Honda Reports Unexpected 15% Drop in Q2 Operating Profit

TOKYO (Reuters) – Japan's Honda (NYSE:HMC) Motor reported a surprise 15% drop in second-quarter operating profit on Wednesday, missing analysts' expectations due to a significant sales decline in China.

The second-largest automaker in Japan noted that operating profit was 257.9 billion yen ($1.68 billion) during the July-September quarter, which marks the company's first year-on-year profit decline in seven quarters.

This profit figure compares to 302.1 billion yen during the same period last year and falls short of the 427.2 billion yen average of seven analyst estimates from an LSEG survey.

Despite this setback, Honda maintained its full-year operating profit forecast at 1.42 trillion yen.

In presentation materials, the company stated that its April-September sales results were lower than last year primarily due to pressures in China, which offset gains in vehicle sales in the U.S. and Japan.

Honda's global vehicle sales declined by 1.5% to 2.8 million for the first nine months of the year, with a steep 29% drop in China and a 6% decline in Asia and Oceania, which outweighed stronger performances in the major U.S. and Japan markets.

The company has particularly struggled in China, where it was once the largest sales and production market from 2020 to 2022. The shift towards electric vehicles, hybrids, and plug-in hybrids from local Chinese brands has been detrimental, as these brands attract consumers with lower prices and innovative features.

In response, Honda has begun scaling back its workforce at joint ventures with Dongfeng Motor and Guangzhou Automobile Group this year and has halted production at certain plants to enhance operational efficiency.

In contrast, Honda has performed better in the U.S., reporting a 9% increase in vehicle sales over the first nine months of 2024.

(Currency exchange rate: $1 = 153.9000 yen)