Honda upgrades annual profit forecast on weaker yen, solid second quarter

TOKYO (Reuters) - Honda Motor Co upgraded its full-year operating profit forecast on Tuesday by 11.3 percent as the Japanese automaker expects higher motorcycle sales in Asia will offset stagnant vehicle sales, while a weaker yen will also help.

Japan's No. 3 automaker now expects operating profit for the year ending March to come in at 790 billion yen, up from a previous forecast for 710 billion yen, after it reported a stronger-than-expected 40.2 percent jump in second-quarter operating profit to 214.4 billion yen.

The company recovered from a quarterly profit slump a year ago when earnings were hurt by pension accounting changes and litigation settlements. The latest quarter's profit was higher than the average estimate of 164.4 billion yen in a poll of 10 analysts, according to Refinitiv data.

The full-year profit upgrade was based on a revised assumption that the yen will trade around 110 yen to the U.S. dollar compared to 107 yen earlier.

Despite the upgrade, Honda's profit would be 5.2 percent lower from last year, marking the second consecutive year of easing profits following a record high 840.7 billion yen in the year ended March 2017.

Falling annual profits would make it harder for Honda to catch up with its bigger Japanese rivals and other automakers in the intensifying race to develop self-driving cars. Earlier this month, Honda announced it would invest $2.75 billion in General Motors Co's Cruise self-driving vehicle unit.

In the July-September quarter, profits were boosted by higher motorcycle sales, particularly in Asia where a growing middle class is becoming more mobile, and cost reductions. Global motorcycle sales rose 1.5 percent on the year.

Honda's results come as global automakers are starting to feel the pinch of slowing demand for cars in China, the world's biggest auto market. Last week, Ford Motor Co posted a slide in third-quarter profit due in part to a sales slump in the country.

Of Japan's top three automakers, Honda has enjoyed the biggest jump in sales in China in the past few years compared to its larger rivals Toyota Motor Corp and Nissan Motor Co, with sales roughly doubling since 2013.

But Honda's China sales have been stung since the start of 2018 by a quality issue with the Civic, the CR-V SUV and other popular models in the country.

Retail sales in China fell 7.8 percent for the September quarter, while sales in the United States, its biggest market, eased 4.7 percent year on year in the three months to September sales of the Civic and Accord sedans were sluggish.

In the July-September period, Honda's global automobile sales slipped 3.6 percent to 1.25 million units due to lower sales in North America and Asia. Honda kept intact plans to sell 5.29 million units globally in the year to March.

(Reporting by Naomi Tajitsu; Editing by Muralikumar Anantharaman)