As rising raw material and energy costs continue to eat away at profits, Bridgestone/Firestone executives said the company is determined to ensure truck tire supply to its commercial tire dealers and focus only on opportunities that will help it break even this year.
``We will walk away from unprofitable business unless there's a strong, strategic reason to participate in it,'' Mark Emkes, chairman and CEO of Bridgestone Americas Holding Inc. (BAH), told 413 dealer attendees at the company's Bizcon 9 commercial tire dealer meeting April 27 in New Orleans.
Mr. Emkes delivered mixed news to dealers regarding the tire maker's 2004 performance and its forecast for 2005. BAH ended 2004 $183 million in the black after tax, while sales grew 12 percent to $9.15 billion. The results stemmed from several factors, Mr. Emkes said, including growth in passenger and light truck tire unit sales in the replacement market, strong unit sales in truck and bus tires and robust sales in diversified products, Latin America and retail.
BAH also recorded ``significant brand and product mix improvements as the Bridgestone brand demonstrated another year of continued growth and as Firestone continued to recover,'' Mr. Emkes noted.
Meanwhile, parent Bridgestone Corp. recorded a 29-percent jump in net profit to $1.1 billion in 2004, Mr. Emkes said. Net sales grew 5 percent to finish the year at $23.2 billion. Bridgestone expects consolidated net sales of $24 billion during 2005 and a ``slight growth'' in profit after tax, he added.
Mr. Emkes said Bridgestone's results were ``especially significant'' in light of the fact that the Tokyo-based tire maker achieved them despite dramatic increases in operating and raw material costs, which aren't going away anytime soon.
``Raw material costs have gone through the roof,'' he told dealers. ``All the components needed to manufacture a tire-natural rubber, synthetic rubber, steel cord and rubber chemicals-have seen unprecedented increases. All of these things are making it harder and harder to make money and generate cash flow in the tire industry.''
Bridgestone/Firestone North American Tire (BFNT) posted a loss in 2004 due to raw material, pension and health care costs. As a result, Mr. Emkes and Singh Ahluwalia, president of commercial products-truck and bus tires for BFNT, emphasized that the commercial sector must contribute to BFNT's goal of breakeven in 2005, and the company is counting on its partnership with dealers to deliver premium products and services to fleets.
``We simply can't make money nor offset the enormous raw material cost increases we've incurred the past two years...by producing tires that can't be sold profitably across all channels of distribution,'' Mr. Emkes said. He added that maximizing volume and capacity at all of the tire maker's plants is also critical to making money.
Another issue Mr. Emkes addressed at Bizcon is Bridgestone/Firestone's labor negotiations. The company's master contract with the United Steelworkers of America-now called the USW-expired in 2003, and union locals at three BFS plants began strike preparations in March. Strike preparation training sessions were scheduled to be held at five other plants in April.
Many ``delicate issues'' continue to be discussed between BFS and the USW, Mr. Emkes said.
``Our goal at Bridgestone/Firestone North American Tire is to get an agreement that benefits both parties,'' he said. ``However, what we won't do is anything that jeopardizes the long-term future of this company. I'd like you to know that whatever happens, we'll use every global resource to support your business.''
Mr. Ahluwalia addressed the commercial sector's performance and its goals for 2005 and also expressed optimism about the economy because the trucking industry is growing and freight volume is continuing to build. ``The trucking companies are economically healthy, and that is a great start. 2005 looks to be a good business year'' for both BFS and its dealers, he said.
In 2004 truck tire unit sales rose in every channel of distribution, Mr. Ahluwalia said, with re-placement tire sales rising 8 percent and original equipment unit sales surging 38 percent.
Total North American unit sales overall rose 15 percent, and 2005 truck tire sales thus far also are off to a great start, according to Mr. Ahluwalia. Sales in the U.S. and Canada are up 6 percent over budget, with replacement sales up 11 percent and OE sales down about 2 percent to budget.
That is key, he said, because it means the company is shipping more truck tire products to its dealers and holding the OE channel below budget. Managing OE and replacement tire demand is one of BFS' strategies this year for reaching half of its six goals: helping BFNT post operating profit, achieving unit sales volume and realizing precise inventory management.
``We're having to say no to the large, medium and small original equipment manufacturers,'' Mr. Ahluwalia said. ``We're also saying no to some of the fleets to ensure that we have inventory for you. We must have product availability for you and ourselves in order to be profitable.''
BFS is maintaining its supply commitments with key OEMs, such as tractor maker Paccar Inc. and trailer producer Great Dane L.P., and national fleets such as Ryder System Inc. and Covenant Transport Inc., he added, while also protecting its replacement commitments to dealers.
Dealers told Tire Business they are feeling the pinch just like BFS from higher raw material and energy prices. Brian Parkhouse, president of Parkhouse Tire Inc. in Bell Gardens, Calif., said he expects truck tire supply to continue to be strained. He said his dealership is ``doing everything we can to watch inventory'' and has added a fuel surcharge and raised labor rates to offset operating costs.
Mr. Parkhouse also said BFS' view of its dealer network as part of its team is ``refreshing'' compared with other tire manufacturers. ``I don't think it's just talk with them,'' he said.
Jay Ress, general manager of San Francisco-based wholesaler East Bay Tire, said his company is managing to keep up with truck tire demand. He said BFS is not doing any better or worse than other tire manufacturers in terms of supply.
Other strategies BFS' commercial sector will implement this year to help break even include balancing its transition to new truck tires launched last year and maintaining disciplined pricing and marketing programs that connect the premium value of the company's brand with a premium price, he said.
Regarding its inventory, Mr. Ahluwalia stressed that production capacity is ``maxxed out'' for every major tire manufacturer, and BFS is producing more tires globally and importing more tires to North America than ever before. He said BFS' North and South American plants continue to increase capacity, and the company is importing tires from its facilities in Japan and Thailand to help meet demand.
Three other goals for 2005 and beyond include:
* Renewing and strengthening key contracts and commitments;
* Building its team through education, diversity training and performance evaluations; and
* Improving processes within the commercial truck and bus business.