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

Honda Motor Co., Ltd. (IFRS, consolidated) reported FY2026 Q2 cumulative results showing revenue of 10,632.68 billion yen (-1.5% YoY) and operating income of 438.14 billion yen (-41.0% YoY), indicating significant margin compression despite relatively stable top-line. Net income declined 37.0% YoY to 311.83 billion yen, with net margin at 2.9%, reflecting both weaker operating profitability and a high effective tax rate of 40.8%. DuPont analysis yields an ROE of 2.5% on the back of a 2.9% net margin, 0.338x asset turnover, and 2.57x financial leverage, implying that profitability, rather than balance sheet efficiency or leverage, is the binding constraint on returns. Operating margin, calculated at 4.1% (operating income/revenue), fell sharply YoY, consistent with cost pressure and/or adverse mix and pricing dynamics. Cash flow quality was weak: operating cash flow was only 68.69 billion yen, equal to 0.22x of net income, signaling heavy working capital absorption and/or non-cash earnings components. Free cash flow was negative at -450.42 billion yen, driven by sizable investing outflows (-519.11 billion yen) and capex of -222.04 billion yen, underscoring elevated investment needs likely tied to electrification and software initiatives. The balance sheet remains solid with total assets of 31.49 trillion yen and equity of 12.24 trillion yen (equity ratio 38.0%), although total liabilities of 18.15 trillion yen translate into a debt-to-equity ratio of 1.48x. Cash and equivalents are substantial at 4.53 trillion yen, offering a liquidity backstop despite the weak H1 free cash flow. Inventories are high at 2.47 trillion yen, a notable portion of H1 revenue, and warrant monitoring for potential normalization effects on future cash conversion. Equity-method results were a drag (-20.76 billion yen), suggesting pressure at affiliates. Total comprehensive income of 488.71 billion yen exceeded net income, likely reflecting favorable OCI movements, but these do not alleviate operating cash flow weakness. EPS (basic/diluted) was 76.30 yen on average shares of ~4.09 billion, consistent with reported net income. Reported payout ratio (calculated) of 115.1% and negative FCF coverage (-1.25x) indicate dividends were not covered by earnings or free cash flow in the period, though the strong cash position mitigates immediate risk. Data gaps exist (gross profit, D&A, R&D, current liabilities, interest), limiting precision on margin decomposition, liquidity ratios, and interest coverage. Overall, results point to resilient scale but cyclical and strategic headwinds depressing profitability and cash conversion in the half, with the balance sheet cushioning near-term financial risk.

Profitability Analysis

ROE_decomposition: ROE 2.5% = Net margin 2.9% x Asset turnover 0.338 x Financial leverage 2.57x. Returns are primarily constrained by thin net margins rather than balance sheet leverage or asset utilization. margin_quality: Operating margin is approximately 4.1% (438.14/10,632.68), down materially given operating income -41% YoY against revenue -1.5% YoY. Net margin at 2.9% is compressed by a high effective tax rate of 40.8% and equity-method loss (-20.76 billion yen). Gross margin cannot be assessed due to unreported gross profit. EBITDA margin cannot be calculated due to missing D&A. operating_leverage: Revenue was broadly flat (-1.5% YoY) while operating income fell 41.0% YoY, implying negative operating leverage from cost inflation, product/mix shifts, or lower pricing. SG&A of 1,125.10 billion yen appears elevated relative to revenue (about 10.6%), but without YoY SG&A we cannot quantify fixed-cost absorption. The compression from revenue to operating income indicates cost pressure outpaced top-line resilience in H1.

Growth Assessment

revenue_sustainability: Revenue of 10.63 trillion yen was slightly down YoY (-1.5%), implying relatively stable unit volumes/pricing overall despite macro and FX volatility. Inventory levels suggest potential for shipments to normalize, but also risk of discounting if demand softens. profit_quality: Net income fell 37.0% YoY, driven by operating income decline and a high tax rate. Equity-method loss (-20.76 billion yen) further diluted profit quality. The gap between net income and operating cash flow (OCF/NI 0.22x) points to lower cash conversion quality in the period. outlook: Near-term growth depends on normalization of cost headwinds, product mix (including higher-margin models and motorcycles), and progress on electrification cost curves. FX and raw material trends, as well as China competitive dynamics, will influence pricing and margins. Absent a rebound in cash conversion and margin recovery, earnings growth will remain constrained.

Financial Health

liquidity: Cash and equivalents stand at 4.53 trillion yen, providing ample liquidity. Current assets are 11.69 trillion yen, but current liabilities are unreported, preventing calculation of current/quick ratios. Operating cash flow was weak (68.69 billion yen) in H1, so near-term liquidity is supported mainly by the cash balance. solvency: Equity ratio is 38.0%, and debt-to-equity (using total liabilities) is 1.48x, indicating a moderate leverage profile for an auto OEM. Financial leverage (assets/equity) is 2.57x, consistent with industry norms. Interest coverage cannot be assessed due to unreported interest expense. capital_structure: Total assets 31.49 trillion yen vs equity 12.24 trillion yen suggests balanced funding between liabilities and equity. Financing cash inflow of 317.60 billion yen in H1 indicates incremental reliance on external funding to bridge negative FCF.

Cash Flow Quality

earnings_quality: OCF/Net income of 0.22x is weak, suggesting significant working capital build and/or non-cash items elevating earnings relative to cash. Total comprehensive income exceeded net income, driven by OCI, but this does not translate to operating cash. FCF_analysis: Free cash flow was -450.42 billion yen (OCF 68.69 minus capex 222.04 plus other investing outflows), driven by elevated investing cash outflows (-519.11 billion yen). The negative FCF indicates investment intensity outpacing internal cash generation in H1. working_capital: Inventories at 2.47 trillion yen are sizeable relative to H1 revenue (~23%), implying potential cash release if inventories normalize, but risk of margin pressure if discounting is needed. Accounts receivable/payable are unreported, limiting analysis of days sales/payables outstanding.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 115.1%, indicating dividends exceeded earnings during the period. DPS data are unreported, but the ratio implies strained coverage on an earnings basis in H1. FCF_coverage: FCF coverage is -1.25x, meaning dividends (implied) were not covered by free cash flow in the period. This reflects weak cash generation rather than immediate liquidity constraints. policy_outlook: Honda historically targets stable shareholder returns, but sustained negative FCF and low OCF/NI would challenge full cash coverage if maintained. The strong cash balance mitigates near-term risks; longer-term sustainability hinges on margin recovery and improved cash conversion.

Risk Assessment

Business Risks:

• EV transition and associated upfront capex/R&D may pressure margins before scale benefits materialize
• Competitive intensity in China and global pricing pressure, including potential discounting to clear inventory
• Input cost and logistics volatility affecting cost of sales and operating leverage
• Product mix shifts away from higher-margin models or motorcycles
• Regulatory and emissions compliance costs varying by region
• Recall and quality risks typical for auto OEMs, which can cause one-off charges
• FX fluctuations (yen and key operating currencies) impacting revenue and costs

Financial Risks:

• Weak operating cash conversion (OCF/NI 0.22x) creating reliance on external financing
• Negative free cash flow (-450.42 billion yen) amid elevated investment needs
• High effective tax rate (40.8%) dampening net profitability
• Equity-method losses (-20.76 billion yen) from affiliates dragging consolidated earnings
• Potential working capital build (high inventories) tying up cash

Key Concerns:

• Sustained margin compression with operating margin around 4.1% and operating income down 41% YoY
• Dividend coverage strained (>100% payout; negative FCF coverage)
• Visibility limited by missing disclosures (gross profit, D&A, R&D, current liabilities), constraining full ratio analysis

Investment Implications

Key Takeaways:

• Top-line resilience (-1.5% YoY) contrasted with sharp operating profit decline (-41% YoY) indicates cost and mix headwinds
• ROE at 2.5% is primarily constrained by low net margins rather than leverage
• Cash conversion is weak (OCF/NI 0.22x) and FCF negative, highlighting the importance of working capital normalization and capex discipline
• Balance sheet remains solid (equity ratio 38.0%, cash 4.53 trillion yen), cushioning near-term volatility
• High inventories (2.47 trillion yen) are a key swing factor for both margins and cash
• Dividend not covered by earnings/FCF in H1; sustainability hinges on margin and cash flow recovery

Metrics to Watch:

• Operating margin trajectory and cost pass-through
• OCF/Net income ratio and inventory days
• Free cash flow and capex outlook tied to electrification
• Effective tax rate normalization
• Equity-method results and affiliate profitability
• FX sensitivity and pricing/mix, especially in North America and China

Relative Positioning: Within Japanese auto OEMs, Honda shows solid balance sheet strength and scale but currently lags on profitability and cash conversion versus best-in-class peers; near-term returns hinge on restoring margins and improving working capital efficiency while funding EV transition.

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