Honda sees a tough year if the yen firms and dents export earnings, but it should still increase market share in Europe and the United States with its Civic and CR-V models and a new Accord sedan.
Honda posted a 19.7 per cent drop in fourth-quarter net profit due to a big one-off accounting gain a year earlier.
While quality-related expenses ballooned last year to pay for a string of big recalls of vehicles around the world, analysts say Honda's prospects for steady growth are good thanks to its fleet of popular, fuel-efficient cars amid high fuel prices.
As big US rivals scale back production to reflect a loss of customers to Japanese brands, Honda is to add more capacity in North America, including a new factory in Indiana next year.
Koji Endo, an analyst at Credit Suisse, said Honda's projection of falling profits this year was a surprise. "The forecast for 2007/08 is extremely weak," he said, adding he would keep his price target of 4,000 yen a share unchanged for now.
For the year to March 31, 2008, Tokyo-based Honda forecast a 2.9 per cent decline in net profit to 575 billion yen ($4.86 billion), against an average forecast of 641.4 billion yen in a survey of 16 brokers by Reuters Estimates.
Profit was 592.32 billion yen in the year just ended.
Honda expects an operating profit of 770 billion yen, versus 851.88 billion yen in 2006/07. The carmaker's forecasts are based on an assumed dollar rate of an average 115 yen for the year, compared with a more favourable 117 yen in 2006/07.