The second quarter was strong for most tire industry-related companies as many saw earnings and sales grow despite escalating raw material costs.
Continental A.G., Pirelli & C. S.p.A., Myers Industries Inc. and Titan International Inc. all reported gains in sales and earnings during the quarter and first half compared with a year ago.
Group Michelin, despite higher sales from 2005, posted a 62-percent decrease in operating income because of raw material costs. Midas Inc. also struggled as brake and exhaust sales were soft while tire sales rose more than 14 percent.
Hanover, Germany-based Continental A.G. reported improved operating earnings in the six months ended June 30 despite ongoing increases in raw materials costs and the ``restrained'' global automotive industry.
Conti's pre-tax operating earnings improved 17.1 percent, to $887 million, while sales rose 6.2 percent to $8.88 billion, resulting in a return on sales of 10 percent.
Conti's car/light truck and truck tire divisions both suffered declines in operating earnings during the period as the cost of raw materials-particularly natural rubber and oil-increased by nearly $195 million over the comparable 2005 period, Conti said. The firm's earnings also were affected by $56 million in charges set aside to cover the costs of closing the Charlotte, N.C., tire plant.
The car/light truck division's operating income fell 14.4 percent to $260.4 million, while sales rose 7.8 percent to $2.76 billion, dropping the margin two and half points to 9.4 percent.
The truck tire division's earnings fell 6.1 percent to $53 million as sales grew 7.8 percent to $884.2 million, resulting in a margin of 6.1 percent.
Looking ahead, Conti Chairman Manfred Wennemer said, ``We see these first-half results as especially encouraging for our forecast of topping last year's sales and earnings. In the light of this performance we have no cause to revise our outlook for fiscal year 2006-even though competitors operating in parts of our business have been forced to do so.''
The continued high cost of raw materials dragged Group Michelin's operating income down 6.2 percent in the first half, while sales grew 7.1 percent over 2005 on higher volumes and prices.
Michelin said its raw materials costs for the first six months of 2006 rose 21 percent over 2005, representing an extra $450 million in spending. Michelin said it expected the increases for the full year to exceed $1 billion.
Michelin said the truck tire business suffered particularly from higher raw material prices. Despite raising prices for truck tires during the period, the firm said it had been unable to pass on all the increases.
A bright spot was the firm's specialty activities-earthmover, motorcycle, industrial tires, etc.-whose earnings jumped 63.8 percent over 2005.
As a result, Michelin's operating profit before non-recurring items fell to $818.8 million; sales grew to $10.2 billion.
Provisions taken to cover the closing of the BFGoodrich plant in Kitchener, Ontario, reduced the operating income by $202.6 million, dropping the operating margin 3.2 points to 6 percent. Net income was down 28.2 percent to $451.7 million.
``Over the past two and a half years, the repeated increases in raw material prices have deteriorated Michelin's costs by more than 1 billion euros,'' said Michel Rollier, managing partner. ``As the Group is finding it difficult to fully compensate for this evolution, it is becoming essential to accelerate the productivity improvement and cost reduction programs that are already in place.''
While sales rose 7.1 percent, the volume of tires sold during the period was up only 0.9 percent, Michelin said, with strong gains in Asia and Europe offset by the weak North American markets.
Michelin said its sales of passenger/light truck tires in the European replacement market outpaced the market, which grew about 3 percent, while its OE sales were down.
In North America, Michelin said sales of its flag brands-Michelin, BFGoodrich and Uniroyal-maintained their market share in a down market, while demand for associate and private brand tires was ``very depressed.'' Overall, the North American replacement market was off 4.7 percent for the period.
Itasca, Ill.-based Midas Inc. reported a profit in the second quarter though comparable store sales fell 3.8 percent after 12 consecutive positive quarters because of high gas prices and consumer uncertainty, the automotive service chain said.
Midas's sales fell 10.3 percent to $45.1 million in the quarter as net income improved to $2.6 million from a loss of $2.5 million last year, when the company reported significant charges related to its exit from exhaust manufacturing. Operating income improved to $6.3 million from a loss of $2 million last year. Tire sales grew more than 14 percent, Midas said, as maintenance revenue also grew. Sales in brakes and exhaust were weak.
For the first half of the year, sales fell 12.1 percent to $87.7 million. Net income rose to $6.4 million from $100,000 last year.
Midas operates more than 1,800 franchised, licensed and company-owned shops in the U.S. and Canada.
Myers Industries Inc. reported record sales in the second quarter of $238.2 million and also said it has decided to sell its European businesses to focus on key business segments.
Akron-based Myers, which among other operations distributes tools, equipment and supplies for the tire and wheel service industry, said the quarterly sales were a 6-percent improvement over last year's $225 million. But a goodwill impairment charge of $109.8 million contributed to a net loss of $100 million. Without that charge, net income would have been up 92 percent to a record $9.8 million from $5.1 million last year.
In the distribution segment, Myers' sales were $50.1 million, up 2 percent from $49.4 million last year. Income before taxes rose 4 percent to $5.5 million.
Myers said it plans to use proceeds from the divestiture to reinvest in other segments and reduce debt.
Milan, Italy-based Pirelli & C. S.p.A., buoyed by strong earnings and sales growth by its Pirelli Tyre unit, reported solid earnings in the six-month period ended June 30.
Pirelli reported operating income of $270 million, a 6.7-percent increase over 2005, on 3.4-percent better sales of $3.06 billion.
Pirelli Tyre's operating income of $243.7 million was up 4.1 percent over 2005 while sales grew 12.4 percent to $2.52 billion on the strength of increased volumes and better product mix, the company said. As a result, the operating earnings ratio fell slightly to 9.6 percent, reflecting the impact of higher raw materials costs and the start-up effect of the company's new factory in China.
Pirelli management forecasts an improvement in operating results for the full year, but did not quantify the improvement.
Despite a decrease in agricultural equipment demand and higher raw material costs, Titan International Inc. reported increased sales and profits in its second quarter.
Sales rose 30 percent to $175.2 million from $134.7 million a year ago as net income increased 33.4 percent to $5.6 million from $4.2 million last year.
Titan Chairman and CEO Maurice Taylor Jr. said farm equipment demand was down about 5 percent in the U.S. as raw material costs continued to escalate.
For the first half, sales increased 32.1 percent to $357.8 million, in part on an increase in market share from the increased manufacturing capacity from the Freeport, Ill., facility. Quincy, Ill.-based Titan acquired the plant last December as part of its $100 million buyout of Goodyear's North American farm tire business.
Net income fell 7.8 percent in the half to $14.2 million. Income before taxes, however, rose 45.9 percent to $23.7 million in the period. Titan recorded an income tax expense of $3.7 million in the quarter and $9.5 million for the half compared with income tax benefits in the prior periods.