Virtually all the company’s FY26 profit headwinds stem from currency and tariffs that combined represent a 370 bp consolidated operating profit headwind. The currency headwind is related to the depreciation of emerging market currencies against the US dollar and, in our view, is rarely a consideration in the credit rating decision-making process. The tariff headwind is more concerning, although we note the company’s tariff cost estimates are a worst-case scenario that includes tariffs on parts as the company works to complete the country-of-origin certification process to qualify for the USMCA tariff exemption. Still, we believe the weak guidance and uncertain trade environment may be enough for Moody’s and Fitch to follow S&P’s lead in revising Honda’s outlook to negative.

Management unveiled FY26 guidance that represented higher motorcycle wholesales, lower automobile wholesales, and a steep decline in consolidated operating income based on currency and tariff headwinds. Management expects FY26 motorcycle wholesales to increase 4%, with the change compared to FY25 driven primarily by Asia. It expects automobile wholesales in North America to increase 2% YoY; while management currently expects the North America automobile market size to be about the same as last year, it is concerned about the impact of tariffs on total demand.

FY26 revenue is expected to decline by about 6% as price increases related to “improved product values” are expected to be offset by currency headwinds. Management predicts its FY26 consolidated operating margin would be the same as its FY25 margin of 6.2% when adjusted for warranty, currency, and tariff impacts. However, the expected impacts of currency and tariffs are expected to reduce Honda’s consolidated operating income by 59% in FY26, or 370 bp of margin compression to 2.5%. The currency impacts are driven by projected depreciation of emerging market currencies against the US dollar