Honda Motor Co. beat forecasts with a 16 percent rise in quarterly profit after increased exports and currency gains outweighed higher raw material and sales costs, and it lifted its full-year forecasts to reflect a softer yen.

Like the rest of the Japanese auto industry, second-ranked Honda is suffering from sliding sales at home, but its domestic plants are running near full capacity to fill orders for the popular Civic, CR-V and Fit models overseas.

Rising exports have been an extra boon with the yen's weakening against major currencies.

Tokyo-based Honda, also the world's biggest motorcycle maker, raised its net profit forecast by 8.7 percent to 625 billion yen ($5.18 billion) for the year to March 31, 2008.

It lifted its operating profit forecast by 14 percent to 880 billion yen, attributing the difference almost entirely to a weaker yen. The new figure is better than an average forecast of 846 billion yen in a survey of 17 analysts by Reuters Estimates.

The revision was mainly due to the weaker yen and of course if that continues there might be some room for further earnings upside, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Honda now sees the dollar and euro averaging 117 yen and 155 yen in 2007/08, compared with its previous assumptions of 115 and 150. As a result, Honda now expects a positive impact of 27 billion yen from currency swings instead of the 81 billion yen loss it projected three months ago.

It seems to be putting in a solid performance in the North American market, but still the outlook is uncertain -- as is the outlook for the yen, and these are the points we have to watch, Akino added.

In North America, Honda spent $275 million more in sales incentives in the first quarter compared with a year earlier, largely to move the end-of-life Accord series before an upcoming revamp. That dwarfed the benefits from currency gains and volume growth, Honda officials said.

Sales costs were also expensive in China, where the Accord has met fierce competition from rival models, Executive Vice President Koichi Kondo told a news conference.

Honda earned a net profit of 166.12 billion yen in April-June, ahead of an average estimate of 159.3 billion yen from three brokerages. The result was lifted by big valuation losses a year earlier.

Operating profit, which excludes earnings made in China, grew 8.9 percent to 221.68 billion yen, while revenue rose 13 percent to 2.93 trillion yen on a 5.6 percent rise in global car sales to 946,000 units.

BEATS RIVALS

Honda's performance stood in contrast to that of third-ranked Nissan Motor Co., which posted a worse-than-expected drop in quarterly profits a day earlier as U.S. sales of its bigger, higher-margin vehicles were hit by high gasoline prices.

Smaller player Daihatsu Motor Co. also raised its 2007/08 operating profit forecast by 13 percent to 55 billion yen on Wednesday, above consensus forecasts.

The mini-vehicle unit of Toyota Motor Corp. cited better-than-expected sales of higher-margin cars to overseas markets and a decline in sales incentives with the roll-out of new models.

Analysts expect Honda's sales to also get a boost later this year from a string of key new product launches including the flagship Accord, Pilot SUV and Fit/Jazz subcompact.

Honda lifted its forecast for global car sales by 25,000 units for the 2007/08 business year to 3.96 million units, partly due to rosy sales in Russia and Eastern Europe.

Kondo said Honda expected negligible impact from a short-term suspension of some domestic output after a supply disruption at an earthquake-hit parts maker had forced all Japanese carmakers to temporarily halt work for several days since last week.

We're assuming that lost production would be made up, so we haven't worked that into our forecasts, he said.

Shares of Honda, the world's third-most valuable automaker behind Toyota and DaimlerChrysler AG, rose 9.5 percent to 4,500 yen in the three months to June 30, outperforming a 5.8 percent gain by Tokyo's transport sector subindex.

They ended down 2.4 percent at 4,390 yen before the results were announced on Wednesday.

Daihatsu, which announced results during trading hours, erased earlier losses to end up 2.4 percent at 1,197 yen, outperforming the sector and broader market.

($1=119.91 Yen)

(Additional reporting by Edwina Gibbs)

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