Honda Earnings: Good Finish to Fiscal 2024 but Fiscal 2025 Equity Income Guidance Is Poor

Honda announced fourth-quarter and year-end fiscal 2024 results on May 10 that included fiscal 2025 guidance of flat revenue growth. Fiscal 2025 guidance is for a 0.2% year-over-year increase in operating income to JPY 1.42 trillion, with operating margin up 20 basis points to 7%. Pricing is expected to add JPY 502 billion and offset higher costs in research as well as a JPY 201 billion currency headwind. Pretax profit, however, is guided down 8.7% due to a 91% expected decrease in equity method income, likely due to struggles in China. This change to our model and its flow through our explicit forecast causes us to lower our per share fair value estimates to $35 from $39 and JPY 1,800 from JPY 1,900. Guidance assumes the yen strengthening against the US dollar to JPY 140 from JPY 145 in fiscal 2024, so there could be some upside coming to guidance if the yen remains around JPY 156. EPS guidance is JPY 210.23, slightly below the JPY 223.56 LSEG May 9 consensus, and a 6.9% decline from fiscal 2024's JPY 225.88.