HONDA MOTOR CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.63T
• Operating Income: ¥438.14B
• Net Income: ¥348.66B
• EPS: ¥76.30

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Honda’s FY2026 Q2 consolidated results show a sharp earnings slowdown with resilient cash conversion, as operating profit contracted materially despite only a modest revenue decline. Revenue was 10,632.68 billion yen (-1.5% YoY), while operating income fell to 438.14 billion yen (-41.0% YoY). Operating margin compressed to roughly 4.1% this quarter from an estimated ~6.9% a year ago, a contraction of approximately 276 basis points. Net income declined to 311.83 billion yen (-37.0% YoY), translating to a net margin of 2.9%. Pre-tax income was 527.42 billion yen, aided by sizeable interest income of 81.76 billion yen, which partially offset weaker operations. Equity method investment income was 10.90 billion yen (about 2% of pre-tax profit), a modest contributor relative to the scale of the group. Cash generation held up better than earnings: operating cash flow reached 365.86 billion yen, yielding an OCF/Net Income ratio of 1.17x, signaling acceptable earnings quality. Free cash flow was a slim 9.14 billion yen after 233.69 billion yen of capex and broader investment outflows, indicating tight internal funding capacity this quarter. The effective tax rate was 33.9%, broadly in line with historical ranges. Balance sheet strength remains adequate with an equity ratio of 38.0% and cash and equivalents of 4,635.27 billion yen, though the reported D/E ratio of 1.57x is at the higher end of comfort for autos. ROE calculated at 2.5% and ROIC at 2.4% point to subdued capital efficiency in the period. Revenue softness likely reflects mix and pricing/incentive dynamics in core auto markets, while cost pressure and model transition spending appear to be depressing incremental margins. Non-operating tailwinds (notably interest income) cushioned pre-tax results but are not a substitute for operating improvement. The payout ratio of 115.1% and FCF coverage of 0.03x highlight near-term dividend strain based on this quarter’s cash generation. Looking ahead, the key will be restoring operating margin via product mix, cost control, and normalization of investments, while maintaining disciplined capex for electrification and software initiatives.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.5% = Net Profit Margin 2.9% × Asset Turnover 0.338 × Financial Leverage 2.57x. The primary driver of deterioration this quarter is the net profit margin, given operating income declined 41% on only a 1.5% revenue decline. Operating margin fell to ~4.1% from an estimated 6.9% a year ago (-276 bps), indicating negative operating leverage and/or cost/mix headwinds (e.g., higher incentives, warranty/recall and logistics costs, and EV/mid-cycle investments). Asset turnover at 0.338 appears relatively stable for a global automaker with large financial services and inventory balances; leverage at 2.57x is broadly unchanged and not the core driver of ROE decline. The margin pressure is partially masked at pre-tax level by 81.76 billion yen of interest income, but this is non-operating and not indicative of underlying manufacturing profitability. Sustainability: near-term margin headwinds may persist given product launches, electrification-related spend, and competitive pricing; however, normalization of input costs and ramp-up of new models could ease pressure over the next few quarters. Watch for SG&A and cost of sales discipline since the scale of operating profit decline versus revenue suggests cost growth exceeding revenue growth in the period.

Growth Assessment

Top-line contracted modestly (-1.5% YoY), signaling softer unit volumes and/or price/mix changes in key regions. The outsized decline in operating profit (-41% YoY) versus revenue underscores adverse operating leverage and cost inflation or mix headwinds. Equity-method contributions were small (10.90 billion yen) and not a major growth driver. Interest income (81.76 billion yen) supported pre-tax growth resilience relative to operating profit, but this is not a sustainable growth vector for the core business. Near-term growth sustainability hinges on stabilizing volumes, improving model mix, and realizing cost efficiencies as electrified models scale. With ROIC at 2.4%, current returns lag the cost of capital, implying value creation pressure unless margins recover or capital intensity declines. Outlook: gradual improvement is possible if supply chains stay stable, incentives normalize, and new model launches (including hybrids/EVs) improve mix; however, competitive pricing and higher development spend could cap margin expansion near term.

Financial Health

Liquidity: Current ratio not disclosed; cash and equivalents are substantial at 4,635.27 billion yen, providing a buffer despite limited current liability disclosure. Solvency: Equity ratio is 38.0% and D/E is 1.57x (slightly above the 1.5x benchmark), warranting mild caution but acceptable for a diversified automaker with captive finance. Maturity mismatch risk cannot be fully assessed due to unreported current liabilities and short-term borrowings; nonetheless, current assets of 11,974.47 billion yen are sizable versus unknown short-term obligations. Inventories are 2,437.47 billion yen; without prior-period context, inventory risk cannot be quantified. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income of 1.17x indicates earnings are cash-backed this quarter, a positive quality signal. Free cash flow was only 9.14 billion yen as 365.86 billion yen of OCF was largely absorbed by 356.72 billion yen investing outflows, including 233.69 billion yen of capex and other investments; this leaves limited internal capacity to fund both capex and shareholder returns in the period. Working capital details are limited; with inventories reported but receivables/payables not provided, potential working-capital timing benefits or drains cannot be isolated, and there are no clear signs of manipulation from the available data. Given the capital intensity and electrification investments, sustained positive FCF will depend on recovering operating margins and disciplined investment pacing.

Dividend Sustainability

Based on provided metrics, the payout ratio is 115.1% and FCF coverage is 0.03x, indicating dividends exceeded both net income quality thresholds and significantly exceeded free cash flow this quarter. With total dividends paid unreported, we rely on the payout and coverage ratios provided; these imply dependence on existing cash balances or future OCF to sustain current dividends if similar conditions persist. Near-term sustainability appears tight on a quarterly basis; however, Honda’s policy is typically set on a full-year view, and seasonality plus 2H earnings recovery could improve coverage. Monitoring full-year OCF, capex trajectory, and any buyback activity will be key to reassessing dividend headroom.

Risk Assessment

Business Risks:

• Margin pressure from pricing/incentives and adverse mix, evidenced by ~-276 bps YoY operating margin compression
• Elevated capex and R&D for electrification/software dampening near-term returns (ROIC 2.4%)
• Supply chain constraints and logistics costs impacting cost of sales
• Product quality/recall or warranty cost risk affecting profitability
• Regional demand softness and competitive intensity, particularly in China and North America

Financial Risks:

• Free cash flow tightness (9.14 billion yen) versus investment and dividend needs
• D/E at 1.57x slightly above benchmark; leverage sensitivity if earnings weaken further
• Dependence on non-operating interest income to cushion pre-tax profit
• Potential maturity mismatch not assessable due to limited current liability disclosure

Key Concerns:

• Sustained ROE at 2.5% and ROIC at 2.4% below cost of capital
• Dividend coverage weak this quarter (payout 115.1%, FCF coverage 0.03x)
• Visibility on gross margin drivers limited due to unreported gross profit and cost details
• Inventory risk cannot be fully evaluated without receivables/payables and turnover data

Investment Implications

Key Takeaways:

• Earnings air pocket: operating income -41% YoY on -1.5% revenue highlights significant margin compression
• Non-operating tailwind: 81.76 billion yen interest income cushioned PBT but is not core
• Cash conversion acceptable (OCF/NI 1.17x) but FCF is thin after capex
• Capital efficiency subdued: ROE 2.5%, ROIC 2.4%
• Balance sheet adequate (equity ratio 38%) though D/E at 1.57x merits monitoring
• Dividend headroom tight on quarterly view (payout >100%, FCF coverage 0.03x)

Metrics to Watch:

• Operating margin trajectory and SG&A/COGS discipline
• Free cash flow vs. capex and investment outflows
• Product mix and pricing (including hybrid/EV ramp economics)
• Interest income trend and FX impacts on non-operating items
• Leverage metrics (D/E) and liquidity disclosures (current ratio) when available
• Equity method income contributions and regional profitability

Relative Positioning: Within global autos, Honda’s balance sheet remains solid but near-term operating margins and ROIC lag best-in-class peers; recovery depends on mix improvement and cost control amid ongoing electrification investment.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis