High raw material prices continued to create a challenging environment to an already highly competitive tire industry during the third quarter.
Financial results varied company by company. Some posted income gains while others struggled and saw declines.
American Tire Dist.
Huntersville, N.C.-based American Tire Distributor Holdings Inc. (ATD) posted a 6.5-percent gain in net sales to $414.1 million in the third quarter ended Sept. 30 as operating income also rose.
ATD's operating income increased 18.4 percent to $14.4 million from $12.2 million a year ago while gross profit also grew to $71.8 million from $68.7 million last year.
However, ATD posted a net loss of $687,000 for the quarter vs. a net loss of $764,000 last year.
The distributor attributed the sales gain to an increase in tire unit sales of $8.6 million combined with a positive impact of $7.8 million from an increase in the average selling price of ATD's tires. The firm said the price increases primarily were due to increases from major tire makers that the distributors had passed along. Additionally, various acquisitions contributed $12.3 million to the sales gain vs. 2005.
Gross profit rose on the acquisitions, which accounted for $2 million of the increase. Higher unit sales volumes also added $1 million in gross profit while favorable pricing and the benefit of volume purchases were offset by higher promotions and rebates.
For the nine-month period, ATD reported net sales of $1.17 billion, a 2.6-percent gain from $1.14 billion last year. Gross profit rose to $208.3 million from $195.5 million. The net loss improved to $5.42 million from a loss of $18.6 million a year ago.
The sales gain included $25.1 million from three acquisitions, which helped offset $45 million in lower sales from reduced volumes.
Bridgestone Corp.'s net income fell almost 70 percent in the first nine months of 2006 to $424.1 million, as operating income for the period slipped 19 percent to $1.05 billion.
The company said the drop in profits was due to the ``continued global upward movement in the cost of crude oil and other raw materials.''
In the nine-month period ended Sept. 30, Bridgestone recorded sales growth of 13 percent to $18.3 billion. Operating income yielded an operating margin of 5.7 percent.
In the tire segment-which contributed 70 percent of corporate operating income-operating profit fell 27 percent to $727.8 million, yielding an operating margin of 5 percent. Bridgestone said the decrease in operating income resulted from the ``significant'' impact of high raw material costs. Sales in the tire segment rose 13 percent to $14.6 billion.
In the Americas, Bridgestone's sales rose 18 percent to $8.39 billion as operating income fell 31 percent to $240 million as raw material prices could not be offset, the firm said.
For the full year, Bridgestone expects sales to increase 10 percent to $25 billion though operating income and net income are projected to fall 23 and 66 percent, respectively.
Continental A.G. reported an 8.2-percent sales gain for the third quarter to $4.71 billion as management reiterated its outlook for earnings gains this year.
``We have done well in a tough environment, and as announced, our sales and EBIT (earnings before interest and taxes) will exceed the record levels of 2005,'' said Manfred Wennemer, executive board chairman for Continental.
Net income in the period fell 26.6 percent to $305.5 million.
EBIT fell 12.5 percent in the quarter to $500 million and 1.8 percent for the nine months to $1.42 billion on various one-time charges, Continental said. Increased raw material prices also reduced EBIT in the nine months by about $294.4 million compared with prices for the same period in 2005.
Nine-month sales rose 6.9 percent to $13.8 billion, while net income declined 9.7 percent to $860.1 million.
Adjusting to various charges, Continental said its quarterly EBIT was ``nearly on par'' with the adjusted figures for the same period in 2005.
``In view of the costs for raw materials, which reached a temporary peak this quarter, and the production cutbacks of key customers in the U.S.A., we feel this is remarkable, since a year ago we achieved our best ever quarterly result,'' Mr. Wennemer said.
In the passenger and light truck tires (PLT) division, sales rose 1.3 percent to $1.46 billion in the quarter as EBIT fell 51.5 percent to $143.5 million. For the nine months, sales in the division rose 5.5 percent to $4.3 billion as EBIT fell 32.4 percent to $412.4 million, in part from one-time effects.
Though the number of tires sold to the NAFTA replacement market was down, sales in that segment ``improved markedly,'' Continental said. Before one-time effects in the nine-month period, EBIT in the PLT division improved by $11.2 million, or 2.2 percent, the tire maker said.
In North America, Continental said its restructuring measures at its Charlotte, N.C., plant-where it ceased tire production-resulted in expenses of $66.7 million for the first nine months of the year. Plans to close its Mayfield, Ky., plant also led to charges of $35.7 million.
Continental said it will continue restructuring efforts in North America in the fourth quarter, including reduced benefits for retirees. Conti said the efforts should impact EBIT positively in the fourth quarter by more than $95.2 million.
Pep Boys-Manny, Moe & Jack made modest gains in the third quarter as sales rose 0.9 percent to $550.8 million and the net loss improved to $7.72 million from an $11.4 million loss a year ago.
Pep Boys' comparable sales rose 0.8 percent in the quarter, including a 0.2-percent comparable merchandise sales increase and a 3.9-percent comparable service revenue increase. Recategorized, the comparables for retail sales (do-it-yourself and commercial) fell 1.8 percent and service center revenue (labor plus installed merchandise and tires) rose 4.8 percent.
For the nine months ended Oct. 28, Pep Boys' sales were essentially flat at $1.69 billion. Comparable retail sales fell 1.7 percent and comparable service center revenue increased 2.9 percent.
For the period, the net loss also improved to $7.12 million from a loss of $12.9 million a year ago.
``While the external operating environment continued to be difficult this quarter, we have started to make progress in improving our operating results,'' said William Leonard, interim CEO. ``Notably, we posted positive comparable store sales in our service center operations.... Also, we have been making continuing efforts to reduce our cost structure to help improve overall results.
``We expect to build momentum on these initiatives into the final quarter of the year and through next year.''
Pirelli & C. S.p.A. reported improved sales and operating earnings for the first nine months of fiscal 2006, although earnings growth did not keep pace with sales growth because of the effect of higher raw materials costs.
The company reported a net loss of $1.75 billion for the period, reflecting the write-down of the firm's equity investment in the telecom holding company Olimpia S.p.A. Factoring out this charge, Pirelli said the comparative net result would have been $368.9 million, an 11.3-percent improvement.
Otherwise, Pirelli reported operating income for the nine months of $372.8 million-a 7.8-percent improvement-and sales of $4.51 billion.
Pirelli Tyre represents the bulk of Pirelli's operations, accounting for $3.72 billion in sales and $346.8 million in earnings, improvements of 10.5 and 2.8 percent, respectively. Sales grew because of a mixture of volume growth (3.9 percent), improved price/mix (3.4 percent) and exchange rate benefits (3.2 percent), Pirelli said.
Pirelli said its ``selective growth'' in North America continued, ``notwithstanding negative demand.'' In Europe sales grew in the high-performance and winter tire categories, as well as in truck tires and steel cord sales to third parties. Globally motorcycle tire sales were up 14 percent over 2005.
Titan International Inc.'s net sales rose 52 percent in the third quarter on its acquisitions of Goodyear's North American farm tire business and Continental Tire North America Inc.'s off-the-road (OTR) tire plant in Ohio.
Net sales increased to $156.1 million from $102.7 million in the prior period. Sales in the nine months ending Sept. 30 grew 37.6 percent to $513.9 million.
Titan purchased Goodyear's farm tire business-including its plant in Freeport, Ill.-in December 2005 and bought Conti's OTR facility in Bryan, Ohio, in July for $53 million.
``Operational profit will grow as the integration of Freeport and Bryan continue,'' said Titan Chairman Maurice Taylor Jr. ``It is our belief that we can increase our OTR (tire) production greater than the planned $150 million in sales, due to the fact that our Freeport facility can produce a number of bias OTR tires that were in short supply at Bryan.''
Income from operations jumped 109.9 percent in the quarter to $4.71 million and rose 14.8 percent in the nine months to $33.7 million.
Net income for the quarter fell 58.7 percent to $488,000 because of a higher tax impact, Titan said. Net income in the nine months fell 11.5 percent to $14.7 million.
Yokohama Rubber Co. Ltd. suffered double-digit drops in operating and net income in its fiscal first half of 2007 ended Sept. 30 despite 10.5-percent sales growth.
Yokohama cited higher raw material costs and a one-time tax benefit in the year-ago period for the earnings declines.
Operating and net income slipped 31 and 74.8 percent, respectively, to $28.6 million and $29.5 million, while sales grew to $1.93 billion.
Leading the sales growth were strong gains in the tire business in North America-where sales grew 20.6 percent to $400.2 million-and in Asian nations besides Japan, Yokohama said, along with higher sales of hose and aircraft parts.
Tire group operating income fell 69.7 percent to $9.54 million on 11.5-percent higher sales of $1.41 billion.