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UPDATE 2-Honda posts record Q1 on strong U.S. sales

By Edwina Gibbs

TOKYO, July 29 (Reuters) - Japan's Honda Motor Co on Monday posted record first quarter profits, fuelled by brisk North American sales, and stuck to its forecast of record income for the full year despite a recent surge in the yen.

Consolidated operating income at the nation's second-largest automaker in April-June rose 12.8 percent from a year earlier to 170.82 billion yen ($1.44 billion) -- its best result for any quarter.

However, it was below analysts' forecasts which had ranged from 172 billion to 207 billion yen.

Net income, also a record for any quarter, climbed to 107.6 billion yen, or 110.42 yen per share, compared with 91.72 yen a year earlier.

"It was a powerful Q1 result on much higher than expected factory shipments in North America and significant growth in their motorcycle business," said Christopher Redl, auto analyst at UBS Warburg.

"They will make their full-year targets easily," he added.

In addition to North American sales growing 12 percent during the period, Honda benefited from a weaker yen than in the same quarter a year ago, which inflates the yen-value of overseas income and makes exports more profitable.

During the first quarter, revenue rose 10 percent to 1.94 trillion yen but Honda said that without the softer yen boosting overseas income, sales would have only climbed 6.5 percent.

The yen declined to an average of 128 yen to the dollar compared to 119 yen for the same quarter a year ago.

The first quarter follows a record performance in the 12 months to March when both operating and net profit leapt by more than 50 percent on strong sales and a slide in the yen.

But this is likely to be the only quarter this business year to see benefits from a weaker Japanese currency as the yen has surged some 12 percent since April, and on Monday was trading at around 119 yen to the dollar.

Earlier this month it went as high as 115.50 to the dollar.

ROBUST SALES TO OFFSET YEN SURGE

Like many other Japanese automakers, Honda has assumed an average exchange rate of 125 yen per dollar. Other major exporters such as Sony Corp have changed their assumption for the year to 115 yen.

"The short-term currency fluctuation is a bit worrisome, but we will wait and see for a while to decide whether we need to revise our exchange rate assumption," Honda Executive Vice President Koichi Amemiya told a news conference.

Honda has forecast consolidated operating profit to rise 13 percent to 720 billion yen and net profit to jump 27 percent to 460 billion yen for the full year.

Although a few analysts have voiced concern that Honda may find its full-year targets tough going if dollar/yen rates of around 115 yen were to continue for the rest of the year, most predict the automaker will still be able to meet its goals.

The unfavourable exchange rate is expected to be offset by the introduction of the remodelled Accord sedan, Honda's flagship model in the United States, as well as popular light trucks such as the Oydssey minivan, the Acura MDX and Pilot sport utilities.

Amemiya said the overall profitability of its vehicle line-up in North America would improve over the previous year, given the launch of its new Accord and its new Alabama plant ramping up to full capacity, but he said it was a different story in Japan.

"At home, we've seen a greater shift than we first expected into the small car category and it's difficult to see us keeping up the strong pace that we have had," he said. But he added that cost cuts would help offset the decline.

For Europe, long a loss-making division, Honda said it had made a profit in the first quarter.

It was a result that gave Honda confidence it would return to the black in the region in the next business year although Amemiya said it was still too early to say for this year.

Honda also said it would buy back up to three million of its own shares, or up to 15 billion yen worth, between August 7 and October 25.

The buyback announcement followed a resolution at its annual shareholders' meeting last month allowing it to buy back up to 20 million of its own shares or up to 100 billion yen worth.

Shares in Honda closed up 4.8 percent at 5,020 yen prior to the announcement, outperforming the benchmark Nikkei average which rose 0.79 percent. ($1=118.77 Yen)