Honda Motor net profit down 7% on fresh spending

Japan's Honda Motor said Wednesday its group net profit slipped 7.0 percent in April-June, with US sales growth and the benefits of a weaker yen offset by increased spending on a major expansion. Net profit came to 122.5 billion yen ($1.2 billion) in the quarter, while revenue grew 16.3 percent from a year earlier to 2.83 trillion yen, it said. Operating profit rose 5.1 percent to 185 billion yen. Profits were squeezed by Honda's heavy spending as it looks to expand production and further tap emerging markets. The firm previously set aside 700 billion yen for capital spending for the current fiscal year to March 2014, an 18 percent jump from the previous year. It hopes to meet a global production target of six million units by the end of March 2017. Honda's revenue from the Japanese market fell on lower automobiles sales but income from North America soared on the weaker yen. The automaker left unchanged its forecasts for the fiscal year to March 2014, expecting net profit to soar 58.0 percent to 580 billion yen on a 22.5 percent rise in revenue to 12.1 trillion yen. Prime Minister Shinzo Abe's push for active spending by the government and massive monetary easing by the central bank has driven the yen down since late last year. A weak yen is generally good for Japanese exporters as it makes their products more competitive abroad while inflating the value of their foreign income. Honda rival Nissan said last week net profit rose 14 percent to 82 billion yen in April-June as sales in North America soared while the yen's weakness boosted its bottom line. But the country's second-biggest automaker also warned that sales to China, the world's biggest car market, tumbled while demand in recession-riddled Europe was also weak. The world's biggest automaker Toyota will announce its quarterly earnings this week. Tatsuya Mizuno, auto analyst with Mizuno Credit Advisory, told AFP before Honda's results were published that Japanese automakers "are on course to recovery in general thanks to a weak yen". But he also cautioned that the currency could reverse course, dealing a blow to firms' finances. "Also, the outlook for the Chinese economy is quite uncertain, which may affect the nation's demand for new cars," Mizuno said. "For the domestic market, the focus is whether the consumption tax (increase) will be introduced or not," he said. Mizuno said buyers rushing to beat the tax rise would temporarily boost demand, but it would plunge once the higher tax was in place. Abe said his government would scrutinise economic developments before deciding whether to go ahead with the planned tax hikes that are seen as crucial to shrinking Japan's eye-watering public debt, proportionately the worst among industrialised nations. The current 5.0 percent consumption tax is scheduled to rise to 8.0 percent in April 2014 and to 10 percent in the following year. -- Dow Jones Newswires contributed to this report -