BUSINESS
01/31/2012 02:13 EST | Updated 03/31/2012 05:12 EDT

Honda projects sharp drop in annual profit on Thai flood disruptions, strong yen

TOKYO - Battered by the strong yen and supply disruptions from Thailand's floods, Honda said Tuesday that its net earnings in the October-December quarter tumbled 41 per cent to 47.6 billion yen ($625 million) and projected a sharply lower full-year profit.

It's been a tough year for the Japanese automobile and motorcycle maker. Honda had just begun to recover from the March earthquake and tsunami, which damaged some of its suppliers, when Thailand's worst floods in 50 years swamped its vehicle assembly plant in Ayutthaya, north of Bangkok.

That disaster dealt such a blow to Honda that it scrapped its earnings forecast when it last reported earnings results in October.

Now Honda predicts its net profit for the fiscal year through March would drop nearly 60 per cent to 215 billion yen.

Honda Motor Co., which makes the Accord sedan and Odyssey minivan, stopped making cars at its Thai plant in October, and said in a statement Tuesday that it was making progress draining the factory and cleaning up equipment, and expected production to resume there at the end of March.

The flooding also disrupted the output at many Honda suppliers in Thailand, forcing it to reduce production as far away as the U.S. and Canada. Honda said production in neighbouring Asian countries interrupted by the problems in Thailand was expected to return to normal by April.

All told, the problems related to flooding in Thailand have cost the company 260,000 vehicles in lost production worldwide, according to Tomohiro Okada, a company spokesman.

The company said it is working with the local industrial park to build water protection walls around the plant and will make requests of the Thai government to take steps to prevent the risk of flooding in the future. The Thai plant makes the Jazz, Civic, Accord, CR-V sports utility vehicle and other vehicles.

The Thai flooding affected many other Japanese companies, reflecting the increasingly interconnected nature of today's global economy. Toshiba Corp. on Tuesday cited the disaster as one reason behind the 10.6 billion yen net loss it reported for the most recent quarter.

A bright spot for Honda was its motorcycle business, which is booming in emerging markets. Motorcycle sales rose 6.3 per cent during the quarter from the same quarter a year ago to nearly 3.1 million units.

Quarterly sales slid 8 per cent during the fiscal third quarter to 1.942 trillion yen. The company projects full-year sales will decline 12.2 per cent to 7.85 trillion yen.

The strong yen, which erodes exporters' foreign earned income when repatriated, also ate into the company's income.

Global vehicle sales in the quarter declined 2.9 per cent from a year ago to 830,000 units, the company said. Vehicle sales in Japan rose 16 per cent and North America increased 2 per cent from the same quarter a year ago, while unit sales in Europe, Asia and other regions fell.