Honda Motor Co., Ltd. (NYSE:HMC) Q3 2024 Earnings Call Transcript
Honda Motor Co., Ltd. (NYSE:HMC) Q3 2024 Earnings Call Transcript February 9, 2024
Honda Motor Co., Ltd. beats earnings expectations. Reported EPS is $1.06, expectations were $0.85. Honda Motor Co., Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Unidentified Company Representative: Thank you for taking time today. I would now like to begin Honda FY 2024 Third Quarter Financial Results Press Conference. First, an introduction of Executives on stage. Executive Officer, CFO, Eiji Fujimura.
Eiji Fujimura : Thank you. I am Eiji Fujimura.
Unidentified Company Representative: Operating Executive Head of Accounting and Finance, Masao Kawaguchi.
Masao Kawaguchi: Thank you. I'm Kawaguchi.
Unidentified Company Representative: First, Fujimura will present the FY 2024 Third Quarter Financial Results and FY '24 financial forecast, followed by Kawaguchi's explanation on the details of both. With no further ado, Mr. Fujimura, please.
Eiji Fujimura: To start with, first of all, I would like to extend my deepest sympathy to the victims of the very worst Reiwa 6 Noto Peninsula Earthquakes occurred on January 1, as well as to their families, and I wish for a quick recovery and the reconstruction, restoration of the affected areas. I will explain the financial results of the third quarter and forecast of the full year of the FY 2024. Starting with the summary of the results. With regards to the cumulative unit sales into the third quarter of FY 2024, the unit sales of the motorcycles businesses increased mainly in Brazil and Europe, achieving the highest-ever operating profits and operating margins. In the automobile businesses, despite the impact of the warranty expenses, the volume went up mainly in North America, significantly raising the operating profits year-on-year.
As a result, operating profits of the whole company marked JPY 1,076.3 billion with the operating profit margin being 7.2%. Regarding the forecast of FY 2024, although some challenging market environment exists in Asia, reflecting additional strength of the earnings structures and the favorable currency impacts, we will revise the previous forecast. For the shareholder returns, in order to improve capital efficiency, we made a decision of our share buybacks in the board of directors meeting today for the amount of JYP 50 billion. Together with the already acquired JYP 200 billion, this term, it will add up to JYP 250 billion in total. Further to the share buybacks, we resolved the cancellation of the treasury stocks as many as 154 million shares.
Honda will accelerate our efforts to improve capital efficiencies in order to enhance corporate values. Let me explain the current situation of automobile businesses in the main markets. Due to the solid demand in the United States and the production recovery in Japan leading to the incremental unit sales, the entire unit sales increased year-on-year. In terms of the sales forecast of the FY 2024, we are expecting the sales drop in Thailand and Indonesia. However, we expect the sales unit increase in China. There's no change of the previous forecast. Speaking of our initiatives for electrification. In CES, the world largest tech exhibition in Las Vegas, the other day in the U.S., in that show, we made a world of premiere presentation of the new global EV concept model of Honda Zero Series, the concept model named Saloon and Space-Hub.
As the Fuel Cell System Manufacturing LLC, the joint venture company with General Motors, we have started the production of the air fuel cell systems. Next, moving on to the motorcycle businesses. In terms of the cumulative results until third quarter, despite the unit sales fell in Vietnam vehicles because of the economic slowdown, we had a stable demand growth in Indonesia and Brazil, thus the entire result ended up at the equivalent level last year. In the third quarter alone, we had increased unit sales in Brazil and India due to the reduction of units in Vietnam. The entire result was lower year-on-year. Speaking of the results forecast of FY 2024, we expect unit sales reduction in Vietnam and in Japan. However, sales in India and Thailand would grow.
Therefore, the previous forecast still stands unchanged. In November 2023, Honda organized a briefing concession on electric and motorcycle businesses. We updated our sales target of electric motorcycle in 2030 from the previous announcement of 3.5 million to 4 million units. We announced high money models to be launched, and we announced electrification strategies such as production and the procurement structures. Honda will accelerate electrification of our motorcycles, our businesses as well toward the realization of the carbon neutral. Next, regarding the outline of the cumulative financial results up until the third quarter FY 2024. In spite of the negative impact of warranty expenses, we had incremental sales of automobiles and the pricing scheme that reflects the commercial value of the products and so on due to which the operating profit increased by JPY 342.4 billion year-on-year to reach JPY 1.0763 trillion.
The profit for the period attributable to owners of the parent is JPY 869.6 billion, up by JPY 206.4 billion. Moving on to the consolidated financial forecast of the FY 2024. In spite of the challenging market environment in Asia and the higher warranty expenses with the reflection of additional fortification for profit improvements and current impact, we have revised the operating profit expectations to JPY 1.25 trillion, up by JPY 50 billion. The profit for the period attributable to owners of the parent is expected to be JPY 960 billion, up by JPY 30 billion. Forex assumption is JPY 144 for $1 in the second half and is JPY 142 for $1 for the full year projection. Unit sales and PL are shown in this slide. Regarding dividends. Expected annual dividends for 2024 will be JPY 174 per share based on the condition before splitting the shares.
Therefore, no change from the previous announcement. At today's board meeting, we passed a resolution regarding acquisition and cancellation of our own shares. For the acquisition, we have set an upper limit of 34 million shares or JPY 50 billion. Regarding the cancellation, approximately 154 million shares will be canceled. Next, Mr. Kawaguchi will explain the details of the financial results and forecast.
Masao Kawaguchi: Let me begin. At first, the Honda Group FY '24, April to December, nine months unit sales by business area is as follows. Motorcycles, a decline to 13,961 million units compared to the same period last year, mainly due to decrease in Asia. Automobiles, 3,114,000 units led by an increase in North America. Power products business, total sales amounted to 2,548,000 units led by decrease in North America. Next, a change in profit before income tax for nine months and compared to the same period last fiscal year. Firstly, operating profit increased by JPY 342.4 billion. The change factors are as follows: Sales impact. We saw a positive impact on profit of JPY 282.4 billion mainly due to an increase of automobile sales, price, and cost impacts.
The pricing that reflects increased products value, a decrease in precious metal prices and other raw material costs had a positive impact of JPY 359.8 billion. Expenses. Increase in warranty expenses plus other factors had a negative impact on profit of JPY 366.6 billion. R&D expenses had a negative impact of JPY 28.5 billion. Currency effects, a positive impact of JPY 95.4 billion. Profit before income taxes, despite a decrease in equity method profit mainly from China due to an increase in operating profit, interest income, and other, profits was increased by JPY 405.1 billion. Next, sales revenue and operating profit by business segment. Operating profit marked a record high of JPY 411.5 billion in motorcycle business. Operating profit for automobile was JPY 460.5 billion, financial services JPY 204.8 billion, power products businesses and others was a negative JPY 400 million.
Next, I would like to explain the cash flow situation. The FY 2024, nine-month free cash flow of operating companies, excluding financial, was JPY 926.5 billion. Net cash balance at the third quarter end was JPY 3,183.3 billion. Next, the forecast for fiscal 2024. Honda group unit sales for each business operation by region, the total volume is unchanged from our previous forecast. Next, forecasted change factors behind profit before income taxes year-on- year. First, operating profit, we expect an increase by JPY 469.2 billion. The breakdown is as follows. Sales impacts, a positive profit -- for sales impacts is positive of JPY 360.6 billion, mainly due to an increase in automobile unit sales, price, and cost impacts. Although there is an increase in labor costs, positive effects of pricing, plus a decline in raw materials such as precious metals lead to a decrease of JPY 434 billion.
Expenses, negative JPY353.4 billion due to an increase in warranty expenses and others. R&D expenses, a negative impact of JPY 51 billion on profits. Currency effects, a positive impact of JPY 79 billion. Although profit before income tax is expected to increase by JPY 565.4 billion despite a decrease in equity method profit mainly from China, offset by increase in interest income and others. Next, changes from the previous forecast. Operating profit and profit before tax forecast is increased by JPY 50 billion. The breakdown is as follows. Sales impacts, negative JPY 11 billion, mainly due to decrease in consolidated unit sales and price and cost impact. Although there is labor cost increase,pricing relating to the increased product value plus decrease in raw materials such as precious metals, will result in a JPY 40 billion increase in profit.
Expenses, minus JPY 32 billion is forecast mainly due to an increase in warranty expenses. Currency effects, an increase of JPY 53 billion. Lastly, the forecast for capital expenditures, depreciation, and amortization, and R&D expenditures for FY 2024 as shown. There are no changes from the previous forecast. This concludes my explanation. Thank you for your attention.
Unidentified Company Representative: Thank you very much for your attention. So, we'd like to now continue on with the questions and answers. As we have announced before, we are going to take questions on the Zoom. And because of the interest of time, please limit your questions to two questions per person. Thank you very much for your cooperation.
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