By Chang-Ran Kim, Asia auto correspondent
TOKYO, Jan 28 (Reuters) - Japan's top auto makers look set to report mixed quarterly earnings, with operating profit at Honda Motor likely falling on soft domestic demand and Toyota Motor Corp making solid gains on brisk overseas sales.
Honda has been relying heavily on the crucial North American market to offset the slide at home, but that could change soon as its domestic business begins to bottom out with the recent launch of the new Odyssey minivan.
Success in the U.S. market is beginning to look elusive for Japan's No.2 auto maker as sales of high-volume models like the Civic car dwindle and inventories build up.
Meanwhile, Toyota, which became the best-selling car brand in the United States last year, is still on a roll with plenty of new models in the pipeline aimed at grabbing a bigger slice of the high-margin light trucks segment as well as a growing legion of young and environmentally conscious American customers.
But the dollar's profit-eroding fall against the yen is seen hurting both, though the euro's rise softens the blow. Analysts want to see how this affects full-year forecasts when Japanese auto makers begin announcing third-quarter results this week.
"A slowdown in core North American models has combined with a tough forex environment to further limit (Honda's) earnings growth potential," ING analyst Kurt Sanger said. "We expect a Q3 earnings decline and cautious guidance when the company reports."
Mazda Motor Corp and Nissan Motor Co open the sector's reporting season on Thursday with revenue figures for October-December. Honda will unveil full results on Friday, and Toyota reports on February 5.
Mitsubishi Motors Corp , owned 37 percent by DaimlerChrysler AG , announces sales later in February.
NON-OPERATING GAINS TO HELP HONDA
With each one yen fall in the dollar estimated to slash 17 billion yen from Honda's operating income, a consensus of seven analysts' forecasts put third-quarter profit at 145.9 billion yen ($1.38 billion), down 8.2 percent from the year-earlier period.
During the quarter, the dollar averaged 110 yen and the euro 130 yen, compared with 120 yen for both currencies a year before. Except for Toyota, the companies are assuming the dollar at 110 yen during the second half. Toyota is assuming 105 yen.
Analysts said a softening in U.S. sales was the biggest worry for Honda, which earns about four-fifths of its income there. While domestic sales will get a boost in coming quarters from new strategic models, demand for older models has been declining.
But analysts see bigger non-operating profits from financial activities and equities earnings from China pushing Honda's net profit up 2.4 percent to an average 117.9 billion yen.
Profits at Toyota will be supported by fundamental strengths, including a 10 percent sales rise in the U.S. and big cost cuts.
"New vehicle sales are continuing to grow in the U.S., supported by new model introductions in the light truck segment," CSFB Securities analyst Koji Endo said. "We expect the company to post a new earnings record in the third quarter."
An average of three analysts' forecasts put operating profit for Toyota at 357 billion yen for a rise of about two percent, and net profit at 233 billion yen, up more than 20 percent.
Projections vary widely, partly as Toyota gives no guidance for group-based earnings and is reporting quarterly profits under U.S. accounting rules for the first time this business year.
NISSAN, MAZDA ON TRACK; MITSUBISHI WEAK
Of the three other major auto makers, analysts said Nissan and Mazda were on track to meet rosy full-year forecasts on the back of solid overall sales.
Nissan's growth has been particularly strong in the U.S., where it entered the profitable segments of big pickup trucks and sport utility vehicles last year with the Titan and Armada.
Mazda has zoomed ahead in the tough and shrinking European market. July-September sales rose 18 percent, and it should keep that momentum with the successful launch of the Mazda3/Axela sports compact in October.
Strength in Europe is a double boon for Mazda, as unlike its domestic rivals it has a bigger exposure to the buoyant euro than to the sinking dollar.
Mazda has forecast an operating profit of 65 billion yen for the full year to March 31, up 28 percent and the highest in a decade. Nissan expects an 11 percent jump to 820 billion yen.
Little good news is expected from Mitsubishi Motors.
While Japan's fourth-largest auto maker managed a rise in domestic sales, that was due mainly to easy comparisons from the previous year. Sales in the key U.S. market, meanwhile, are still sliding despite the heavy use of discounts and other incentives.
Among the top five auto makers, Mitsubishi alone saw its share price drop -- by 16 percent -- during the quarter, triggered by projections of full-year losses. ($1=105.59 Yen)