Escalating raw material costs continue to plague global tire makers' bottom lines, but a host of individual factors also have been tipping the scales for better or worse so far this year.
Though profitability was mixed among the largest tire makers, sales were consistently up for the first half of the year. Pirelli S.p.A. led the pack with the largest increase of 13.1 percent to $2.75 billion. Group Michelin posted the smallest gain at 0.1 percent to $9.03 billion. But Bridgestone Corp. scored the highest sales for the period, at $11.4 billion, up 8.9 percent from the same period last year.
Profitability was more tenuous and likely will continue to be so for the rest of the year.
Bridgestone nearly doubled its net earnings to $919.5 million, but a large amount of that came from a pension fund change in Japan. The company's operating earnings in the Americas rose 23.9 percent to $173.6 million as sales grew 10.9 percent to $4.94 billion, putting the Americas business unit on par with Japan in terms of sales volume.
Still, the tire maker cautioned shareholders the company faces a ``challenging'' business environment for the rest of the year with increasing raw material costs chipping away at profitability.
Michelin-which posted a 5.5-percent gain in net earnings to $465 million-anticipates operating margins to exceed last year's despite the rising raw material costs. The tire maker said its price mix as well as its tight control over costs enabled it to maintain operating income at last year's level.
Michelin ``not only managed to compensate for a 3.6-percent de-cline in sales volumes but also for the escalation in raw material costs that turned out to be more severe than in the first half of 2004,'' the tire maker said, adding it expects raw material price increases of 14-15 percent through year-end.
Goodyear also made similar strides, offsetting rising raw material costs through improved mix, productivity gains and three price increases. Goodyear, marking its fifth consecutive quarterly profit in the second quarter, posted net earnings of $137 million in the half, an improvement over a $48 million loss for the same period last year.
The Akron-based tire maker posted net sales of $9.76 billion in the half from $8.82 billion a year ago. North American Tire-Goodyear's largest and erstwhile struggling unit-reported segment operating income of $66 million, up from $17 million, as sales jumped to $4.43 billion from $4.11 billion. Tire unit volume in NAT grew modestly to 50.6 million units from 50.4 million units.
Still, Goodyear warned about raw material costs-which company officials expect to grow about 10 percent through year-end-as well as its high debt load and unfunded pension requirements. On the other hand, strong-selling new products, more available cash, higher revenue per tire and other factors bode well for Goodyear, officials said.
Cooper Tire & Rubber Co. faced similar raw material challenges, but its main problem in the first half of the year was the strike at its Texarkana, Ark., plant this spring. Cooper posted a net loss of $1.67 million in the half, down from earnings of $58.3 million last year.
Sales grew 3.6 percent to $1.02 billion from $989.2 million, boosted by improvements in price and mix. Lower unit sales, from both weaker demand and the work stoppage, offset mix gains. Tire unit volume was down 8 percent in the second quarter and 5 percent so far this year.
``We made some good progress once the strike was behind us, and that progress was clearly evident in June, but it was not enough to offset the broad impact on sales and disruption of our manufacturing operations in the first two months of the quarter,'' said Thomas Dattilo, chairman and CEO of Cooper.
Cooper anticipates earnings of 10-14 cents per share in the third quarter and more robust replacement tire sales.
Analyst Jonathan Steinmetz at Morgan Stanley retained his underweight position on Cooper as the tire maker's results and outlook came in below his forecast.
``We do not see a near-term end to the margin pressure as we believe the company will need to sacrifice price to regain lost market share, raw material costs show no signs of weakening and competitive conditions remain intense,'' he wrote in a note to investors.
Continental A.G. also continued to struggle in North America and does not expect to reach its earlier target of break-even by the fourth quarter. Sales for the company overall rose 10.6 percent to $8.2 billion and net earnings rose 59.3 percent to $494.4 million. But volumes fell in the U.S. passenger and light truck tire operation.
``The deviation from our target figures is not large,'' said Allan Hippe, president of Continental Tire North America Inc. and finance director for Continental A.G. ``But many factors would have to turn out positively in order for us to just break even. At the same time, this shows we are not in the middle of a catastrophic scenario, but rather that things are just progressing more slowly than expected.''
Sales in passenger and LT tires rose 8.3 percent to $2.51 billion.
Sumitomo Rubber Industries Ltd.'s operating earnings rose 18.7 percent to $186.4 million as sales, led by the company's tire division, improved 6.3 percent to $2.09 billion. Sumitomo's Tire Business Staff Reported 44.8-percent higher operating income of $132.9 million as sales rose 9.8 percent to $1.58 billion. Sumitomo's sales in North America increased to $252.2 million, representing 12.1 percent of the tire maker's global sales.
Hankook Tire Co. Ltd. and Kumho Tire Co. Inc.'s results are not yet available, and Yokohama Rubber Co. Ltd. and Toyo Tire & Rubber Co. Ltd. have so far only reported their first quarter results. Toyo's sales rose 13.9 percent to $649.5 million with net earnings of $6.5 million. Yokohama posted sales of $869.8 million, up 5.7 percent from last year. Net income also rose 51.8 percent to $13.6 million on a combination of one-time factors and lower pension and severance costs.