Honda Motor Co said teething troubles at a new plant in Mexico dented sales and profit in the US market, its biggest, taking the shine off a better-than-expected rise in quarterly profit powered by brisk results in Japan.
US sales by Japan’s third-largest automaker dipped 0.8% in the first half, while sales rose at rivals Toyota Motor Corp and Nissan Motor Co. It posted a 6.0% drop in North American operating profit for the April-June quarter.
Overall earnings were buoyant, however, with a 7.1% rise in quarterly operating profit to 198.04bn yen ($1.9bn), beating the 181.8bn yen mean estimate of 12 analysts polled by Thomson Reuters I/B/E/S.
Honda said its Mexico plant, which makes the Fit subcompact, was hit by delays as it adopted new manufacturing techniques, but the company kept its full-year US sales targets unchanged and said volumes would get back on track.
“We are extra careful with quality, and that’s why initial delivery was somewhat delayed, but as the workers acquire more skills, we can catch up,” Honda Executive Vice President Tetsuo Iwamura, who heads the company’s US operations, told a news conference yesterday.
“We want to hit our annual (US sales) target of 1.55mn vehicles, and we are doing our best to do so.” Honda nudged up its full-year profit forecast to 770bn yen from 760bn to reflect a slightly weaker yen projection.
The company also cited the delayed launch of the new Acura TLX sedan as another factor behind its dull performance in the US for the quarter.
Honda’s average US incentive per vehicle in April-June was $1,941, according to TrueCar - up 11% from a year ago and slightly higher than Toyota’s, although below Nissan’s. A Honda spokesman said it was trying to keep incentive levels low for key models such as the Accord and the Civic.
The quarterly operating margin for Honda’s four-wheeled vehicle business was an anaemic 4.3%, nearly flat from a year ago, weighed down by the cost of investments in new plants in Mexico, Thailand and Brazil.
Honda is carefully watching conditions in Brazil, where auto sales are slumping despite government stimulus, to decide whether it needs to push back the start of a new $430mn plant, Iwamura said.
Weakness in the US was outweighed by strength in Japan due partly to strong sales of the redesigned Fit and to back-orders left over from a rush of buying that preceded an April 1 sales tax hike.
In China, Honda’s sales grew 11.7% year-on-year in January-June, but the car maker’s inventories have built up somewhat, and it has curtailed operations at its Wuhan plant to one shift per day from two, Iwamura said.
New York Times
The New York Times Co yesterday reported a sharp drop in profits as lower advertising revenues offset gains in digital subscriptions.
Net profit for the second quarter fell to $9.2mn from $20.1mn in the same period a year ago.
Total revenues were essentially flat at $389mn, with circulation revenues up 1.4% and ad revenues down 4.1%.
The bottom line was also hurt by higher operating costs, which the company attributed to increased investments in boosting the digital profile of the prestigious newspaper publisher.
Digital advertising revenues were up 3.4% but that failed to offset a 6.6% drop in print advertising revenue.
“We saw continued growth in digital advertising and circulation revenues during the quarter,” said Mark Thompson, president and chief executive officer.
“But know that we still have more work to do to transform our business and deliver long-term sustainable revenue growth for the company.”
The Times added 32,000 digital subscribers in the quarter, helped by newly released subscription options including NYT Now, NYT Opinion and Times Premier.
The NYT Now app is designed for mobile device users, and Times Premier is a premium news and information service that adds to the cost of a regular subscription. “We’re encouraged by the reaction of users to the products, especially the high consumer satisfaction levels we’re seeing with the NYT Now app,” said Thompson, the former BBC chief who became president and chief executive in late 2012.
Michelin
Europe’s biggest tyre-maker Michelin yesterday confirmed its full-year outlook after a jump in earnings in the first half helped by lower raw material costs.
Net profit jumped 23% in the first half to €624mn ($837mn) boosted by lower raw material costs, the company said in a statement.
The French company reaffirmed its 2014 full-year guidance for a 3% rise in sales and a return on capital of more than 11.0%.
“In a competitive environment that persisted through the first half, Michelin met its objective of delivering a further improvement in its performance,” said chief executive Jean-Dominique Senard in a statement.
Earnings were also helped by a €351mn gain from cheaper rubber and other raw materials.
Investors cheered the news, sending Michelin shares up 3.2% in Paris to €85.52, against an 0.84% gain in the broader markets.
But Michelin warned that currency movements and weaker emerging demand were dragging on its outlook. Adverse currency movements, particularly in its newer markets, wiped €173mn from first-half earnings as it expanded in China, Brazil and India.
Emerging markets outside China were also “seeing a slowdown, especially in the original equipment segment,” with demand in Russia down by more than a third due to the Ukraine crisis.
Net sales declined by 4.7% to €9.67bn, dragged lower by pricing pressure and sales of lower-value tires. About 60% of sales were achieved outside Europe. “At a time of uncertain raw materials prices, the Group strove to maintain a tight pricing policy while driving a slight increase in tonnages,” the statement said.
Cussons
PZ Cussons, maker of Imperial Leather soap, posted a higher full-year profit after cost cuts scrubbed out the effect of a strong pound and periodic disruptions to sales in Nigeria, its largest market.
Cussons’ shares rose as much as 3.3% yesterday.
The British company expects revenue in Africa, flat last year, to rise about 10% in the current financial year, helped by the sale of cooking oil from its new joint venture with Wilmar International Ltd in Nigeria.
Unrest in northeast Nigeria, scene of numerous attacks by Islamist militants, has made distributors and customers there more cautious, Cussons said in a statement. There are no signs that this disruption will ease.
But Cussons’ chief financial officer, Brandon Leigh, said the company had been “growing quite strongly” in the south and east of Africa’s most populous country and biggest economy.
“Together with the new business areas that we have gone into, that’s been delivering growth,” Leigh told Reuters.
Africa accounted for about 42% of Cussons’ revenue in financial 2014, which ended on May 31. Nigeria is by far its biggest market, though it also sells in Ghana and Kenya.
The PZ Wilmar joint venture’s palm oil refinery in Lagos is running at close to capacity in its first full year of operation, Cussons said. The joint venture sells cooking oil under the brand names Mamador and Devon King’s.
Cussons said full-year 2014 adjusted operating profit rose 7.4% to 116.4mn pounds ($197.2mn), citing improving margins and the success of new brands as the main reasons it was able to offset sterling’s strength against various currencies.
Cussons said Rafferty’s Garden, the Australian baby-food business purchased in 2013, had performed well and would probably be launched outside Australia before the end of this calendar year.
The company, which also sells Carex handwash, Charles Worthington shampoos and St Tropez spray tan, declined to give more details about its cost-cutting measures.
TRW Automotive
Auto systems supplier TRW Automotive Holdings Corp, targeted for takeover by ZF Friedrichshafen, easily beat Wall Street profit expectations for the second quarter as revenue rose 2%.
Excluding one-time items, TRW earned $2.32 per share in the quarter, versus $2.02 a year earlier, it said yesterday. Analysts expected earnings of $2.12 per share, excluding one-time items, according to a poll by Thomson Reuters I/B/E/S.
Earlier this month, Germany’s privately held ZF Friedrichshafen said it was in buyout talks with TRW, which confirmed it had been approached about a takeover.
In a conference call, TRW Chief Executive Officer John Plant said that the company will not during the call advance its statement from earlier this month that it is evaluating the takeover proposal and has not set a timetable for the completion of that review process.
Plant also requested that analysts do not ask about the takeover issue during the call’s question-and-answer period.
ZF Friedrichshafen, the automotive engineering firm, is interested in TRW because it wants to gain a better foothold in the expanding market of self-driving vehicles, ZF’s finance chief said earlier this month..
Second-quarter revenue of $4.59bn narrowly exceeded analysts’ expectations of $4.56bn.
Net profit rose 7% to $265mn, or $2.27 per diluted share, from $248mn, or $1.99 per diluted share, a year earlier.
Applus
Shares in Spanish industrial testing and inspection services firm Applus tumbled more than 13% yesterday after the company warned of slower revenue growth in the second half of the year.
“There have been a few delays in some projects (in the US) which we thought were going to happen this year,” Chief Executive Officer Fernando Basabe told Reuters in an interview, adding the US pipeline market had been very strong for the company in recent years, meaning earnings could be comparatively weaker.
Applus warned yesterday in its first-half results that it expected revenue growth, at constant exchange rates, “to be somewhat less than in the first half.”
In its first earnings statement since its flotation on the stock exchange in May, Applus posted a 2.6% rise in first-half revenues to €781mn ($1.1bn) from a year earlier. Organic revenues at constant exchange rates grew 7.3%.
The company said it still expected a positive trend in profit and cash flow growth. Applus swung to a net profit of €5.9mn in the first half of 2014 from a €72.3mn loss a year earlier.
International Paper
International Paper Co, the largest corrugated box maker in North America, posted a higher-than-expected profit yesterday, citing returning demand in the US and Europe.
The results reflect a slowly improving US and global economy that has not yet reached its full potential, IP Chief Executive Officer John Faraci said in an interview.
“I remain pretty bullish that the US economy can grow 3 to 4% a year, but it’s still not reaching its potential,” he said. “There just seems to be one slow step at a time.”
US government sanctions on Russia have not affected IP’s paper mills in that country, Faraci said. The Russian mills, the largest of which is Siberia, primarily sell to China, and demand has been steady, he said.
“There hasn’t been an impact on businesses doing business in Russia that aren’t Russian,” Faraci said. “But we’d much rather see Russia’s relations with the US and Western Europe on better footing than they are.”
For the second quarter, the company posted net income of $161mn, or 37 cents per share, compared with $259mn, or 57 cents per share, a year earlier.
Excluding a charge to repay debt early, a charge to close an Alabama paper mill and other one-time items, earnings were 95 cents per share.
By that measure, analysts expected a profit of 83 cents per share, according to Thomson Reuters I/B/E/S.
Revenue fell to $7.21bn from $7.34bn. Analysts expected $7.35bn.
Demand actually slipped in Brazil despite the World Cup as the government declared four holidays that cut productivity and shipping time, Faraci said.
Aetna
Aetna, the third-largest US health insurer, yesterday reported a higher second-quarter profit that beat analyst expectations, helped by last year’s acquisition of Medicare and Medicaid provider Coventry Health Care.
Revenue rose to $14.5bn from $11.5bn and Aetna raised its forecasts for 2014 profit and customer growth.
The cost of a new hepatitis C treatment held back further gains in profit, but Aetna said its outlook was for the 2014 increase in medical cost spending to be at the lower end of the 6 to 7% range it had been expecting.
Medical costs are an important component of profit for Aetna, which sells insurance both through employers and for government-paid programs. Aetna is one of the largest sellers of new insurance plans offered to individuals on the exchanges created by President Barack Obama’s healthcare reform law.
During the quarter, it spent 83.1% of the premiums it took in on medical claims, a measure called medical benefit ratio. It said that ratio increased from 82.5% a year earlier because of the spending on the new hepatitis C drug, which costs $84,000 per treatment.
Under the healthcare law, Aetna and other insurers must spend 80% or more of premiums on medical care or return money to customers. Growth in spending on healthcare has generally slowed in recent years with the economy.
“Encouragingly, fears of commercial cost trend acceleration from an economic rebound were alleviated with trend guidance stated to come in at the lower half of the 6-7% guidance range,” Leerink Partners analyst Ana Gupte said in a research note.
Aetna added 385,000 members during the quarter and now expects 23.4mn members by the end of the year. That growth was in its commercial insured business, which includes new Obamacare customers, as well as government products.
UBS
Leading Swiss bank UBS turned in a strong profit performance in the second quarter, but highlighted yesterday the stark risks financial institutions face from campaigns by tax and regulatory bodies.
UBS, reporting a 15% net profit rise, revealed that in July it had settled a tax dispute in the German state of North Rhine-Westphalia with a payment of slightly more than €300mn $403mn). The payment follows investigations of UBS clients suspected of using the bank to evade taxes. The bank is also being investigated in the German region of Baden-Wurtenberg.
German authorities acted at the end of 2012 after buying a CD disc containing account details stolen in Switzerland in a move which caused tension between the two countries.
This came as many governments hit by the financial crisis were clamping down on cross-border tax evasion.
Large parts of the Swiss banking industry is having to adapt to a new environment of reduced banking secrecy.
Germany is an important market for UBS, which said that more than 95.0% of its German customers had provided proof either that their taxes were in order or that they were coming clean to the authorities.
UBS said that it had made a provision of 120mn Swiss francs (99mn euros, $133mn) for the dispute in Germany and overall had put aside 254mn Swiss francs for litigation and disputes.
Orion
Finnish drug maker Orion reported a 41% rise in second-quarter operating profit, boosted by one-off payments from Germany’s Bayer and Japan’s Takeda.
Operating profit in April through June increased to €86mn ($116mn) from €61mn in the same period a year earlier, including €23mn of payments from a prostate cancer drug development deal with Bayer.
It also included a previously unannounced payment of €6mn from Takeda, which was related to marketing authorisations.
The result beat Reuters poll forecast of €67mn but some of the one-off gains were unexpected.
“The reported results included 29mn of one-off gains, so underlying profit fell somewhat from a year ago,” Kimmo Stenvall, analyst at Pohjola, said.
Shares in the company were flat by 0950 GMT. They have risen 16% since Orion announced the Bayer deal last month.
“There are pretty strong expectations in the share price on this one deal with Bayer,” said Stenvall, who has a “sell” recommendation on the stock.
Orion repeated the outlook it gave in June, saying it expected this year’s sales and operating profit to be at the same level as in 2013.
JLT
Insurance and reinsurance broker Jardine Lloyd Thompson Group reported a 15% rise in underlying pretax profit, but said it was cautious for the rest of the year due to a marked decline in rates and a stronger pound.
JLT shares fell as much as 3% to 1023 pence on Tuesday morning.
“The recent steepening in reinsurance rate decreases looks likely to moderate near-term profit growth,” Numis Securities analyst Nick Johnson said in a note.
The company said underlying pretax profit rose to 107.4mn pounds ($182.4mn) in the six months ended June 30 from 93.1mn pounds a year earlier, helped by its Towers Re unit.
Total revenue rose 15% to 559.6mn pounds. Revenue from the Towers Re unit came in at 110mn pounds.
Numis cut its earnings-per-share forecast for the company by 5% for this year citing the cautious outlook.
JLT, which negotiates insurance cover on behalf of corporate clients around the world, bought Towers Watson’s reinsurance brokerage last year for $250mn to expand its footprint in the US.
The company warned that full-year margin in the unit was expected to be broadly flat due mainly to the sharp decline in reinsurance rates as the business earns a much higher proportion of commission income than the rest of the company.
“There is a fair degree of undisciplined underwriting going on where people are targeting return on capital at levels that perhaps don’t necessarily reflect the volatility and the catastrophe risk that’s out there,” Chief Executive Dominic Burke told Reuters.
A further strengthening of pound is also likely to impact the unit as it did not have a hedging programme in place at the time of the acquisition, JLT added.
APR Energy
Power plant supplier APR Energy’s quarterly revenue more than tripled as the company extended lucrative contracts and signed new deals to supply electricity to power-starved regions.
APR’s stock rose 13% to rank as the top percentage gainer on the London Stock Exchange yesterday.
Demand for quick, short-term power supply in developing markets has rocketed as economies grow quicker than permanent power plants can be built - a process that can take four to five years.
APR said it renewed contracts covering 253 megawatts during the second quarter, including the first 100 megawatts of its contract to supply mobile gas turbines in Uruguay. This month, after its second-quarter reporting period, APR also extended its 450 megawatt contract in Libya until the first quarter of 2015. The Libyan and Uruguayan contracts were key to the company’s swing to a full-year profit last year. “With a sustained renewal rate in excess of 80%, our efforts are paying off and reflect the inherent longevity of our service,” Chief Executive John Campion said in a statement.
Jacksonville, Florida-based APR rents out 25-megawatt turbines for electricity shortfalls in countries such as Argentina, Burkina Faso and Yemen. It also supplied the turbines and diesel generators that lit up parts of Japan after the 2011 earthquake.
Revenue rose to $134mn for the second quarter ended June 30 from $44mn a year earlier.
Japan Airlines
Japan Airlines (JAL) said yesterday its net profit for the April-June quarter fell 19.4% to $145mn, as a weak yen and soaring fuel costs dug into its results.
The carrier said net profit fell to 14.8bn yen ($145mn), while operating profit also dropped 15.6% to 18.6bn yen.
Sales ticked up 4.4% to 307.1bn yen.
A brief company statement did not outline reasons for the weaker profit figures.
But the airline has previously warned that a sharp drop in the yen has driven up the cost of fuel, often a carrier’s single-biggest expense. The weaker currency makes commodities priced in US dollars more expensive.
The yen has lost about a quarter of its value against the dollar since late 2012 as Japanese premier Shinzo Abe and his hand-picked team at the Bank of Japan launched a policy blitz, dubbed “Abenomics”, aimed at kickstarting the economy and reversing years of deflation.
During the three months to June, JAL said it saw a rise in demand for both overseas and domestic flights.
The company logged a 7.6% increase in revenues from international passenger services, while from domestic flight revenue edged up 0.5%.
JAL and its chief rival All Nippon Airways have expanded their international operations as Tokyo’s Haneda airport significantly boosted its capacity to accommodate international flights.
Following Haneda’s expansion, JAL launched additional flights linking Tokyo with London, Paris, Singapore, Bangkok and Ho Chi Minh City.
The firm also increased domestic flights between Haneda and regional cities across Japan.
BP
BP posted a better-than-expected 34% rise in quarterly profit after increasing production of higher-margin products and selling its liquids and gas at higher prices.
Underlying replacement cost profit rose to $3.63bn for the second quarter, above the average analyst forecast of $3.49bn, according to Thomson Reuters I/B/E/S.
BP’s shares rose marginally in early trading.
BP said rising oil and gas production from new upstream products, as well as increased processing of heavy crude at the modernised Whiting refinery in the US, contributed to cash flow in the second quarter.
BP said second-quarter production fell nearly 3% to 3.1mn barrels of oil equivalent a day. Russian crude oil production made up about a third of the company’s output.
BP is by far the biggest foreign investor in the Russian oil sector through its 19.75% stake in the Kremlin’s state oil champion, Rosneft.
BP said it had not felt any effect from US sanctions imposed this month on Rosneft over what Washington says is Moscow’s reluctance to curb violence in Ukraine.
Things could get harder for Rosneft as the European Union weighs a new set of punitive measures against Moscow in response to the downing of a Malaysian airliner in eastern Ukraine.
These may include restrictions on bank transactions and a ban on exports to Russia of oil and gas producing equipment.
BP said it would pay a dividend of 9.75 cents a share for the quarter ended June 30 versus 9 cents a year earlier.