Rising raw material costs affected tire companies' bottom lines during a quarter that offered mixed results.
Bandag Inc. finished the fourth quarter and year with a boost in net income despite lower sales. Cooper Tire & Rubber Co. reported a 20-percent jump in fourth quarter sales and is optimistic about 2004. Pirelli & C. S.p.A.'s income and sales both increased, while Bridgestone Corp. and Group Michelin struggled due to ``challenging market conditions.''
Despite lower sales in both the fourth quarter and for the year, Muscatine, Iowa-based Bandag ended both periods with higher net income in part from improved margins.
Bandag reported net income of $29.1 million in the fourth quarter, up from $17.5 million a year ago. Both figures included favorable tax adjustments of about $3 million. For 2003, net income rose to $60.2 million. This compares with net income of $2.8 million in 2002, which was impacted by an accounting change of $47.3 million recorded in the first quarter of that year.
For the fourth quarter, the company reported consolidated net sales of $225.7 million, down 2 percent from $231 million for the year-ago period. Bandag attributed the decline primarily to lower sales from its Tire Distribution Systems (TDS) Inc. subsidiary, which was impacted by several divestitures and closures in 2002 and 2003.
Bandag said fourth quarter sales for TDS fell 39 percent to $49.3 million. The divested and closed locations had sales of about $33.6 million in the fourth quarter of 2002.
In the 2003 fourth quarter, TDS reported an operating profit of $1.6 million, compared with an operating loss of $3 million a year ago. Higher gross margins and the divestiture of less profitable locations positively affected profit in 2003, according to Bandag.
Bandag's net sales for the year were down 9 percent to $816.4 million from $900.5 million in 2002.
Also affecting sales was a 2-percent dip in North American business unit volume from 2002. Net sales in the segment were up about $14 million primarily from a price increase that took effect Jan. 1, 2003, and a shift in sales from TDS to independent dealers.
Bridgestone expects ``challenging'' trading conditions during 2004, due to rising raw material prices and the weakness of the dollar despite good tire market prospects in the U.S. and Europe.
The negative factors ``could offset the positive contribution from generally strong economic trends,'' to leave operating income about 18 percent lower than in 2003 with sales basically unchanged, Tokyo-based Bridgestone said in releasing its fiscal 2003 results and 2004 forecast.
For 2003, Bridgestone posted an operating income basically unchanged at $1.58 billion, on 2003 sales of $19.9 billion, 2 percent higher than in the previous year. The results reflected a year of differing fortunes in each of the company's main global regions, including strong gains in Europe.
At Bridgestone's tire business, which represented 80 percent of its 2003 global sales, operating income fell 4 percent to around $1.28 billion, due mainly to rising raw material prices and pension-related costs.
The earnings dip came despite ``successful'' product introductions and marketing programs worldwide, which helped to lift sales by 2 percent, to $15.8 billion, Bridgestone said.
Sales of non-tire products rose 4 percent to $418 billion, while operating income increased 22 percent to $298.3 million.
In the Americas, yen-denominated operating income rose 5 percent to $168.1 million, on 1 percent lower sales of $8.43 billion. Price increases, a better product mix and strong automotive component sales offset higher raw material and pension costs, Bridgestone said.
Unit tires sales were strong in most of the main market segments, including solid growth in demand for Bridgestone-brand replacement tires. Sale of original equipment tires, however, declined, the group noted.
Bridgestone forecasts gains of 6 and 5 percent, respectively, for sales and operating earnings for Bridgestone Americas in 2004.
Group-wide, sales in Japan rose 2 percent, but operating income fell 5 percent on rising raw materials and pension-related costs.
Findlay, Ohio-based Cooper Tire & Rubber Co., coming off a record-setting fourth quarter, is optimistic its results in 2004 ``will significantly exceed'' the company's performance in 2003.
Cooper anticipates a 10-percent jump in its unit shipments this year, Thomas A. Dattilo, chairman, president and CEO, said. (See related story on page 3.)
For the quarter ended Dec. 31, Cooper recorded all-time record sales of $966.7 million and a 20-percent increase in net income, as both the tire and automotive groups generated double-digit increases in sales.
Operating earnings in the tire business, though, fell 18.6 percent on the effects of increasing raw material costs and higher expenses for various sales rebates and customer programs.
Tire group sales in the quarter grew 13.5 percent to $519.4 million as unit sales increased 8 percent - including a 50-percent jump in sales of high-performance and ultra-high-performance tires, a 40-percent increase in sales of P-Metric SUV tires and 25-percent higher winter tire sales.
For the year, net income slipped 34 percent to $73.8 million on restructuring costs and ``difficult market conditions'' in the first half, Mr. Dattilo said. Full year sales grew 5.5 percent to $3.51 billion.
Tire Group operating profit for the year was $87.6 million, down 36.3 percent from $137.4 million in 2002 on the effects of high raw materials costs and operating inefficiencies related to lower sales volumes in the first half.
Tire sales for the year grew 5.9 percent to $1.87 billion on 2-percent unit sales growth and improved pricing.
Clermont-Ferrand, France-based Michelin suffered a 6.7-percent drop in operating income last year to $1.29 billion, the result primarily of a 21-percent surge in raw materials costs.
For 2004, Michelin cautioned that external inflationary factors, such as raw materials prices and the fluctuating euro-dollar exchange rate, will continue to exert negative pressure on earnings.
Net income plunged 46.5 percent to $371.8 million as the company took a $382 million charge against earnings to cover the amortization of goodwill relating to its acquisition in the first quarter of 2003 of the Danish tire distribution chain Viborg Group.
As reported earlier, sales were down 1.8 percent to $17.4 billion. The company shipped 3.7 percent more tires on a tonnage basis and reported gains on better pricing and product mix, but the currency fluctuations more than offset all the gains.
The performance equated to an operating margin of 7.4 percent, down from 7.8 percent a year ago. Excluding the impact of the Viborg consolidation, the margin was 7.7 percent, Michelin noted.
Passenger car and light truck tires, which represented almost 49 percent of Michelin's net sales total, posted an operating margin of 8.9 percent, compared with 9.6 percent in 2002. Michelin linked the lower profitability to its North American operations, which faced 20-percent higher raw materials costs, extra medical costs and sluggishness in the SUV vehicle market, combined with a strong euro.
The company's passenger and light truck tire business in North America slipped 1 percent on a 0.9-percent drop in aftermarket shipments and 1.3-percent lower original equipment sales. Michelin's commercial tire business, on the other hand, showed a 4.8-percent gain in sales volume, based on 6-percent growth in the aftermarket and a 2.5-percent gain at OE.
The group truck tire business represented around 26 percent of group sales and posted an operating margin of 13.1 percent, compared with 12.3 percent the previous year. The improvement was based on higher sales volume, cost controls and success in implementing price increases.
Milan, Italy-based Pirelli's Tire Business Staff Reported double-digit increases in sales and operating income last year, based on higher unit sales and improved pricing and product mix.
Tire sector sales were up 11.4 percent to $3.35 billion, while operating earnings grew 15 percent to $248.5 million. The earnings/sales ratio improved to 7.4 percent, ``thus confirming the focus on high-performance market segments,'' the firm said.
Overall, Pirelli reported a doubling in operating income to $300 million on sales of $7.55 billion.