AKRON—Strong consumer demand coupled with stiff price competition yielded mixed financial results for four foreign-based tire makers in 1998 . Hanover, Germany-based Continental A.G. posted increased sales and earnings, whereas Group Michelin of Claremont-Ferrand, France, saw its earnings decline despite increased sales.
Milan, Italy-based Pirelli Group, on the other hand, was able to wring out increased earnings in the face of decreased sales.
Spurred by increased exports and a jump in global sales, Hankook Tire Co. Ltd., based in Seoul, South Korea, nearly doubled net earnings.
All foreign curriencies have been converted at current exchange rates.
Buoyed by higher sales in all its business units, including Continental General Tire, as well as a number of acquisitions, Continental reported a 28.6-percent increase in net income for 1998, compared with 1997.
For the year, Continental's earnings reached $231.5 million, as sales climbed 17.9 percent to $7.38 billion.
Conti General posted a 2-percent sales increase to $1.34 billion, with growth in both the passenger and commercial tire divisions, Conti said. The U.S. unit's earnings were not disclosed, but Conti said they ``showed a gratifying improvement,'' despite the ongoing strike at its Charlotte, N.C., tire plant.
Outside North America, Conti said its passenger tire and commercial vehicle tire units reported increases in both sales and earnings, though earnings were not disclosed. Sales of both units were enhanced by the inclusion of operations acquired during the year, Conti said.
The passenger tire unit, which includes Conti-owned stores, reported sales growth of 7.3 percent to $2.61 billion, and the unit's overall earnings improved ``significantly,'' Conti said. Sales growth without acquisitions was 5.6 percent. The company-owned store operations cut their losses in half.
The commercial vehicle tire unit reported a ``substantial'' profit for the first time since its creation, Conti said, as sales rose 13.3 percent to $833.1 million.
Nearly one-third of the commercial unit's sales growth was due to acquisitions, the company said—particularly the purchase of a 60-percent interest in Gentyre Industries Ltd. in South Africa, since renamed Continental Tyre South Africa (Pty.) Ltd.
Last year Conti also acquired Mexico's Corporacion Industrial de Llantera S.A. de C.V., better known as Euzkadi, and purchased the brake and chassis operations of ITT Industries Inc. for $1.93 billion.
The former ITT operations, renamed Continental Teves, added $615 million to total 1998 sales, all of it in the fourth quarter, Conti said.
Group Michelin finished 1998 with net income 8.5 percent below that of 1997, as a rebound in the second half of the year was unable to overcome an 11.8-percent drop in the first half.
The company attributed its second-half gains in large part to a strong program of capital investment, which it said should continue to pay dividends throughout 1999 in the form of increased product availability, especially in the replacement market.
Michelin said its first-half results were negatively affected by product shortages, which prevented it from satisfactorily servicing the replacement market.
For 1998, Michelin reported net earnings of $627.3 million. Net sales rose 2.8 percent to $13.7 billion, and were up 3.5 percent on a volume basis (expressed in metric tons).
The company boosted capital investment by one-third last year to $1.19 billion, which included the acquisition of Colombian tire maker Icollantas S.A.
Looking ahead, Michelin said it intends to achieve growth of at least 4 percent in sales volume in 1999, most of which will come in the replacement market. To achieve this, the company said it will extend the implementation of its multi-brand sales strategy and strengthen its sales force.
Despite still turbulent economies in Latin America and Asia, Pirelli S.p.A. said it expects to maintain its operating profits in 1999 at the same level as last year—at about 7.5 percent of sales.
Pirelli's net income improved 4.3 percent last year, while sales fell 5.7 percent as a result of lower selling prices and the effects of currency translations, the company said. Net income stood at $309.2 million, while sales dipped to $6.15 billion.
Pirelli's tire division sales fell 3.7 percent to $3.02 billion, as higher volumes and an improved product mix only partially compensated for lower selling prices, Pirelli said. Though a higher tax burden kept net income flat at $133.8 million, operating income jumped 8.6 percent to $196.9 million.
Tire sales in North America—where Pirelli has assigned distribution rights to Cooper Tire & Rubber Co.—dropped nearly 5 percent, to $211 million. The company claims it will reach break-even this year, after losing $12.4 million last year and $139.4 million in 1997.
Hankook Tire Co. Ltd.
Hankook Tire Co. Ltd. expanded its exports last year by 25 percent over 1997, resulting in a 16.2-percent increase in global sales and contributing to a near doubling of net earnings.
At the top of the export list was North America, where Hankook shipped 40 percent more tires than in 1997. Sales in North America jumped to $125 million, accounting for nearly 15 percent of Hankook's global sales of $858.8 million.
In addition, the company raised exports to Europe 22 percent and increased shipments to Latin America 9 percent.
All told, exports of 16 million tires accounted for 68.6 percent of the firm's total sales.
Hankook credited its export success to aggressive marketing strategies and a price advantage of more than 20 percent vs. other major competitors.
Launched in 1996 with a $9 million budget, the global marketing campaign was expanded to $15 million in 1997, then on to $22 million last year, the company said.
The company continues to invest more than 5 percent of its sales revenues every year in research and development.
Hankook increased its pre-tax profit 102 percent to $22 million, while net profit rose 98 percent to $13 million. This was helped by a sharp drop in the debt ratio: to 162 percent last year from 406 percent in 1997.
Management expects exports this year to be slightly higher than in 1998, but a recovery in the domestic market should help push overall sales up by more than 25 percent to $1.1 billion.
Original equipment is picking up this year with a recent six-year supply contract with Japan's Daihatsu Motors leading the way. An OE agreement with Ford is just around the corner, Hankook said, and talks are also under way with General Motors Corp.'s Adam Opel unit in Germany, with Volkswagen A.G., Toyota Motor Corp. and Nissan Motor Co. Ltd.