AKRONFor the most part, the world's major tire makers are optimistic that global economic conditions will support growth, albeit marginal growth, in the second half of 2014 and into 2015.
At the same time, stable to falling raw materials prices have prompted several tire makers to revise upward their earnings forecasts for the full fiscal year.
With a few exceptions, most of world's major publicly traded tire companies reported double-digit gains in operating income for the first half of fiscal 2014 on single-digit sales increases. (See chart on page 41.) As a result, the average operating ratio for these companies jumped one and a half points to 13 percent.
Looking beyond the first half, Bridgestone Corp. recently raised its fiscal 2014 operating and net income projections about 3 percent over its earlier forecast from February, citing greater-than-anticipated reductions in raw materals costs and gains in foreign exchange rate changes. The revisions raise the expected gains to 8 and 45 percent, respectively.
The firm expects sales to exceed fiscal 2013 by about 2 percent but to fall short of the February forecast.
Group Michelin sees the global demand for consumer and commercial tires in the second half should remain supportive in the mature markets and China while other new markets are beginning to slow down, especially in the OE segment.
For the full year, the group aims to improve its gross unit margin, while preserving a positive balance between pricing policy, product mix and raw materials costs, Michelin CEO Jean-Dominique Senard said.
The competitiveness plan is being deployed on schedule.
Michelin added that it was maintaining its view that volumes would increase by around 3 percent, in line with projected 2014 market growth.
Goodyear, which reported strong operating earnings growth on lower sales in the first half, said it expects to realize a 10- to 15-percent gain in segment operating income and a 2- to 3-percent increase in unit volume sales for the full year.
The company's operating income in the first half of 2014 was up 14.1 percent, yielding a 9.1-percent operating ratio.
Our performance in the first half, which was achieved through a balance of volume growth and cost reduction, gives us confidence that our strategy is working, and we are on track to attain our 2014-16 financial targets, Chairman and CEO Richard J. Kramer said.
Continental A.G. reported an 11-percent jump in pre-tax operating income for the first half, prompting Conti management to raise the fiscal year forecast for adjusted EBIT by half a point to 11 percent of sales along with a 25-percent rise in free cash flow expectations.
Conti cited the positive effects of dropping raw materials costsespecially for natural rubberand efficiency gains for the improvements. Sales revenue, on the other hand, is likely to fall short of the fiscal 2013 level because of currency exchange losses.
Pirelli & C. S.p.A. said it expects to achieve a pre-tax earnings ratio of nearly 14 percent, sales growth of about 1 percent and cash generation of nearly $350 million for all of fiscal 2014.
The company raised its revenue target slightly for the consumer tire business and lowered it for the commercial segment, citing the strong growth in premium product demand on the consumer side and an anticipated lower volume demand in Latin America for truck and agricultural tires.
Sumitomo Rubber Industries Ltd., which reported double-digit earnings increases for the first half on 9.5-percent higher sales, noted that the global economy continued to show a moderate recovery trend, with gradual recoveries in the U.S. and European economies and steady economic growth in emerging countries in general, with regional weakness in some areas such as the ASEAN countries and India.
Yokohama Rubber Co. Ltd. said it abides by its February projection of an 11-percent gain in operating income, but it revised downward its sales forecast slightly. Net income also should finish the year ahead of the February projection, it said.
Cooper Tire & Rubber executives said they anticipate third-quarter raw material costs will be roughly flat sequentially, after raw material costs declined approximately 1 percent in the second quarter. The long-term raw material outlook is for costs to generally trend higher, with periods of volatility.
The third quarter typically is our seasonally strongest quarter, and we expect to build on our momentum as raw material costs remain favorable and demand looks solid, Cooper Chairman, President and CEO Roy Armes noted.
We expect global tire markets will remain highly competitive, and overall economic conditions will continue to show modest improvement.... We continue to expect to meet or exceed industry unit volume growth in our largest markets this year.
The company is raising capital expenditures slightly to accelerate plans to convert production capabilities to meet increased demand of higher margin tires.
Toyo Tire & Rubber Co. Ltd. raised its forecast for fiscal 2014 tire division operating income 16 percent higher than the February projection and expects record sales of about $3.2 billion. North America will account for all of the projected growth, Toyo said, offsetting sales drops in Japan and other overseas markets.
Finland's Nokian Tyres P.L.C., which suffered double-digit earnings and sales declines in the first six months, said weaker market conditions in Russia and the CIS markets and currency devaluations will affect its results going forward as well.
To reach this reporter: bdavis@ crain.com; 330-865-6145.