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Honda eyes bigger full-year profit

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Honda Motor Co. (HMC-N) is on track for its strongest earnings in three years after raising its outlook above market expectations thanks to a recovery in the United States, where improving profitability is countering a strong yen and sliding Japanese sales.

Robust sales growth in emerging markets has helped global automakers weather a fall in mature markets such as Europe, and Honda has especially benefited from its lucrative and dominant motorcycle business in developing countries such as India.

But a convincing recovery in the U.S. car market -- Honda's biggest -- is the main factor that has stoked optimism among investors, sending its shares up nearly a fifth over the past three months.

Honda, which fell behind Nissan Motor Co. to become Japan's third-biggest automaker last year, raised its operating profit forecast for the year to March 31 to $7.55 billion US.

"Honda's profits could rise even further by the end of March as it has also set very conservative currency rate forecasts of 80 yen against the dollar and 105 yen against the euro (for the fourth quarter)," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"Basically, we can't see any bad factors from the results."

Japanese car makers have taken steps to improve manufacturing efficiency and reduce fixed costs to cushion the blow from the yen's rise, boding well for future earnings as the U.S. market recovers further. The rise in the yen, trading at around 82 to the dollar versus more than 90 a year ago, hits earnings offshore and makes exports more expensive versus rivals from other countries.

Honda Executive Vice President Koichi Kondo said efforts to improve margins had helped the automaker achieve an earnings structure under which it could make a profit of 100 billion yen per quarter at a dollar rate of 85 yen and car sales of 900,000 units. A year ago, the company was striving to achieve that level of profitability at 90 yen to the dollar, he said.

"Our motorcycle business continues to be very robust, and the model mix in the United States is improving due to the shift from passenger cars to light trucks," Kondo told a news conference.

U.S. RECOVERY, MODEL REVAMPS KEY

While Hyundai Motor stole rivals' thunder in the United States last year with the biggest growth among major brands, many expect Honda to boost its share this year with the upcoming revamping of the high-volume Civic and CR-V models.

Konda said Honda expected its U.S. sales to grow about 11 percent in the business year starting in April, from about 1.27 million or 1.28 million this year. Honda has benefited from the travails of larger rival Toyota Motor Corp. which lagged U.S. industry growth following a series of safety recalls.

U.S. consumers' shift towards higher-margin SUVs such as the Odyssey and climbing sales of motorcycles in Asia and South America helped Honda beat market estimates in the third quarter, when profits slid as the end of subsidies for eco-friendly cars hit domestic sales for all Japanese automakers.

For October-December, the maker of the popular Accord and Civic models reported a 29 percent fall in operating profit to 125.65 billion yen, against the average 110 billion yen estimated by seven analysts surveyed by Reuters.

Nine-month profits easily exceeded Honda's previous full-year profit forecast.

Honda's forecast-beating results and guidance stand in contrast to Ford Motor Co's disappointing earnings announced on Friday. Ford's fourth-quarter earnings fell far short of expectations on surging costs and an unexpected loss in its European business, sending its share down more than 13 percent.

Still, Honda cut its global car sales forecast by 35,000 units to 3.58 million vehicles in the current business year, mainly due to a reduction in Japan. It kept its forecast for North America sales unchanged at 1.475 million cars.

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