costs were hurting profit, echoing comments from rivals Toyota and Nissan.

Global automakers such as Honda have slashed production due a severe shortage of semiconductors, and now face what top automaker Toyota Motor called an “unprecedented” increase in costs as China’s COVID-19 curbs have shuttered factories and the war in Ukraine further strains supply chains.

“We are currently hoping to get the business on a recovery track in June,” by using parts that are in stock, Senior Managing Executive Officer Yasuhide Mizuno told a post-earnings call.

Mizuno said the company was hearing the lockdown situation in Shanghai was getting better and supply chain and logistics in the country were recovering up to about 80%.

Honda, Japan’s second biggest automaker by sales, forecast operating profit will fall to 810 billion yen ($6.29 billion) for the current fiscal year that began in April. Analysts expected a 6.3% rise to 926.3 billion, according to Refinitiv.

It expects to sell 4.2 million vehicles globally this year, a 3.1% increase from last year.

Toyota on Wednesday forecast a 20% slump in profit this year, while Nissan Motor said it expected profit to be flat.

“Adding to uncertainty on supply and production, further increase in cost is expected,” in the fiscal year ending March 2023, the company said in a statement. It said the impacts from the chip shortage and resurgence of COVID-19 were expected to remain.

The company said it expects about 300 billion yen in costs to cover rising material, labour, and logistics expenses this year, a roughly 11% jump from last year.

Maker of the best-selling Accord, Honda said on Thursday it would slash production by about a fifth at two of its domestic factories for the rest of May, a month after it cut back production by about a half at one of them.

The company on Friday reported a smaller-than-expected 6% fall in operating profit to 199.5 billion yen for the quarter ended March 31, beating an average estimate of 152.2 billion yen, Refinitiv Eikon data showed.

Honda’s shares – which closed up 2.2% on Friday amid a 2.6% rise in the broader market – have risen 1% so far this year.

($1 = 128.8300 yen)

(Reporting by Satoshi Sugiyama; editing by Jason Neely and David Evans)