Bandag Inc. reported lower operating and net income in the second quarter on the negative effects of higher raw material costs and lower tread rubber unit sales, but management is hoping cost containment measures instituted during the quarter will offset the impact of rising costs.
For the quarter ended June 30, Bandag reported a 17.3-percent drop in net income to $10.5 million and a 19.5-percent decline in pre-tax operating earnings to $16.1 million. Sales rose 8.8 percent to $247.3 million, primarily on higher sales volume by its Tire Distribution Systems (TDS) subsidiary and its vehicle services units.
For the six months ended June 30, Bandag's net income from continuing operations was down 13.3 percent to $16.2 million while operating income was off 16 percent from a year ago. Sales were up 10.2 percent to $459.7 million.
The net result for the first half actually was a loss of $168,000 after factoring in the deferred loss the company took on the sale of its business in South Africa.
To combat rising costs, Bandag has closed its Shawinigan, Quebec, tread rubber plant, froze its U.S. and Canadian pension plans, begun a program to cut North American employment by about 175 jobs and initiated several programs to simplify operations and cut costs.
``Overall, we anticipate the steps we're taking in our traditional business globally will simplify our operations and reduce our cost structure, better aligning operations with the forces shaping today's markets and our dealers' needs,'' said Martin Carver, chairman and CEO.
On the positive side, TDS reported 25-percent higher sales in the quarter on the strength of sales of off-the-road tires to the construction and mining industries, Bandag said.
The vehicle services business unit-which combines Bandag's Speedco Inc. and TruckLube1 operations-reported 44-percent higher sales, aided by the first-time inclusion of sales by TruckLube1, acquired during the first quarter.
Looking ahead, Mr. Carver said, ``Though we don't anticipate any relief from rising raw material costs globally, we're hopeful that our simplified operations and slimmer cost structure will begin to offset the impact of the rising raw material costs in 2007.
``TDS and Speedco are both expected to benefit from continued underlying strength in the trucking industry.''