TOKYO (Reuters) - An unexpected tax bill sent Honda Motor Co's quarterly profit tumbling 86 percent, and Japan's No.2 carmaker warned of a weak year ahead due to a stronger yen, rising materials costs and a soft U.S. car market.
By Chang-Ran Kim, Asia auto correspondent
TOKYO (Reuters) - An unexpected tax bill sent Honda Motor Co's quarterly profit tumbling 86 percent, and Japan's No.2 carmaker warned of a weak year ahead due to a stronger yen, rising materials costs and a soft U.S. car market.
The net result for the January-March quarter was dragged down by the allocation of about 80 billion yen ($767 million) for a possible tax liability related to an ongoing investigation into alleged transfer pricing, Honda said.
Honda said it was under investigation by the Tokyo regional tax authorities, which allege that the automaker had not properly accounted for earnings made in China. The probe covers a five-year period from April 2001, but Honda said it had factored in for possible liabilities arising through last year.
!ADVERTISEMENT!"The issue is still under investigation, and the cost could be bigger or smaller," Executive Vice President Koichi Kondo told a news conference.
The 25.4 billion yen profit fell far short of an average estimate of 143.9 billion yen in a Reuters Estimates poll of 20 brokerages, which had expected a drop mainly due to interest rate-related derivatives.
For the year ahead, Honda, also the world's top motorcycle maker, forecast a net profit of 490 billion yen ($4.7 billion) and operating profit 650 billion yen, down 18 percent and 32 percent, respectively.
Consensus forecasts from 20 brokerages had called for a net profit of 575.5 billion yen and operating profit of 725.5 billion yen.
Honda, like its domestic peers, faces an erosion in the value of its exports and repatriated earnings with the yen's 10 percent gain versus the dollar from last year.
Prices of steel, platinum, rhodium and other raw materials have also continued to climb, countering growing sales of models such as its CR-V crossover and Fit subcompact.
The industry also faces a tough sales environment in the crucial U.S. market. An economic slowdown has squeezed demand, especially for big SUVs and other light trucks in light of record-high gasoline prices, but Honda's range of fuel-efficient vehicles mean it has fared better than U.S. rivals General Motors Corp and Ford Motor Co
On Thursday, Ford reported an unexpected quarterly profit thanks to strong European results and narrower losses in North America due to cost-cutting.
Ford's one-third-owned Mazda Motor Corp posted on Friday a 2.3 percent rise in annual operating profit to 162.15 billion yen, and forecast a 29 percent plunge for this year to 115 billion yen -- its first profit fall in eight years.
Mitsubishi Motors Corp's operating profit jumped 170 percent to a record last year on higher vehicle sales, but it also forecast a big drop this year.
Honda and Mitsubishi set their dollar exchange rate assumption for the 2008/09 business year at 100 yen and the euro at 155 yen Mazda sees the euro averaging 150 yen.
LULL IN NORTH AMERICA
Honda's fourth-quarter operating profit, which excludes earnings made in China, fell 33 percent to 168.8 billion yen, while revenue fell 1 percent to 3.056 trillion yen.
Analysts said Honda was better-positioned than most, including domestic rivals Toyota Motor Corp and Nissan Motor Co, to weather a downturn in the United States thanks to it range of fuel-efficient cars, and a flexible manufacturing system that allows it to adjust production more effectively to shifting market needs.
But they also noted that Honda's spending on sales incentives in the United States remains high as it, as well as rivals, adjusts inventory levels.
Kondo said Honda expected to pull back spending on sales incentives to under $1,000 per car in the United States this year, from over that level averaged last year, helped by the planned remodeling of the Pilot and other models.
But he conceded that Honda needed to work down its bloated inventory of cars such as the Accord this year, meaning wholesale performance, which is reflected in earnings, would suffer.
"The momentum should return next year, since our retail sales remain healthy," he said.
Mazda also expects its global retail sales to grow, by 8.6 percent in 2008/09 to 1.48 million vehicles on a spike in sales in China and continued growth in Europe, particularly Russia.
Mazda also announced the launch of the remodeled Mazda6 sedan in the United States this summer -- a crucial model to improve its operations there -- saying it expected to produce more than the 55,000 units built last year at its joint venture factory with Ford in Michigan.
Shares of Honda, the world's fourth-most valuable automaker behind Toyota, Volkswagen AG and Daimler AG, have fallen 11 percent in the year to date, broadly in line with Tokyo's transport subindex ITEQP, which has lost 13 percent.
Before the results, Honda ended up 3.7 percent at 3,330 yen and Mazda put on 2.6 percent to 431 yen. Mitsubishi Motors closed up 1.2 percent at 163 yen after its results.
(Reporting by Chang-Ran Kim and Lincoln Feast; Editing by Hugh Lawson)
