Continental A.G. is analyzing ``major restructuring measures'' in its North American passenger tire business because of increasing price pressures brought on by the automotive industry's rebate programs.
Conti declined to be more specific about restructuring. But Chairman Manfred Wennemer, speaking at the release of the firm's fiscal 2003 results, said the company expects the consumer tire business in North America to break even this year on an operating basis, reversing losses of the past few years.
Conti probably would need to close a factory, most likely its Mayfield, Ky., unit, to reach its break-even target, according to an analysis by Morgan Stanley Equity Research Europe.
Management told analysts in a conference call that a plant closing, if it came to that, would result in a charge of $120 million, according to the report written by analyst Nicholas Hirth.
Conti did not specify the size of its losses in North America last year. It said only that ``extremely good results'' in Europe more than offset the losses in the NAFTA region, where in 2003 the firm reduced capacity at its Mayfield, Ky., plant, cut administrative staff and began outsourcing tire logistics.
The tire maker also achieved a 25-percent increase in its original equipment truck tire business in North America, while it said replacement business volumes were down slightly from 2002.
Overall, Continental posted record earnings and improved sales last year, and management anticipates further improvements in both this year before restructuring costs.
Conti's pre-tax operating profit rose 23.2 percent to $968.9 million on 1.1-percent better sales of $13 billion. Net income rose 38.9 percent to $355.7 million.
Worldwide sales in the passenger and light truck tires division increased 8.4 percent to $4.43 billion. Pre-tax operating earnings were up 87.3 percent to $391.8 million. Increased sales to the European replacement and original equipment markets helped push passenger tire unit sales to 91 million.
Sales and operating earnings in the commercial vehicle tires unit fell short of 2002's performance, but Conti attributed the decline to a change in the scope of consolidation-that is, the results of subsidiaries in Mexico and South Africa are now reported under the passenger/light truck division.
Earnings in the unit fell 11.3 percent to $93.3 million, while sales were off 3.9 percent to $1.43 billion.