AKRON-The first half of 2003 brought mixed financial results for tire and auto service industry firms as weak markets, pricing pressure, higher raw material costs and a host of other factors impacted bottom lines.
A weak truck tire replacement market and charges relating to sale of some Tire Distribution Systems Inc. (TDS) locations helped push Bandag Inc.'s second quarter consolidated net income down 26 percent.
The Muscatine, Iowa-based retread systems supplier reported net income of $8.69 million in the quarter vs. $11.7 million in last year's period. Sales fell 11.7 percent to $204.1 million from $231.1 million last year.
Bandag said net income was adversely affected by net foreign exchange losses, charges related to the sale of some of its TDS subsidiary locations and litigation expenses.
``Worldwide, the anticipated, but absent, second quarter turnaround and weaker U.S. dollar were key factors in the decline in Bandag's second quarter earnings performance,'' said Martin Carver chairman and CEO. ``In North America, the truck tire replacement market remained soft due to generally flat trucking freight volumes.''
Mr. Carver also said in a statement that TDS same-store sales were down slightly, yet remained relatively consistent with overall Bandag dealer purchase patterns.
``Following our strategy, TDS continued to selectively divest locations during the quarter, which further tightens its market focus while strengthening the capability of the Bandag Strategic Alliance to serve its fleet customers,'' Mr. Carver said.
For the first six months, Bandag reported consolidated net income of $11.1 million vs. a net loss of $34.4 million in the same period of 2002. Sales declined to $379.4 million from $423.6 million in 2002's first half.
Continental A.G.'s first half operating income jumped 14.9 percent, prompting management to raise the full-year earnings outlook to $775 million and the debt gearing ratio to below 100 percent.
Conti achieved improved earnings despite difficult conditions in the global automotive business, which accounts for about 60 percent of the firm's annual sales. Operating profits rose to $443 million while sales dipped slightly to $6.27 billion. Adjusted for currency fluctuations during the period, sales were up about 6 percent, Conti said. Net income rose 19.7 percent to $216.7 million.
Additionally, the firm said its passenger tire business unit increased operating earnings by nearly a third, to $132 million, despite continued losses in North America. Sales edged up slightly to $2.03 billion, improving the operating margin 1.5 points to 6.5 percent.
Commercial vehicle tire sales fell 9.1 percent to $644 million, but Conti attributed the decline largely to a change in the scope of consolidation and currency exchange fluctuations. Operating earnings fell 36.5 percent, to $36.7 million, due in large part to higher raw materials costs and additional social welfare expense in the U.S.
Despite tough market conditions in its major European and North American markets, Group Michelin reported slightly improved operating profits for the first half of 2003 on better Asian and Latin American business and a richer product mix.
Sales volume increased 2.4 percent, but a strengthening euro/dollar exchange rate left sales revenue 6.1 percent behind 2002 at $8.21 billion. The operating income/sales ratio improved to 7.9 from 7.3 percent.
Net income fell 34.9 percent to $182.1 million due primarily to restructuring charges at Michelin's Spanish operations. Higher raw materials costs also ate into the profit margin.
Globally, Michelin reported a 9.1-percent drop in its passenger car/light truck tire business, to $4 billion, as replacement sales in North America fell 3.9 percent shy of the 2002 volume and European sales lagged the overall market increase, the company said.
Michelin attributed its sales decline in North America in part to the skewed comparison with 2002's first half, when shipments were artificially high because of Ford Motor Co.'s replacement program for 13 million Firestone tires on customers' Explorer sport-utility vehicles (SUVs). Michelin supplied ``in excess of 30 percent'' of these tires.
Michelin also attributed part of the revenue decline to a resurgent consumer demand for ``value'' brands and away from a preference for ``premium'' brands that surfaced in the wake of the Firestone recalls of 2000/2001.
``Consistent with (our) expectations,'' Michelin said, ``...customers are now progressively returning to their initial buying patterns. This phenomenon is temporarily amplified by a greater price sensitivity, as consumers are worried by the current uncertainties prevailing in the American economy.''
On the original equipment side, Michelin said it gained market share and improved its product mix with more performance and SUV fitments.
Replacement truck tire sales in North America were up 8 percent over the 2002 period, but the volume was still less than that shipped in 2000, Michelin noted. OE truck tire sales were down slightly.
Michelin gave no specific guidance for the second half of 2003, other than to say it would ``continue to improve its performances and global competitiveness'' based on ``stable'' tire markets and raw material costs.
Monro Muffler Brake
With an increase in same-store sales and benefit from acquired stores, Rochester, N.Y.-based Monro Muffler Brake Inc. reported record sales and earnings for its fiscal first quarter ended June 28.
Sales rose 8.4 percent to $73.6 million from $67.9 million, Monro said.
Contributing to that increase was a 5.9-percent spike in comparable same-store sales, an additional $1.9 million benefit from new stores and a $1.5 million benefit from the 10 Frasier Tire Service Inc. stores bought in February 2003.
The comparable store increase was fueled by a 36-percent increase in commercial business, a 21-percent hike in miscellaneous service-including an 11-percent hike in scheduled maintenance services-and an 8-percent rise in comparable store tire sales.
Monro also reported net income of $5.92 million, up from $3.96 million in the first quarter of 2002.
Monro has 562 automotive under car repair and tire service stores in 17 Midwest and Eastern Seaboard states that operate under the banners Monro Muffler Brake and Service, Speedy Auto Service by Monro, Kimmel Tires-Auto Service and Tread Quarters Discount Tires.
Myers Industries Inc., parent company of Myers Tire Supply and Patch Rubber Co., reported higher sales but lower profits for the second quarter as higher raw materials costs and pricing pressures impacted the bottom line.
Net sales for the Akron-based company rose 10.4 percent in the period to $169 million, up from $153.1 million last year. Net income fell 51.8 percent to $3.28 million from $6.8 million in 2002.
Favorable foreign currency translation increased second quarter sales by $8.4 million and net income by $256,000, Myers said.
For the six months ended June 30, Myers reported a 10-percent increase in net sales to $332.2 million. Net income declined 37.9 percent to $10.5 million.