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May 13, 2013 02:00 AM

Q1 proves challenging for tire makers

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    AKRON—The first quarter proved challenging for several companies in the tire industry as their sales dropped for the quarter, ended March 31, compared with the year-ago period. Yet the companies expressed some optimism for the rest of the year, despite the slumping European economy.

    Cooper Tire & Rubber Co. reported a record first quarter operating profit of $96.7 million, despite a 12.5-percent drop in sales to $861.7 million.

    Net income for the quarter more than doubled to $62.8 million.

    Cooper said its first quarter operating profit was positively impacted by $90 million in lower raw material costs as well as $19 million in lower manufacturing costs, as a result of non-recurrence of the labor action taken in the first quarter of 2012 at the company's Findlay manufacturing facility.

    Cooper's North America Tire Operations more than tripled its segment profit to $71.4 million despite a 13.7 percent slump in sales to $602.3 million.

    "Looking ahead to the second quarter, we continue to be cautious about volumes as the weak global economy and sluggish tire demand look to continue," said Cooper Chairman, CEO and President Roy Armes said.

    Despite reporting lower operating earnings and sales in the quarter, Continental A.G. expects to record a 5-percent rise in sales and an adjusted pre-tax operating income margin of more than 10 percent for the fiscal year.

    Pre-tax operating earnings for the quarter fell 2.9 percent to $1.54 billion on 3.4-percent lower sales of $10.6 billion.

    "We're confident that global production of passenger cars will continue to stabilize. We also expect the tire replacement market in Europe to pick up following the unusually long period of cold weather," said Conti Chairman Elmar Degenhart, who characterized the business environment in the quarter as "difficult."

    The Tire Division reported pre-tax operating earnings of $604.2 million, down 2 percent from 2012, on 6.1-percent lower sales of $2.92 billion.

    Conti reported lower sales volumes in the consumer OE and replacement businesses as well as commercial vehicle tires overall.

    Conti increased capital spending in the period more than 10 percent to $567 million.

    Goodyear reported higher operating and net income of $302 million and $26 million, respectively, for the quarter despite 12.3-percent lower sales of $4.85 billion.

    Goodyear said it expects tire unit volumes to be unchanged from 2012 as a result of weak industry conditions, especially in Europe. The company expects global segment operating income for the fiscal year to be in the range of $1.4 billion to $1.5 billion, which would be a gain of more than 12 percent over 2012.

    The North American consumer replacement market should likewise show no growth from 2012, Goodyear said, while OE demand should be up about 5 percent.

    Goodyear's North American Tire unit reported 58.8-percent higher operating income for the quarter of $127 million on 13.3-percent lower sales of $2.17 billion. Unit sales during the period fell 6.3 percent to 14.8 million.

    Replacement market unit shipments fell 9 percent, reflecting weak industry demand and lower sales of lower-value tires. OE tire demand was flat with the 2012 period.

    Hankook Tire Co. Inc. reported a 10.4-percent gain in operating income in the quarter on 1.7-percent lower sales to $1.55 billion.

    Hankook attributed its earnings improvement, to $234.7 million, to increased sales of premium tires, both in the replacement and OE segments. Hankook did not comment on its performance in North America.

    Hankook Vice Chairman and CEO Seung Hwa Suh credited his company's "foresighted mindset into the future and smart investment" for the firm's "robust" financial performance despite a slow tire market.

    Group Michelin's first quarter sales dropped 8.1 percent to $6.34 billion as weak market demand in Europe and North America offset gains in developing regions and the company encountered deteriorating price/mix effects.

    Michelin did not disclose earnings at this time but said it still expects to report "stable operating income" for the year, in part due to falling raw materials prices.

    Sales in the passenger/light truck tire and related distribution unit dropped 6.5 percent to $3.36 billion; truck tires and related distribution's sales fell 7.9 percent to $1.92 billion; and specialty businesses' sales plunged 13 percent to $1.06 billion.

    In the passenger/light truck tire business, replacement and OE unit sales dropped 2 and 1 percent, respectively, Michelin said, with gains in Asia and South America offset by declines in Europe and North America. The truck tire business reported no change in replacement units sold and a 1-percent drop in OE units shipped.

    Michelin said it expects falling raw materials prices to have a "favorable impact" on full-year operating income of about $715 million.

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