Current Issue

Industry's financial health turns upward

Comments Email

The financial health of the tire industry took a marked turn upward in the first half of 2004, with all of the major multinational tire firms reporting improved earnings, including Goodyear, which returned to the black in the second quarter after six quarters of bleeding red ink.

The surge of positive performances prompted Bridgestone Corp. and Cooper Tire & Rubber Co. to revise their full-year earnings forecasts upward.

The fly in the ointment, though, is the uncertainty about raw materials prices.

Tire company executives the world over are earning their salaries trying to keep the bottom line black while balancing selling prices against rising raw material prices.

While the upward climb of prices for both natural and synthetic rubber-as well as other oil-derived raw materials like carbon black or certain processing chemicals-is well documented, tire companies also are being confronted with increasing prices of steel or even shortages of tire cord and/or bead wire.

Nearly every earnings projection for the remainder of 2004 is tempered with warnings of raw materials' pricing affecting future earnings performance. Cooper, for example, said in its second quarter financials it expects raw materials costs to be 5 percent higher than a year ago, while Goodyear put the estimate at 5 to 7 percent.

``Raw material costs remain stubbornly high and appear to be moving yet higher through the rest of 2004,'' said Tom Dattilo, chairman and CEO of Cooper. ``Prices for natural rubber appear to have leveled off, but steel and petroleum-based products and most other commodities we buy are still going up.

``This will continue to be a major issue for our company and our industry, and we will need to offset these higher costs through our lean savings initiatives, improving our efficiency and through additional tire price increases.''

Mr. Dattilo's comments accompanied a record sales and earnings performance by Cooper during the second quarter and first half of 2004. For the six months, net income more than doubled to $57.2 million on 20.3-percent higher sales of $1.97 billion. Tire unit operating income rose 40.8 percent to $42.1 million as sales climbed 20.3 percent to $999.7 million.

Through the first six months of 2004, Cooper's shipments have risen 9.8 percent vs. the industry's 5-percent growth.

Bridgestone, coming off a 64-percent increase in first half net earnings, boosted its net profit forecast for fiscal 2004 by 39 percent, citing continued sales growth, improved tire prices and a better product mix.

Bridgestone increased its forecast despite expecting a challenging business environment throughout the rest of the year, company management said in a prepared statement. Bridgestone now expects 2004 net profit of about $945 million (4.4 percent of sales).

For the six months, Bridgestone reported net profits of $482 million while operating profit grew 29 percent to $848 million. First-half sales rose 3.7 percent to $10.6 billion, aided by a 4-percent increase in tire sales mainly on healthy demand outside Japan.

Bridgestone Americas reported a seven-fold jump in operating income to $159 million on a 1.7-percent increase in sales to $4.35 billion. Unit sales improved in both consumer and commercial tires, the company reported, and business in Latin America was particularly strong.

Michelin's first half net income nearly doubled as the French tire maker improved its market position in supportive tire markets.

Net income surged 98.8 percent to $403.6 million, as net sales rose 6.4 percent to $9.6 billion, while operating income was up 20.1 percent to $852.5 million, raising the earnings/sales ratio to 8.9 percent.

Factors affecting sales included negative impacts of exchange rates and raw material costs, while positive impacts included higher sales volume, a better price/mix effect and the consolidation of newly acquired Viborg distribution business in Europe.

In North America, Michelin said it gained replacement share in a market that was up 5.3 percent, yet is plagued by low consumer confidence, fuel price increases and a ``lagging'' sport-utility vehicle tire replacement market.

For the year, Michelin expects to post a ``visible improvement'' in its operational performance.

Goodyear posted net earnings in the second quarter of $25.1 million-including operating earnings in the North American Tire unit of $30.4 million-but the company was still $51.8 million in the red for the first half after a $76.9 million first quarter loss.

Tire division sales revenue grew 13.7 percent to $7.74 billion, while tire unit volume overall grew 5.1 percent to 110.7 million units. 2004 revenues include $581 million in sales from the first-time consolidation of Goodyear's South Pacific Tyres joint venture in Australia/New Zealand and T&WA Inc., a tire/wheel assembly venture.

Goodyear's North American Tire division's sales were up 14 percent, but unit volume grew only 0.6 percent to 50.4 million units.

Rising raw material costs, pension obligations and outstanding debt continue to present challenges to the company's balance sheet, company executives said. Raw materials costs alone grew 4 percent over last year, and Goodyear is sticking to its estimate of a 5- to 7-percent hike overall this year, meaning the second half may see very rapid growth.

``Our progress from where we were 18 months ago is gratifying, but we realize fully that it is critical that we continue to show year-over-year improvement, and that remains our primary focus as a company,'' said Robert Keegan, chairman, president and CEO, in a conference call with analysts.

Continental A.G. anticipates 2004 operating earnings and sales will exceed the 2003 fiscal performance, despite having to take up to $144 million in charges against earnings to cover the costs of phasing out tire production at its Mayfield, Ky., plant.

For the period ended June 30, Continental's operating earnings climbed 21.4 percent to $594.4 million on 9-percent better sales of $6.93 billion, pushing the earnings/sales ratio up nearly a point to 7.9 percent.

Conti's sales of passenger and light truck tires grew 8.3 percent during the six-month period to $2.36 billion despite declining sales in North America. Globally, original equipment sales were up 14 percent, Conti said.

Despite a $121 million charge against earnings taken to cover the phase-out of production at Mayfield, the passenger/light truck tire division reported a slight 1.2 percent gain in operating earnings, to $148.1 million.

The commercial vehicle division saw operating earnings rise 29.6 percent to $53.1 million while organic sales-that is, excluding exchange rate effects of the consolidation of the Sime Darby tire assets acquired in Malaysia-rose 10 percent. Overall sales were $876 million, with growth coming primarily from Europe; OE shipments in North America were up 2 percent but replacement market sales fell.

Pirelli S.p.A. reported 33-percent better operating income in the first half of 2004 on 8.3-percent better sales, as the tire division provided the bulk of the earnings.

Operating profit from tires grew 19.4 percent to $189 million, while tire division sales improved 9 percent to $2 billion.

Hankook Tire Co. Ltd. reported double-digit increases in operating and net earnings for the first half as sales moved up 7.2 percent to $780 million. Operating profits rose 31.6 percent to $113.1 million (14.4 percent of sales) and the net jumped 58.6 percent to $86.5 million (11.1 percent of sales). The South Korean firm is predicting 6.7-percent sales growth and a near doubling in net income, according to information on its Web site.

Nokian Tyres P.L.C. reported 76.6 percent higher first-half operating earnings of $36.2 million and 18.9-percent better sales to $307.7 million. The company attributed its improved profits to price increases, an improved sales mix and better productivity than in the previous year.

Nokian indicated the results could have been even better, stating that raw material prices increased from the previous year, and the low value of the dollar had a negative effect on the profitability of tires sold in the U.S.

Sumitomo Rubber Industries' first half results weren't available at presstime. Yokohama Rubber Co. Ltd. and Toyo Tire & Rubber Co. Ltd. operate on March 31 fiscal year-end and thus won't report half-year results until the fourth quarter.

Yokohama did, however, report improved first quarter results recently. Operating and net income were up 11.8 percent to $29.7 million and 59.3 percent to $8.9 million, respectively, while sales grew 7.5 percent to $821.9 million. Tire Group sales hit $599.9 million as operating income increased 34.2 percent to $29.6 million.

More Polls>

TB Reader Poll

Previous | Published February 1, 2019

What issue concerns you most heading into 2019?

The threat of more tariffs.
27% (27 votes)
The new Congress in Washington.
35% (35 votes)
Price fluctuations for the products we sell.
10% (10 votes)
More disruptions across the industry.
29% (29 votes)
Total votes: 101
More Polls »