Honda Motor Co <7267.T> withdrew its annual earnings guidance in an unusual move on Monday due to uncertain currency markets and Thailand's floods just as it was starting to recover from the March earthquake and tsunami.
Among Japanese automakers, Honda has been hit the hardest by both disasters this year, recovering slowly from the supply disruption in northeast Japan and suffering direct damage at its Thai car factory in the Ayutthaya industrial estate.
The maker of the popular Civic and Accord models had been preparing to ramp up overall car production to 125 percent of pre-quake plans in the October-March second half to build up inventory that had fallen after the March 11 disasters at home.
The dearth of cars has pushed down Honda's sales in the United States, its biggest market, ranking it below Nissan Motor Co <7201.T> in the last three months.
To put it bluntly, we're really in a tough spot, said Fumihiko Ike, Honda's chief financial officer. We're in a much more difficult position because our car factory is inundated.
Ike said about one-tenth, or 35 of its tier-one suppliers for cars in Thailand, had been flooded. With the flood damage spreading, more suppliers down the chain could also become affected.
The situation is changing daily. It's hard to get a read on the situation, he said.
Honda, the only automaker in Thailand with a flooded factory, also withdrew its forecast for its annual global car sales amid an indefinite suspension of work there as well as expected reductions elsewhere in Southeast Asia, Japan and eventually the United States.
It had previously forecast sales of 3.512 million vehicles in the year to March 2012.
Ike said operators of the industrial estate in Ayutthaya, where its car plant is located, had told it that it expects removal of the floodwaters to take until mid-December. Restoring work at the damaged facility would probably take a few months from there, Ike said, meaning production could be halted through the end of the business year in March.
The extent of the flood damage is a concern and will probably weigh on Honda's shares, said Yoshihiro Okumura, general manager at Chibagin Asset Management.
But I think in the medium term, the shares will be seen as being at the bottom and investors will gradually begin to look ahead to next year's earnings, he added.
For the July-September second quarter, Japan's third-biggest automaker posted a 68 percent drop in operating profit to 52.5 billion yen ($693 million) due mainly to a shortage of microchip controllers from Renesas Electronics Corp <6723.T>. That was worse than a consensus estimate of 63.5 billion yen from a Reuters survey of 13 analysts.
Net profit, which includes earnings made in China, fell 55.5 percent to 60.43 billion yen, also hammered by a sharp rise in the yen. On Monday, the dollar spiked to a three-month high above 79 yen after Japan intervened to stem the yen's rise. Second-quarter revenues fell 16 percent to 1.9 trillion yen.
The stock market's move today was shocking, in that the currency intervention pushed up the dollar and the euro against the yen, helping one of the worries on investors' minds, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. But the Nikkei was still unable to hold any gains, showing that investors are not confident that the yen will remain down.
While supply issues are set to drag on into 2012, Honda also faces tougher competition from a fast-growing Hyundai Motor Co <005380.KS> and Nissan, especially after its core Civic sedan got panned by influential U.S. consumer watchdog Consumer Reports.
Honda's shares have lost 22 percent so far this year, underperforming falls of 18 percent and 6.5 percent at Toyota Motor Corp <7203.T> and Nissan, respectively.
Before the results were announced, Honda shares closed down 3.7 percent on a newspaper report that a recovery from the Thai floods could take six months. The benchmark Nikkei average <.N225> settled 0.7 percent lower.
Nissan will report second-quarter earnings on Wednesday and Toyota on November 8.
($1 = 75.760 Japanese yen)
(Reporting by Chang-Ran Kim; Additional reporting by Hirotoshi Sugiyama; Editing by Matt Driskill and Michael Watson)