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Will Honda (HMC) Q4 Earnings Disappoint on Declining Sales?

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Honda Motor Co., Ltd. (HMC - Free Report) is set to report fourth-quarter fiscal 2017 (ended Mar 31, 2017) results on Apr 28. Last quarter, the company posted a positive earnings surprise of 63.27%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Honda is witnessing declining sales volume in its domestic market – Japan. Moreover, the company’s car sales in the U.S. declined 8.7% year over year in the fourth quarter of fiscal 2017. The company has lowered its forecast for unit sales in the Motorcycle business for fiscal 2017 to 17,700,000 units, down 570,000 units from the previous forecast, primarily due to lower sales in India. For fiscal 2017, Honda expects revenues to decline 5.5% to ¥13.8 trillion ($128.97 billion), compared to the previous guidance of ¥13.4 trillion ($130.1 billion).

Honda’s financial position has also weakened. In first nine months of fiscal 2017, cash flow from operations plummeted 52.2% to ¥458.28 billion ($4.20 billion). This decline was due to a decrease in cash received from customers, including unfavorable foreign currency translation effects, despite a lower payment for parts and raw materials.

Further, Honda was affected by frequent recalls to fix faulty Takata airbags. The Japanese automaker is the largest customer of the airbags that have been found to occasionally explode and shoot out metal fragments in a crashed vehicle. Apart from this, it often announces safety recalls for other reasons. Frequent product recalls add to expenses and lower consumers’ confidence in a brand.

Price Performance

The performance of Honda’s shares was better than the Zacks categorized Automotive-Foreign industry in the last three months. The company recorded a decline of 5.7%, while the industry’s witnessed a decrease of 8.4%.

Earnings Whispers

Our proven model does not conclusively show that Honda is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Honda’s Earnings ESP is 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 21 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Honda carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this reporting cycle:

CNH Industrial N.V. (CNHI - Free Report) – scheduled to report first-quarter 2017 results on Apr 27 – has an Earnings ESP of +33.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Autoliv Inc. (ALV - Free Report) has an Earnings ESP of +1.97% and a Zacks Rank #3. The company’s first-quarter 2017 financial results are scheduled for release on Apr 28.

Delphi Automotive PLC has an Earnings ESP of +2.06% and a Zacks Rank #2. The company is scheduled to report first-quarter 2017 financial numbers on May 3.

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