Faulty Takata Air Bags Will Remain a Storm Cloud for Honda for a Long Time.

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Equity Bottom-Up

Honda reported second quarter fiscal 2017 results that showed a sharp improvement from the prior year’s quarter thanks to cost reductions and a one-time pension accounting benefit of JPY 84 billion. Operating profit increased by 38.4% year over year but we calculate it would have fallen by JPY 20.8 billion or 12.6% excluding the pension benefit. The company increased its retirement age in Japan to 65 from 60. Excluding the pension income, Honda did not completely offset the JPY 102.2 billion profit headwind from foreign exchange. In the prior year’s quarter, the yen traded at times for over 120 yen to the dollar but in fiscal 2017 has strengthened to the low 100 range. We are increasing our fair value estimate to $26 (JPY 2,700 for the Tokyo-traded shares) to reflect a slightly weaker yen since our last valuation update and to raise our midcycle operating margin excluding equity income as we think our last midcycle number was too punitive for the stronger yen at the time.Analyst: David Whiston, CFA, CPA, CFE

Honda reported second quarter fiscal 2017 results that showed a sharp improvement from the prior year’s quarter thanks to cost reductions and a one-time pension accounting benefit of JPY 84 billion. Operating profit increased by 38.4% year over year but we calculate it would have fallen by JPY 20.8 billion or 12.6% excluding the pension benefit. The company increased its retirement age in Japan to 65 from 60. Excluding the pension income, Honda did not completely offset the JPY 102.2 billion profit headwind from foreign exchange. In the prior year’s quarter, the yen traded at times for over 120 yen to the dollar but in fiscal 2017 has strengthened to the low 100 range. We are increasing our fair value estimate to $26 (JPY 2,700 for the Tokyo-traded shares) to reflect a slightly weaker yen since our last valuation update and to raise our midcycle operating margin excluding equity income as we think our last midcycle number was too punitive for the stronger yen at the time.Analyst: David Whiston, CFA, CPA, CFE

Honda's Fiscal Second Quarter Not as Strong After Excluding Pension Change

Honda Motor

Honda's Fiscal Second Quarter Not as Strong After Excluding Pension Change