Cautious optimism was a common theme pervading the major tire makers' mid-year forecasts for 2010 even before rising U.S. unemployment and other economic indicators started pointing to a slowing of economic recovery in recent weeks.
After a historic collapse in the automotive market in the first half of 2009—which dragged most tire makers into the red financially—the major tire companies managed to regain some ground in sales and profits a year later.
Among the world's 10 largest tire companies, all but Goodyear returned to the black in the first half. The companies attributed their turnarounds to such factors as improved price-to-mix ratios, increased tire demand—thanks in part to government stimulus programs and dealer restocking—and corporate cost-cutting measures.
In their half-year financial reports, though, the tire makers were hedging their bets on continued momentum due to continually rising raw materials costs and uncertainty about a full economic recovery. In many cases, sales unit increases prompted several tire makers to revise their year-end forecasts upward after reporting improved sales and profits for the second quarter.
The North American market seemed to lead the sales rebound for most tire makers in the first six months, along with robust sales in Latin America and Asia, particularly in China.
OE tire sales growth far outpaced that for replacement sales for most companies in the North American and global markets as vehicle makers ramped up production earlier in the year.
Ironically, raw material costs have continued to rise even though a year ago there was a consensus among tire makers that skyrocketing prices had peaked and were expected to stabilize. The raw materials costs prompted a string of tire price increases in the first half, which some tire makers said helped offset expenses.
Bridgestone Corp. raised its earnings outlook for fiscal 2010 by 20 percent after growing demand for tires worldwide during the second quarter boosted Bridgestone's first half sales 15 percent to $15.2 billion and helped it regain profitability from last year's comparable period with earnings of $486.4 million. Unit shipments increased in nearly all of its markets and segments.
Its newest forecast pegs annual net income at $995 million, an 18-percent increase over its previous May forecast. Bridgestone based its forecast on efforts to reduce expenses and improve cost competitiveness, but these factors could be impacted by economic uncertainties and high raw materials prices. The company said it is considering revising tire prices based on market conditions and product mix.
Bridgestone predicted annual sales will reach $31.7 billion due to anticipated growth of more than 10 percent in North America in both consumer and commercial tire segments.
Likewise, Continental A.G. readjusted its full-year forecast, effectively tripling its potential sales gains to 15 percent for the year and posting a “significant” year-on-year increase in adjusted EBIT of 8 to 8.5 percent. However, the company acknowledged its forecast will be hampered by rising raw materials costs, expected to be $189 million in the second half alone.
Continental attributed its first-half earnings of $462.7 million and sales gains to $16.8 billion to the continuing recovery in the auto markets and increased operational performance. While consolidated sales increased 39.6 percent during the first half over the 2009 period, they remained below the same period in 2008.
Passenger and light truck tires business units boosted sales 31.3 percent in the first half, with the most significant increase in the OE business, according to Conti. Replacement tire sales growth during the period was highest in the Americas and Europe.
Meanwhile, a 32-percent sales surge in commercial tires, which experienced plummeting demand in 2009, was still below comparative values for 2008.
“After the very stable development of vehicle production in the first half of 2010, we are lifting our forecast for global vehicle production from 63 million units to 68 million units for 2010 (an increase of 16 percent),” Conti stated in its first-half financial report.
It predicted vehicle growth will be driven primarily by Asia (up 17 percent) and North America (up 35 percent). However, in Europe, which Conti called its most important sales market, the company anticipates a moderate increase in vehicle sales. Conti said it expects passenger and light truck tire sales to increase 6 percent in North America and 4 percent in Europe.
Cooper Tire & Rubber Co. returned to profitability in the second quarter and first half after increasing volumes and improving utilization of plant capacity, but these measures were offset in part by an unfavorable price/mix to raw materials relationship.
Sales rose 29.5 percent to $1.6 billion in the half as earnings of $55.7 million reversed a year-ago loss.
Cooper CEO Roy Armes said demand for the tire maker's products should continue to be strong, and the company's profitable growth plans and industry conditions “leave us cautiously optimistic toward future results.
“We believe the second quarter included the greatest pressure during the year on margins from the relationship between prices and elevated raw material costs,” he said.
“Our price increase of up to 7.5 percent was effective June 1, 2010, and will take full effect in the third quarter. We expect that raw material costs will continue to be elevated, but stable, during the remainder of the year.”
Cooper's North American tire operations generated a 27.7-percent sales increase in the first half while international sales climbed 43.1 percent.
Goodyear improved its financials in the first half but failed to regain profitability. The tire maker reported a net loss of $19 million, an improvement over the $554 million loss a year ago, on a 17.6-percent increase in sales to $8.8 billion.
Overall sales edged up due to improved price/mix and higher global demand with tire sales increasing in all four business units, “reflecting global recovery,” according to the tire maker.
“Raw material costs remain a challenge and we continue to see an uncertain economy, but we remain focused on the proven strategies that have enabled us to address these headwinds over time,” said Richard Kramer, president and CEO.
The company's North American Tire unit boosted sales 18.5 percent with a 10.8-percent increase in unit sales for the half.
The company's Europe, Middle East and Africa Tire units boosted half-year sales 10 percent, Latin American sales increased 17 percent and Asia Pacific bolstered sales 18 percent.
Hankook Tire Co. Ltd. enjoyed continued growth in the first half driven by improved sales in eastern Europe and Latin America, followed by stable growth in China, Europe and North America.
Sales rose 15.2 percent to $2.4 billion in the first half as operating profit surged 116.5 percent to $245.5 million. With an increase in sales of its higher priced tires and its OE partnerships, Hankook said it expects to achieve its year-end sales target of more than $5.8 billion.
Kumho Tire Co. Inc., which avoided receivership earlier in the year, regained profitability in the first half due to normalized operation of its plants, increased sales volume and cost cutting augmented by a pact with its workers' union in Korea.
Kumho reported net earnings of $64.4 million in the half as sales jumped nearly 26 percent, compared with the year-ago period. The Korean tire maker's 7-percent increase in export sales in the half was led by the North American market, which generated 40-percent growth in UHP tires and 51 percent in general tires.
Group Michelin said rising raw materials costs will impact its second-half results negatively, although it benefited from tire price increases in the first half.
The company returned to the black in the first half, posting earnings of $618.5 million, as sales jumped 17 percent to $10.3 billion. For the year, Michelin expects to increase sales 10 percent over 2009.
“The clear rebound in the tire markets is expected to continue in the second half of the year, even though the pace of economic recovery will vary from one region to another,” according to Michelin.
The company said nearly every OE market for consumer tires experienced “robust growth” in the first half due to auto support programs in several countries.
Replacement tire demand in North America and Europe rebounded faster than expected in the first half, due to an uptick in miles driven and dealer inventory rebuilding, according to the company. Asia remained a robust market where the company experienced 17-percent growth in China.
High-performance tires in particular outperformed expectations, as did winter tires in Europe and recreational tires in North America.
Overall net sales for consumer tires rose 17 percent in the first half while operating margins reached 10.8 percent due to a “steep upsurge in sales volumes, supported by the across-the-board recovery in demand and the Michelin brand's firm resilience, with early-year price increases offsetting the adverse impact of the OE/replacement market mix,” the company said.
Net sales for truck tires climbed 23.9 percent. OE truck tire demand increased for the first half but remained below pre-recession levels in Europe (29 percent increase) and North America (23 percent). The Chinese market gained 63 percent market growth, while demand in South America rose 53 percent, bolstered by government incentives to buy trucks in Brazil.
Global OE demand for earthmover tires rebounded due to equipment dealer restocking and government stimulus plans, according to Michelin.
Likewise, the mining segment continued to experience growth due to strong demand for ore and renewed work on major projects.
After a 25.9-percent surge in net sales to $589.1 million for the first six months, Nokian Tyres P.L.C. expects to continue to improve its sales and profits, compared with 2009. Most of the sales growth in the first half came from a significant increase in winter tire sales in Russia and in central and Eastern Europe, areas where the company said it increased its market share.
Overall sales of passenger tires jumped 30.1 percent, representing 65 percent of the company's sales.
“The demand on Nokian Tyres' core products have recovered, driven by improving economies, higher car sales, better consumer confidence and strong restocking by distributors,” said Kim Gran, Nokian president and CEO, noting that strong sales in the second quarter left the company with low inventories.
New car sales in Nokian's core markets increased 34 percent in the Nordic countries during the first half along with a 32-percent increase in car sales in the second quarter in Russia, the company said.
The tire maker is restructuring its operations with the potential to increase capacity at its Russia and Finland plants. Nokian said it is ramping up production to meet demand and will add an eighth production line to its Russian plant in the third quarter.
“Our target is to further improve sales mix and push for a price increase of 2 to 6 percent in all product groups during the summer and autumn,” Mr. Gran said.
Pirelli Tyre S.p.A. netted record second-quarter earnings and doubled its net income for the first half as sales increased 21.4 percent to $3.1 billion. The company attributed the earnings and sales gains to volume growth and improved price/mix, which together “more than compensated the rise in the cost of raw materials.”
Operating income rose 59 percent to $288.2 million.
In the consumer tire business, sales jumped 17.8 percent in the half—with sales volume up 10.5 percent and market growth in both OE and replacement channels. OE consumer tire sales increased 73 percent in North America, 22 percent in Europe and 17 percent in Latin America. Replacement tire sales grew 11 percent in Europe, 8 percent in North America and 20 percent in Latin America.
“For Pirelli Tyre in particular, the results obtained in the first half show significant growth in volumes which, associated with skill in use of the price/mix factor and industrial efficiencies, allow for countering the rise in the cost of raw materials, also considering the trend in exchange rates between the euro and the other major currencies,” the company said.
If market trends continue upward, Pirelli said it expects organic sales growth of up to a 15 percent for the remainder of the year, up from its previous prediction of 10 percent.
In the second half of 2010, Titan International Inc. said it expects a continuing trend of increased sales from the year-ago half, when it implemented extended shutdowns in conjunction with many of the company's major customers, which resulted in a steep drop in sales. In the year's first half, sales slipped 3.1 percent to $426.1 million as earnings fell 48.7 percent to $6.65 million.
Titan continues to see signs that the market for Titan's products experienced the bottom of a cycle in late 2009 and early 2010. Although the company believes that sales during the remainder of 2010 may continue to move higher when compared to the same period in the previous year, “there can be no assurance that a decline in sales will not resume,” the tire maker said.
Energy, raw material and petroleum-based product costs have been “exceptionally volatile” and could impact Titan's margins, the company said.
Earthmoving and mining tire/wheel sales are rebounding from the low levels of the second half of 2009, according to Titan. “The significant decline in the United States housing market continues to cause a major reduction in demand for equipment used for construction. For the remainder of 2010, the company expects modest improvement compared to the previous year's low sales levels in the earthmoving/construction market,” Titan said.
Toyo Tire & Rubber Co. Ltd. returned to profitability in its fiscal first quarter, ended June 30, as sales climbed 15.7 percent to $782.6 million bouyed by both domestic and overseas improvements.
In North America, the tire maker improved net sales 16 percent to $252 million for the quarter while in Japan, revenues increased 13 percent.
The company revised its forecast upward for the year, projecting a 35-percent increase in net income as sales continued to increase in all markets.
Yokohama Rubber Co. Ltd. said strong growth in unit sales as the global economy recovered helped it post an operating profit of $67.8 million vs. an operating loss of $47.1 million a year ago, for the first quarter of its fiscal year ended June 30, as net sales climbed 23.4 percent to $1.4 billion.
Yokohama projected sales growth of 18 percent for its fiscal first half as its operating income has the potential to total $45.9 million, compared with a loss of $27.6 million in the year-ago period. However, while Yokohama expected to break even on net earnings in the first half, the stronger yen has prompted the company to “back off from that projection.”