Honda Motor Co <7267.T> raised its full-year forecasts after posting a record quarterly net profit on Friday, while brisk sales returned France's Renault to profit in the first half.
Honda, Japan's No.2 automaker, joined rivals in reporting strong results for April-June, but like the rest of the industry, faces concerns over slowing demand in the United States and China, the world's two largest auto markets, and in Europe.
The biggest risk in the current business year is probably the overall slowing of the U.S. economy, said Tomomi Yamashita, a fund manager at Shinkin Asset Management in Tokyo.
Car makers are also fearful that austerity measures in Europe including tax hikes in some markets will slow the recovery there, leading Renault to stick to its goal for the year.
In an uncertain environment in the second half of 2010, the group will continue to focus on its key target of generating positive free cash flow for the full year, Renault said.
Renault's half-year sales rose 23 percent like-for-like to 19.67 billion euros ($25.7 billion), while recurring operating profit reached 780 million euros, or 4 percent of sales. In the year-earlier period the group had posted a recurring operating loss of 620 million euros.
Renault's full-year target is built on the safe side, Chief Operating Officer Patrick Pelata told analysts on a conference call.
While he was comfortable with third-quarter sales so far in Europe, there was limited ability to predict the fourth quarter thanks to a high level of uncertainty in the region.
They have adopted a very negative scenario for the fourth quarter, a Paris-based analyst said. But they kept the full-year positive free cash flow target which is good.
HONDA FORECASTS CONSERVATIVE?
Renault partner Nissan Motor Co <7201.T>, Japan's No.3 automaker, had on Thursday reported its strongest quarterly operating profit in more than two years as sales surged, but it too retained its cautious guidance.
Honda, the maker of the Accord and Civic cars, reported a nine-fold jump in quarterly operating profit to 234.4 billion yen ($2.7 billion), easily beating the average 138.3 billion estimated by six analysts surveyed by Reuters.
First-quarter net profit, which includes earnings made in China, was 272.5 billion yen, its best quarter ever.
Honda lifted its net profit forecast to 455 billion yen from 340 billion yen but undershooting a consensus of 484 billion yen from a survey of 19 analysts by Thomson Reuters I/B/E/S.
The new forecasts may look conservative when you look at the first-quarter performance, but there are many concerns and risks to take into account for the rest of the year, Honda Executive Vice President Koichi Kondo told a news conference. He listed higher raw materials prices and the end of Japanese government subsidies in September among those factors.
Another major issue clouding the outlook for Japanese automakers is a further strengthening in the yen, with the dollar hitting an eight-month low below 86.27 yen on Friday.
Honda's operating profit margin improved to 9.9 percent from 4.2 percent in the previous quarter, thanks also to its motorcycle business.
With the outlook for demand in developed markets shaky, automakers are looking to beef up their business in emerging markets such as India and Brazil, where cheaper cars dominate.
In terms of emerging markets like Southeast Asia and Brazil, I think they've (Honda) got a good foot in the door, said Andrew Phillips, Tokyo-based auto analyst at BNP Paribas Securities, noting that Honda had a strong brand presence in those markets already through its established motorcycle business.
The next key is going to be the low cost car, which they are launching in India probably sometime next year, he added.
MICHELIN MARGINS AT RECORD
Also reporting strong margins was French tire maker Michelin , which said it was aiming for an operating margin close to 9 percent in 2010 as the rebound in tire markets helped it post a record first-half operating margin.
Japan's Mazda Motor <7261.T> swung to a first-quarter operating profit of 6.4 billion yen from a loss of 28 billion yen a year earlier, and kept its annual profit outlook unchanged.
In South Korea, Kia Motors <000270.KS> posted a 61 percent rose quarterly net profit, beating estimates as it enjoyed brisk sales of newly launched models.
Renault shares recouped early losses and were up 0.4 percent, while Honda ended down 0.3 percent ahead of its results. Kia gained 2.8 percent, Mazda lost 0.5 percent, while Michelin added about 0.7 percent.
(Additional reporting Elaine Lies and Edwina Gibbs in Tokyo, Cheon Jong-woo in Seoul and Gilles Guillaume in Paris; Editing by Lincoln Feast.)