Honda Earnings: Warranty Costs Drag Down Results, but Management Forecasts Good Fiscal 2024 Profit
We are not changing our Honda 7267 fair value estimate following the firm reporting fiscal 2023 full-year and fourth-quarter results. We will revisit all modeling assumptions when we roll our model forward for the 20-F filing, which we expect in late June. Fourth-quarter EPS declined by 8.4% year over year to JPY 66.89 and missed the Refinitiv consensus of JPY 89.33. Operating income fell 47.2% despite revenue up 13.1%, primarily from JPY 66.9 billion of various expense increases, most notably JPY 51.8 billion in warranties. Research costs were up JPY 46.9 billion, nearly entirely offset by a JPY 42.1 billion foreign-exchange benefit that contained JPY 34 billion alone from the yen weakening against the dollar to an average fiscal fourth-quarter rate of JPY 132, versus JPY 116 a year ago. Honda’s full year currency benefit was JPY 295.9 billion, with JPY 233 billion from the yen to dollar. Fiscal fourth-quarter earnings also suffered from a JPY 76.9 billion equity-method income headwind due to impairments and weak Chinese automotive demand. Honda’s fiscal fourth quarter Chinese retail automotive unit sales fell year-over-year by nearly 40% to 220,000.
Management introduced fiscal 2024 guidance of EPS of JPY 489.41, which is close to the JPY 486.92 we were already modeling and up 19.4% from fiscal 2023′s JPY 409.87. Improvement comes across all relevant income statement areas, including a forecast 19.1% operating income increase to a record JPY 1 trillion. Foreign-exchange translation is guided to a JPY 268 billion headwind, mostly from an assumed yen strengthening against the dollar on average for fiscal 2024, to JPY 125 from JPY 136. This may prove to be too pessimistic should the U.S. Federal Reserve keep raising interest rates. Honda forecasts JPY 705.6 billion in operating profit tailwinds from higher volumes, mix, and pricing to more than offset the exchange headwind. The fiscal 2024 dividend is forecast up 25% from fiscal 2023′s JPY 120 per share to JPY 150.
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