The first quarter provided a good start to the year for most tire-related companies reporting sales and earnings growth.
Bridgestone Corp., Continental A.G., and Pirelli & C. S.p.A. overcame soaring raw materials costs to post sales and earnings gains. Meanwhile, Apollo Tyres Ltd. and Yokohama Rubber Co. Ltd. also saw positive results in fiscal year 2006.
Conti and Yokohama cautioned that raw material costs will continue to have an impact on earnings and may prompt more price increases.
Unlike the tire manufacturers, Pep Boys-Manny, Moe & Jack reported a smaller net loss from 2005's first quarter, and executives say the company is making ``steady progress.''
Apollo Tyres Ltd. recorded double-digit increases in sales, production and earnings in fiscal 2006, thanks to internal efficiency improvements in the face of rising raw material costs.
Apollo, which is stepping into the international market more deeply with its acquisition of Dunlop Tyres International (Pty.) Ltd., reported 15-percent higher net income last year of $17.7 million on 18-percent higher sales of $682.3 million for the year ended March 31.
Apollo recently concluded its $62 million acquisition of Dunlop Tyres International. Adding Durban, South Africa-based Dunlop Tyres will increase Apollo's annual sales by about $250 million.
Tyres International Inc. of Stow, Ohio, is the North American agent for Apollo Tyres.
Bridgestone Corp. reported improved operating and net income in the first quarter on 16.7-percent higher sales, although the earnings gains were muted by higher raw materials costs.
Bridgestone's activities in North and South America contributed heavily to the gains, as they reported 24.6-percent higher sales and 76.7-percent better operating income. The Tokyo-based tire maker attributed the earnings gain to the firm's efforts to address rising raw materials costs. Sales grew despite lower unit sales of passenger and light truck tires in both the orginal equipment and replacement markets; unit sales of truck tires were up, led by OE growth.
For the quarter ended March 31, Bridgestone reported 3.8-percent better net income of $230.4 million on sales of $5.99 billion. Business expanded in all the firm's geographic regions, including Japan, where Bridgestone said the economy is recovering. Operating income was up 7.7 percent to $403.1 million.
The tire division reported 3.5-percent higher operating income of $301 million on 16.9-percent higher sales of $4.77 billion.
Continental A.G. reported double-digit growth in sales and earnings in the first quarter, but management cautioned that rising raw materials costs likely will prompt more price increases.
For the period ended March 31, Hanover, Germany-based Conti reported a 33.4-percent jump in net earnings to $266.7 million while sales grew 11 percent to $4.34 billion. A portion of the sales gain came from currency exchange rate differences. Operating profits were up 25.5 percent to $423.6 million.
``We had a very good first quarter, with all divisions achieving significant growth in quantities and sales despite the difficult position of several customers,'' said Continental Executive Board Chairman Manfred Wennemer. ``Thus, in a demanding environment, we have kept our sights firmly on our goal of outperforming the sales and operating result of the first quarter of 2005.''
Looking ahead, Mr. Wennemer cautioned that rising costs for raw materials and the continuing unsatisfactory development of the automotive markets on the whole pose risks for the firm's continued growth.
Conti estimated higher raw material costs reduced pre-tax profits by $60 million to $95 million and that the trend will continue throughout the rest of 2006. Additionally, Conti estimates it will cost more than $108 million to phase out tire production at its Charlotte, N.C., plant.
Conti's tire business units both reported solid sales and earnings gains in the period.
The passenger and light truck tire division reported an 18.6-percent gain in operating earnings, to $129.8 million, on 11-percent better sales of $1.31 billion. The sales gain came primarily from Europe; replacement sales in North America fell short of those a year earlier, Conti said. OE sales globally grew 5 percent.
The commercial vehicle tire division reported 12.6-percent higher earnings of $23.7 million on 12.9-percent better sales of $416.1 million. Sales in North America exceeded those a year earlier, with gains at OE offsetting a slight decline in aftermarket sales.
As executives contend the company is making ``steady progress'' against its challenges, Pep Boys-Manny, Moe & Jack posted improvements in the first quarter though the auto service chain still reported a net loss.
The Philadelphia-based chain reported a net loss of $922,000, an improvement over the prior year period's net loss of $2.47 million. Still, net sales in the quarter fell 1.3 percent to $555.9 million as comparable store sales fell 0.9 percent.
Comparable retail sales, which include do-it-yourself and commercial sales, fell 3 percent in the quarter, but comparable service center sales rose 2.2 percent. Service center revenue rose slightly to $228.4 million from $224.6 million last year. Gross service center profit, however, fell to $49.2 million from $53.5 million. Despite a 3.4-percent dip in retail revenues, that segment posted a 5-percent gain in gross profit.
``As our field team has stabilized service center operations, we were able to report a substantial sequential improvement-not just the service center sales improvement we reported in Q4, but also an improvement from Q3 and Q4 last year in bottom line contribution,'' said CEO Larry Stevenson.
Pep Boys operates 593 stores in 36 states and Puerto Rico.
Pirelli & C. S.p.A. reported double-digit increases in operating income and sales in the first quarter on the strength of the tire business.
Pirelli Tyre reported a 12.1-percent rise in pre-tax operating profit to $179.2 million while sales jumped 16.1 percent to $1.21 billion on higher pricing and increased volume by both the consumer (passenger cars and motorcycles) and industrial (commercial vehicles) divisions.
Pirelli & C.'s pre-tax operating income jumped 18.6 percent to $203.6 million on 17.2-percent higher sales of $1.45 billion. Net income rose 22.4 percent to $110.6 million.
Net debt during the period tripled to $867.3 million on the effects of reorganization in advance of Pirelli's listing the tire business as a separate company.
Pirelli did not provide a regional breakdown of sales.
Tokyo-based Yokohama Rubber Co. Ltd. reported record sales and net income for fiscal 2006, but management expects earnings to be hurt this year by the continued rise in raw materials costs.
For the year ended March 31, Yokohama reported a 4.7-percent increase in operating income to $193.5 million on 7.7-percent higher sales of $3.99 billion. Yokohama credited price increases, progress in reducing costs, the weakening of the yen/dollar value and growth in unit sales of tires for the earning progress.
Net income jumped 89.4 percent to a record $189.5 million, but more than 40 percent of the improvement came from one-time gains related to changes in the company's pension plan and a tax benefit connected with an earlier write-down of equity in a U.S. subsidiary.
Yokohama's tire division paced the revenue improvement, reporting 9.1-percent higher sales last year of $2.97 billion, but the unit's operating income fell 0.4 percent on the negative effects of higher raw materials costs.
Business in North America last year grew 14 percent to $726 million, Yokohama reported.
For fiscal 2007, management projects operating earnings will drop 4.3 percent because of rising raw materials costs. Sales should continue to grow, though, at a 7.3-percent pace, the company forecast.