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Tire makers see income gains in "12 Yokohama Michelin Hankook Continental Sumitomo

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AKRON—Cashing in on the positive impact of higher prices and a gradually recovering market, tire makers reported gains in both 2012 net income and operating income, with some hitting record numbers.

Yokohama Rubber Co. Ltd. (YRC) more than doubled net income last year on nearly identical sales—record results that the company chalked up to a recovering domestic market, price increases, lower raw materials costs and a weakening yen.

Yokohama's net income nearly tripled to $408.7 million on sales of $7.01 billion. Operating income shot up 85.7 percent to $622.8 million, or 8.9 percent of sales. Fiscal 2012 was Yokohama's first fiscal year that coincided with the calendar year.

The company's tire segment operating income nearly doubled to $63.7 million on a 0.6-percent drop in sales to $5.57 billion. Sales to auto makers in Japan increased strongly and sales were solid in Japan's replacement market. Success in securing market acceptance for price increases partly offset a decline in demand in overseas markets, YRC said.

Sales in North America inched up 1.9 percent to $1.39 billion. Operating income attributable to North American operations rose 9.9 percent to $71.9 million.

Yokohama management anticipates double-digit growth again this year in sales, to about $7.9 billion

Group Michelin reported a 24.6-percent jump in operating income last year, to $3.11 billion, on 3.6-percent higher sales revenue of $27.6 billion.

Michelin attributed the improved earnings to the positive effects of higher pricing and a better product mix, which more than offset the negative effects of higher raw materials costs and lower sales volumes. The improvement yielded an operating income/sales ratio of 11.3 percent, a full two percentage points better than in fiscal 2011.

Net income rose 7.5 percent to $2.02 billion, or 7.3 percent of sales, Michelin said.

Improved pricing contributed nearly $1.4 billion to the firm's revenue increase, offsetting the negative effects of a 6.4-percent drop in sales volume, Michelin said, which reflected weak demand in many markets, particularly in Europe.

Revenue in North America, by contrast, rose 13.7 percent last year to $9.39 billion, Michelin reported, on the strength of OE sales and aftermarket penetration in the premium segments.

Globally, Michelin reported revenue by its consumer businesses—passenger car and light truck tires and related distribution—grew 2.9 percent to $14.3 billion despite a 5.5-percent drop in sales volume on the strength of the Michelin brand. Segment operating income was essentially unchanged at $1.3 billion.

The truck tire and related distribution segment posted sales of $8.66 billion, up 0.3 percent over 2011 despite 10.8-percent lower sales volumes. Operating income nearly doubled to $571 million.

The company's specialty tires segment—OTR, farm, aviation, two-wheeler tires—reported 13-percent better sales of $4.68 billion and 36.3-percent higher operating income of $1.22 billion.

Hankook Tire Co. Inc. generated 57.9-percent higher operating profits last year vs. 2011 on 8.3-percent higher sales, as sales of the firm's high-performance tires jumped more than 30 percent over the previous year.

Operating income rose to $812.9 million on revenue of $6.26 billion for an earnings/sales ratio of nearly 13 percent, a four-percentage point improvement.

Hankook recorded 20-percent growth in the U.S. last year, hitting $1.2 billion, as brand recognition and demand, both replacement and OE, improved, the company said.

Hankook achieved its record performance despite a “stagnant global economic situation,” according to Seung Hwa Suh, vice chairman and CEO, who said the firm will continued its “aggressive investment in R&D and brand-equity enhancement” to strengthen the firm's position as a premium brand.

Mr. Suh forecasted growth of about 5 percent this year and predicted Hankook will move up the global tire ranking to No. 5 by 2014. To do so, however, would require growth of 20 percent or better, based on the reported sales of Pirelli & C. S.p.A. and Sumitomo Rubber Industries Ltd., the Nos. 5 and 6 tire makers in 2011.

Pushing the firm's growth in high-performance was demand in emerging markets such as Russia/CIS and Latin America, where sales of ultra-high-performance tires collectively jumped 86.5 percent. Hankook said it will continue to target growth in emerging markets, which offer both OE and replacement market opportunities.

Hankook also reported strong growth in its OE business, with sales to premium automakers jumping 26.7 percent. Among new fitments gained last year were UHP tires for the new BMW 1 and 3 Series, Lincoln MKZ, and a number of Audi, Chrysler and Volkswagen nameplates.

Byeong Jin Lee, president of Hankook Tire America Corp., said the company's “continued efforts to build brand awareness and to provide the highest level of product value” helped Hankook grow in the U.S.

Continental A.G. registered double-digit gains in operating and net income in fiscal 2012 on 7.3-percent higher sales, and management is forecasting continued growth in 2013 after a sluggish first quarter.

Conti's pre-tax operating income rose 14.8 percent to $6.24 billion, or 14.8 percent of the $42.1 billion in sales generated last year. Net income jumped 51.6 percent to a record $2.42 billion.

The company also cut its net indebtedness by nearly $2 billion to $6.8 billion, prompting CEO Elmar Degenhart to say, “...we have utilized our greater flexibility and given our future growth a good shot in the arm with higher spending on investments and R&D.”

Conti will propose a dividend payment of 2.25 Euros ($2.89) per share at the upcoming annual meeting.

The firm's Tire Division reported 36.8-percent higher operating income of $2.1 billion on 10.9-percent sales growth to $12.4 billion, yielding an earnings ratio of 16.9 percent.

Capital spending in the Tire Division jumped 30.3 percent to $1.07 billion.

Conti did not provide a breakdown between its consumer and commercial tire businesses, nor any geographical breakdown.

The company said it expects sales in 2013 to grow about 5 percent to $44 billion as business picks up in the second half to offset an anticipated first quarter sales decline of 1 to 3 percent, according to Mr. Degenhart. Conti also expects to report adjusted earnings before interest and taxes ratio of better than 10 percent, on par with fiscal 2012.

The company is basing its forecast on 2-percent growth in global production of consumer and light commercial vehicles to about 82.5 million units, as well as 2-percent growth in the key replacement tire markets where Conti competes.

Mr. Degenhart tempered the firm's forecast by saying “risks could arise from a slowdown in global economic growth. This particularly applies to the possibility of a further decline in economic activity within the eurozone.”

On the plus side, Mr. Degenhart said a “more positive development of the global economy may generate added opportunities.”

Mr. Degenhart noted that the first quarter will be impacted negatively by a drop in light vehicle production in Europe and NAFTA of around 8 percent, including a drop of 12 percent in Europe alone. Conti generates roughly half of its Automotive Group sales in these regions.

On the earnings front, Mr. Degenhart said Conti does not anticipate any significant negative impact from higher raw material prices in 2013 and expects interest expenses for bank loans and bonds to decrease further.

Sumitomo Rubber Industries Ltd. (SRI) reported double-digit gains in fiscal 2012 operating income on 4.9-percent higher sales.

Operating income jumped 29.3 percent to $873.9 million, or 9.8 percent of the firm's $8.9 billion in sales last year. Net income rose 24.9 percent to $444.2 million, or 5 percent of sales.

SRI's tire business reported 2012 operating income of $790.6 million, up 29.2 percent over 2011. Sales rose 5 percent to $7.76 billion.

Capital spending was up 15 percent over 2011 to $782 million, with the bulk of that, $735 million, going toward tires.

SRI offered no commentary on the results, released via a quarterly “Flash Report.”

The company also did not offer any regional breakdowns. However, a financial report for the firm's nine-month financial results showed Sumitomo anticipated 6.5-percent growth in 2012 in tire unit sales in North America, where it goes to market with the Falken, Ohtsu and Sumitomo brands.
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