MILAN, Italy—Faced with sagging profits, Pirelli S.p.A. said it will close five plants and lay off 2,800 workers, mostly in Europe. Pirelli CEO Marco Tronchetti Provera announced the layoffs during a Sept. 13 press briefing at which the tire and cable giant announced its 1999 first-half financial results—a 9.2-percent drop in earnings despite a substantial increase in sales.
Two thousand of the job cuts will occur in the company's Cables & Systems Division, and the rest in the Tire Division, Mr. Tronchetti Provera said. He declined to reveal which facilities will feel the ax, but did say job cuts in Italy will be minimal.
Pirelli's announcement followed closely on Michelin's plan to cut 7,500 jobs in Europe—10 percent of its work force there—over the next three years.
Meanwhile, Pirelli will continue to seek partners in areas where it needs to strenghten its presence, just as it did earlier this year with Cooper Tire & Rubber Co. to increase its profile in the U.S. tire market, Mr. Tronchetti Provera said. Again, he declined to give further details.
Pirelli's first-half profits slid to $129.5 million (converted from Euros at the average exchange rate for the first half), despite a 13.9-percent jump in sales to $3.47 billion, 15,8 percent of which came from North America.
Though sales volumes rose, intense competition eroded prices and reduced margins, Pirelli said. Earnings also were negatively affected by currency fluctuations, the company said—especially a 40-percent devaluation of the Brazilian real.
Pirelli said the negative effect of currency exchange rates alone cost it $41.4 million in the six months.
The company said it expects earnings for the full year also to fall short of 1998 levels, as neither the pricing nor currency situation is likely to improve in the second half, and in addition, the company will be suffering the aftereffects of August's catastrophic earthquake in Turkey.
The tire division posted first-half sales of $1.41 billion, down 8.7-percent from the 1998 period.
Part of the sales drop was due to the exclusion of the company's European farm tire business, which was spun off last year into a joint venture controlled 60 percent by Trelleborg Industri A.B. of Sweden.
Though it represented only 41 percent of Pirelli's total consolidated sales, the tire division accounted for approximately 49 percent of the company's net income for the half.
The company said both the volume and mix of its passenger tire sales improved during the half, with an overall improvement in its replacement market share and an increase in its share of the original equipment markets in Europe and Latin America.