Honda Gets Battered by the Elements
Honda Motor (NYS: HMC) recently came out with its fiscal second-quarter results which were below analyst expectations. Let's take a closer look at the details to see what's up with Honda.
Battered from all sides
Honda saw its quarterly profit plummet by a whopping 56% to $788 million. Net sales for the company also took a beating, down by 16.3% to $24.6 billion, with North American sales plummeting the most by 22.3%. On the bright side, Honda's motorcycle division was in the black with sales up by 14.2% to $4.6 billion.
A big reason behind Honda's poor performance was a stronger Japanese yen. A strong currency has the effect of lessening the amount of yen that is returned to Honda from overseas sales.
Japan's March 2011 earthquake also disrupted many of Honda's manufacturing facilities -- and the company's woes did not end there.
The latest problem that's keeping Honda awake at night are the floods in Thailand. They have wreaked havoc with the company's assembly lines and parts suppliers. The floods have made it impossible for the company to forecast earnings for the entire financial year through March 2012.
In troubled waters
Honda is not the only one trying to stay above water in Thailand. Toyota (NYS: TM) had to cancel overtime shifts at its manufacturing facilities in North America due to supply disruptions. Ford (NYS: F) also suspended its production in Thailand due to shortages in parts supply.
The problem is not just limited to the auto sector. Many companies who either have their manufacturing facilities in Thailand or who source raw materials and parts from there have been affected by the flooding.
Personal computer shipments are also likely to drop due to supply chain disruptions. This can have a negative impact on chip makers such as Broadcom and companies like Apple, which said that disruptions from the flooding constrained supplies of components used in Mac computers.
The Foolish bottom line
Honda is facing a diverse range of problems including a stronger domestic currency and disruptions caused by forces of nature. It seems that these issues are likely to bog down the automaker for some time until it resumes normal production. What do you Fools think about all this? Let me know in the comments box below. You can also stay up to speed with how Honda is pulling through its problems by adding this stock to your very own watchlist. It's free, and it keeps you informed on the latest news and analysis for your favorite companies.
At the time this article was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Apple and Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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