The first quarter brought sales gains for some tire industry companies, but rising raw material costs took a bite out of earnings.
Bridgestone Corp.'s operating income slipped as revenue grew. Myers Industries Inc. also saw its earnings challenged by raw material costs despite record sales, while Pep Boys-Manny, Moe & Jack continued its turnaround efforts but posted a loss for the quarter.
American Tire Distributors Holdings Inc. (ATD) reported higher sales, but a pre-tax loss resulting from Investcorp's acquisition of ATD affected earnings.
Meanwhile, Yokohama Rubber Co. Ltd. reported lower operating income on higher sales for fiscal 2005.
Bridgestone saw its operating income fall 6.6 percent in the first quarter, to $410 million, as rising costs of raw materials ate into its profit margin.
Sales rose 7.9 percent, to $5.62 billion, with the European and Americas operations each contributing double-digit growth.
Bridgestone management expects the earnings squeeze to continue through the second quarter, although not quite as severe as originally projected earlier this year. First-half operating income is forecast to fall about 15 percent shy of the 2004 performance, but this projection is a 20-percent improvement over the earlier forecast.
In the Americas, operating income fell 5 percent from a year ago, to $68 million, on 10-percent better sales of $2.35 billion, the Tokyo-based tire maker said.
Unit-wise, sales of passenger car and light-truck tires in North America increased in the replacement sector but shipments to original equipment customers declined. Unit sales of truck and bus tires increased greatly in both the original equipment sector and replacement sectors.
In the U.S., Bridgestone cited continuing ``economic vigor,'' driven by personal consumption and rising capital spending, for business improvements at its Bridgestone/Firestone subsidiary.
In Latin America, business improved in diversified operations.
Globally, the tire segment suffered an 11.2-percent drop in operating income while sales grew 7.6 percent to $4.46 billion on the strength of new product launches, increased marketing efforts and improved product mix.
Moving forward, Bridgestone said it is working on several fronts to ensure progress in this ``challenging business environment,'' including expanding global production capacity, enhancing sales initiatives, raising productivity and improving logistics.
In the past six months, Bridgestone has disclosed $1.39 billion in tire capacity expansions, including four new tire plants.
Pep Boys' sales in the first quarter fell 0.3 percent to $564.2 million as the automotive retail chain continues its retail turnaround.
The company also posted a net loss in the quarter of $2.39 million, vs. a profit of $14.6 million last year.
Pep Boys said comparable merchandise sales in the quarter increased 0.7 percent while comparable service revenue fell 4.6 percent. The company said more accurate categories of its business are comparable retail sales, including do-it-yourself and commercial sales, which grew 1 percent, and comparable service center revenue, including labor, installed merchandise and tires, which fell 2.1 percent.
In the quarter, merchandise sales reached $463.8 million while service sales accounted for $100.4 million.
``As I have repeatedly cautioned investors, the near-term results of our turnaround will continue to be uneven,'' said Larry Stevenson, chairman and CEO. ``While Pep Boys has a very exciting future ahead, achieving fundamental and sustainable performance improvements will take time.''
Myers, parent company of Myers Tire Supply and Patch Rubber Co., reported record net sales in its first quarter-a 27.3-percent increase-yet net income slipped 12.3 percent primarily on high raw material costs.
Favorable currency translation helped push net sales to $236.2 million from $185.5 million in the prior period. Net income fell to $7.77 million from $8.86 million last year.
``Sales in all business segments were strong during the first quarter,'' said Stephen Myers, who stepped down as CEO May 1. ``Our modest success with product price increases and internal cost reduction could not, however, offset higher costs for plastic raw materials, which penalized earnings.''
In the company's distribution segment, sales were up 12 percent to $42.1 million. Myers said its tire dealer markets and others delivered strong sales for tire and under-vehicle service equipment and supplies.
Yokohama's operating profits slipped slightly in fiscal 2005 on higher raw materials costs, but revenue grew 4.5 percent on the strength of tire sales outside of Japan.
Despite the earnings setback in the fiscal year ended March 31, Yokohama management is forecasting healthy gains in earnings and sales for fiscal 2006, although the reasons for the positive outlook were not disclosed.
For fiscal 2005, operating income slipped 0.6 percent to $195.5 million while sales climbed to $3.91 billion. Net income grew 9.6 percent to $105.2 million, partly on lower taxes.
Tire Group sales and operating income grew 6.7 and 19 percent, respectively, to $2.87 billion and $169.5 million, on the strength of ``favorable'' overseas business, particularly in Europe, Asia and the Middle East, Yokohama said.
The firm's North American operations nearly doubled operating income to $19.5 million on 7.5-percent better sales of $671.2 million.
American Tire Distributors reported higher gross profits and sales in the quarter ended April 2 on the first-time consolidation of activities acquired in 2004, but the firm suffered a pre-tax loss of $20.9 million due to transaction expenses related to its acquisition by Investcorp.
ATD's first quarter revenue jumped 17.6 percent to $354.3 million, largely on the strength of the first-time consolidation of sales by Target Tire and Big State Tire, which were acquired in the third quarter of 2004, but offset partially by an additional week of revenues in the first quarter of 2004.
ATD's pre-tax loss of $20.9 million in the first quarter resulted from $28.2 million of transaction expenses relating to Investcorp's $700 million purchase of ATD, which closed March 31. Gross profit increased $6.3 million as a result of increased sales.
ATD reported pre-tax income in 2004 of $9.4 million.
Also contributing to the im-proved first quarter sales was an increase in sales of certain lower-margin private label brands due to better supply and new markets.
ATD Chairman and CEO Richard Johnson said the firm's revenue continues to be strong through April and into May, and the wheel business has begun to show signs of increased activity.