Honda Motor Co <7267.T> reported an unexpected quarterly profit and raised its annual outlook by more than a third, as Japan's No.3 automaker rebounded quickly from a severe parts shortage caused by the March 11 earthquake.

Honda reported a 90 percent fall in quarterly operating profit on Monday, versus expectations of a loss, after it suffered the biggest production drop by any car maker from the March disaster, due mainly to bad timing for the scheduled delivery of parts.

The supply shortage coincided with the full remodeling this spring of its Civic model in the key U.S. market, where sales of the popular car fell by a third in June.

While its recovery schedule still lags that of rivals, Honda

now expects to produce more in July-September than it had outlined in June as the supply bottleneck eased. It raised its annual sales forecast by 135,000 vehicles to 3.435 million vehicles.

I think Honda deserves some credit for the first quarter, which some expected to be in the red, said Naoki Fujiwara, a fund manager at Shinkin Asset Management.

In April-June, Honda made an operating profit of 22.58 billion yen ($292.5 million), better than the average estimate of a loss of 67 billion yen according to seven analysts polled by Thomson Reuters I/B/E/S.

The results were boosted by a 43 percent jump in profits from its motorcycle operations and stronger-than-expected earnings at its finance business, the maker of Civic and Accord cars said.

First-quarter net profit, which includes earnings from China, was 31.8 billion yen, down 88 percent, while revenue fell 27 percent to 1.715 trillion yen.

Honda's Japanese car production halved in June from the previous year, even as Nissan Motor Co <7201.T> eked out a rise and the decline at Toyota Motor Corp <7203.T> shrank to 16 percent from 78 percent in April.

Top automaker Toyota reports quarterly earnings on Tuesday, with consensus estimates calling for a 190 billion yen loss.

For the full year to March 2012, Honda expects an operating profit of 270 billion yen, or 35 percent more than the previous forecast of 200 billion. A poll of 21 analysts produced a forecast of 407.7 billion yen.

The automaker raised its annual net profit forecast to 230 billion yen from 195 billion yen.

The results came as vehicle sales in Japan fell by a record in July, battered by production disruptions from the March earthquake, while South Korean rivals extended their winning streak to report strong global sales.

TOUGH U.S. MARKET

With full restoration of the supply chain only a matter of time, Honda Chief Financial Officer Fumihiko Ike expects sales to improve as production ramps up.

He cautioned however, that a U.S. economy plagued by weak housing starts, a high jobless rate and the debt crisis would make for a tough sales environment.

I think car makers will start offering bigger incentives once supply is available and consumers seem to know this and are waiting for them, he told a news conference. It will be a very competitive market then.

A stronger yen also hangs over Honda, while surging raw materials prices and escalating fears over the health of the global economy weigh on the overall industry. Honda kept its dollar assumption for the year at 80 yen, while changing its euro assumption to a more favorable 112 yen, from 110 yen.

The dollar was trading around 77.5 yen on Monday, while the euro was fetching 111.6 yen.

Separately, Mitsubishi Motors Corp <7211.T> reported first-quarter operating profit of 12.23 billion yen, against a loss of 4.5 billion yen last year as it sold more cars and cut costs.

Mitsubishi Motors raised its six-month operating profit forecast to 18 billion yen from 5 billion yen but retained its full-year outlook, citing uncertainties including the strong yen and a shaky global economy.

Honda's shares have fallen 4.2 percent so far this year, underperforming a 1.7 percent drop in Tokyo's transport sector subindex <.ITEQP.T>.

Before the results were announced, Honda shares closed up 1.5 percent at 3,125 yen, outperforming the benchmark Nikkei average <.N225.> and a rise in most other auto stocks.

($1 = 77.190 Japanese yen)

(Additional reporting by Taiga Uranaka; Editing by Matt Driskill and Anshuman Daga)

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