TOKYO (Reuters) - Honda Motor (7267.T) said the impact of U.S. steel and aluminum import tariffs on its bottom line had so far been limited, as it posted a surprise jump in quarterly profits to their highest in more than a decade on improving North American sales.
The automaker also forecast a less than previously expected drop in annual operating profit and, while it lowered its global vehicle sales view given floods in Mexico are expected to drag on output, the number is still expected to be a record high.
The promising results and earnings outlook from Japan’s No.3 automaker stands in stark contrast to the dull forecasts from several major automakers hurt by rising raw material costs. A possible hike in U.S. tariffs on imported cars is further muddying projections for the sector globally.
Detroit automakers General Motors Co (GM.N), Ford Motor Co (F.N) and Fiat Chrysler Automobiles (FCHA.MI) (FCAU.N) lowered their full-year profit forecasts just last week amid worries escalating tariffs would hurt margins and sales.
Honda, however, said its policy of localizing production and procurement was acting as a buffer for now in the United States - a key market for the company.
“Roughly 90 percent of our steel and aluminum needs in the United States are procured locally,” Honda Senior Managing Director Kohei Takeuchi said at an earnings briefing on Tuesday. “Overall we’re not seeing a big impact (from tariffs) so far.”
For the first quarter ended June, Honda’s operating profit rose 11.2 percent to 299.3 billion yen ($2.69 billion), highest since early 2006 and above an average estimate of 250 billion yen from six analysts polled by Thomson Reuters I/B/E/S.
This was driven by a 3 percent rise in global vehicle sales, led by a 7.7 percent jump in North America.
Honda’s U.S. sales have improved after it raised output of SUVs including its Pilot model, shifting production away from its mainstay Civic and Accord sedans, demand for which have plummeted over the past few years.
Sales were slightly lower in Asia, Honda’s biggest regional market, over the quarter.
While the automaker has been facing a slump in sales in China, the world’s largest vehicle market, amid a quality issue with its popular models, it said it would stick to its annual target to sell 2.2 million vehicles in Asia.
But it downgraded its global group vehicle sales forecast as it expects floods in Mexico to cut production by 75,000 units, resulting in lower sales in North America.
It expects to sell 5.29 million vehicles globally in the year to March, still a record high but below a previous estimate for 5.38 million units.
It sees annual operating profit at 710 billion yen, versus 700 billion yen previously and down 15 percent from a year ago.
The automaker said it had not made any decisions on whether to change its operations if the United States raises tariffs on vehicle imports - a move that could significantly raise the cost of doing business in the world’s No. 2 car market.
The United States in May launched an investigation into whether imported vehicles pose a national security threat and President Donald Trump has repeatedly threatened to quickly impose tariffs of up to 25 percent.
Denso Corp (6902.T), one of world’s largest auto component makers, has said U.S. auto tariffs, if implemented, would wipe around $700 million from its profits this year.
Reporting by Naomi Tajitsu; Editing by Himani Sarkar