Bridgestone Corp. Chairman Shigeo Watanabe calls the next few years a ``time of unprecedented opportunity.''
Just five years removed from the biggest tire recall in tire industry history, Bridgestone Corp. is striding purposefully toward solid market share gains, backed by a staggering $2 billion-plus capital spending package and coupled with steady earnings growth.
One aspect of Bridgestone's growth strategy, however, that separates it from its major competitors is its belief in vertical integration.
While its major competitors Goodyear and Group Michelin are moving selectively away from certain in-house supply lines, Bridgestone is investing heavily in a range of supply functions. Those include steel cord, textile cord, carbon black, natural rubber (NR) and synthetic rubber, as well as solidifying its captive retail distribution networks in North America, Europe and Japan.
Writing in Bridgestone's 2004 annual report, Mr. Watanabe noted that while the firm will continue to buy most of its raw materials from third-party sources, ``we will upgrade our in-house capabilities in developing, producing and using those materials. That will help us create better tires, and it will help ensure reliable access to crucial raw materials.''
Bridgestone has committed more than $360 million through 2007 to enhancing its raw materials supply situation. Included in the investment package are the recent purchases of Goodyear's NR plantation in Indonesia, a new carbon black plant in Thailand, two new steel cord plants in China and expansions of steel cord capacity in Japan and the U.S.
Summing up Bridgestone's aspirations for the coming years, Mr. Watanabe wrote: ``This is a time of tremendous opportunity for Bridgestone, and we are moving aggressively to capitalize on that opportunity even while addressing huge challenges.''
Attempts to reach Bridgestone officials in Japan for further comment were unsuccessful. Bridgestone Americas Holdings Inc. (BSAH) in Nashville, Tenn., referred all queries to the parent firm's Tokyo headquarters.
Noting that demand for passenger car tires in the industrialized nations is shifting toward high-performance tires and tires of larger rim sizes, Mr. Watanabe noted that the tire maker's ``global production network and our unexcelled capabilities in product development position us better than any other tire manufacturer to serve both of these trends.''
To accomplish the firm's goals, Mr. Watanabe outlined four capital spending priorities:
* Deploying production resources to serve the shift in demand for passenger car and light truck tires in industrialized markets toward high-performance and larger rim diameter sizes;
* Expanding capacity to serve the growth in global demand for passenger tires, especially in emerging markets;
* Expanding capacity to serve the growth in global demand for truck and bus tires and for off-the-road tires; and
* Acquiring and fostering expanded capabilities in producing raw materials for tires.
The amount of new daily capacity coming on stream in the next two to three years is roughly 45,000 units, or the equivalent of as much as $1.5 billion in new sales, depending on the mix.
The $2 billion in spending comes on top of $1 billion or more the company set aside in 2001-02 to cover the costs of recalling more than 6.5 million Firestone ATX, ATX-II and Wilderness P-metric light truck tires and to settle dozens of lawsuits stemming from the recall.
Additionally, the firm took a $350-plus million hit in 2003 to cover the cost of rebuilding its fire-damaged Tochigi, Japan, plant and account for lost sales from the idled plant, and this year has spent nearly $250 million buying back stock. It even raised the dividend 5.3 percent this year.
The firm is financing much of its growth through adequate cash flow and controlled debt. The firm's interest-bearing debt declined last year by 2 percent. The debt-equity ratio stood at 0.34 at year-end, the lowest it's been in five years.
Short term, Bridgestone sees sales rising steadily this year and next, but the unstable raw materials situation likely will keep a lid on earnings gains, the company said in its half-year results.
The bright spot for the firm in the near-term is the Americas, where BSAH said recently it expects earnings this year to climb about 50 percent over 2004 on higher sales, improved product mix and increased efficiencies.
For the year, Bridgestone Americas expects sales to grow about 11 percent to more than $10 billion while operating and net income of $390 million and $280 million should exceed last year's results by 47 and 52 percent, respectively. That amount of sales volume would put the Americas business unit on equal footing with Japan in terms of revenue.
The firm also expects its North American tire manufacturing and wholesaling operations, Bridgestone Firestone North American Tire L.L.C., to be in the black on an operating basis for the first time since 2001. The firm's outlook is predicated in part on its new labor pact with its unionized workers this past year.
Bridgestone also is betting heavily on China, where it has three tire plants and a steel cord plant plus a second steel cord plant under construction. The company has invested $500 million in China since 2002. Bridgestone set up Bridgestone (China) Investment Co. Ltd. in Shanghai to manage its growing tire operations there.