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Honda Earnings: Chip Shortage Recovery Drives Strong Growth, Stock to Split in October

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Honda Motor Co Ltd
(7267)

Honda 7267 started fiscal 2024 with a strong first quarter aided by chip shortage recovery in the auto segment. We are raising our U.S. dollar fair value estimate by $2 to $36 per share and our yen per share fair value estimate by JPY 100 to JPY 5,100. The increase reflects the time value of money, higher revenue for fiscal 2024 than previously modeled, and modeling a slightly weaker yen against the dollar helping profits over our five-year explicit forecast period. Revenue increased year over year by 16.5% on a constant currency basis and by 20.8% factoring in a weaker yen against the dollar (JPY 137 versus JPY 130) and other major currencies. Motorcycles and autos both posted robust double-digit growth, but a 25.8% constant currency increase in autos led the way. Consolidated auto volume rose 19.7% to 633,000, while total auto volume, including joint ventures, grew 10.6% to 901,000. Motorcycle wholesales saw a pullback in India from scarcity of semiconductors and a recession in Vietnam, but Thailand and the key market of Indonesia performed well, with Indonesia’s wholesale volume up 63% on better production.

Honda’s overall operating income increased by 77.5% and operating margin rose by 270 basis points to 8.5%. Foreign currency only added JPY 23.2 billion to operating profit while higher volume, mix, and pricing contributed JPY 199.6 billion, which easily offset JPY 50.6 billion of cost increases, most notably JPY 18.9 billion from warranty expense. The JPY 65.9 billion pricing tailwind was roughly split between autos and motorcycles, but the JPY 133.7 billion contribution benefit from volume and mix was about 90% from the auto segment. Management maintained its fiscal 2024 guidance of EPS of JPY 489.41 and a full-year dividend of JPY 150 per share. Given first-quarter EPS of JPY 219.06, we expect Honda to comfortably exceed its guidance. The company is enacting a 3-1 stock split on Oct. 1 in Tokyo, so the above guidance and JPY 150 dividend are not split-adjusted.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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