AKRON—The first quarter of 2015 generated a mixed bag of results in sales and earnings for tire makers.
Continental A.G., Goodyear, Pirelli & C. S.p.A. and Yokohama Rubber Co. Ltd. reported jumps in earnings during the period ended March 31, while Cooper Tire & Rubber Co., Hankook Tire Co. Ltd., Sumitomo Rubber Industries Ltd., Titan International Inc., Trelleborg Wheel Systems and Toyo Tire & Rubber Co. Ltd. suffered drops in income for the period due to sluggish demand and currency exchanges.
Apollo Tyres Ltd. reported a slight operating income gain for the fiscal year ended March 31 on 4.4-percent lower sales.
The Indian tire maker attributed the lower sales to the combined effects of a depreciating euro and the loss of sales volume from the firm's Dunlop-related activities in Africa, divested in late 2013 to Sumitomo Rubber Industries Ltd. The company's operating income rose 0.5 percent to $32.5 million on sales of $2.08 billion, yielding an operating ratio of 15.6 percent. Net income fell 2 percent to $16 million. }
Apollo Chairman Onkar Kanwar said the lost sales revenue from the African divestiture offset “healthy volume growth” in its European car tire business and nearly 30-percent volume growth in the truck-bus radial segment in India. Nonetheless, he said, the company's effort toward market expansion outside India resulted in export growth of more than 20 percent. Looking at fiscal 2016, Mr. Kanwar cautioned that a recent increase in import duty on natural rubber to 25 percent from 20 “will be a challenge going forward.”
In the fourth quarter, Apollo's operating and net income grew 6.3 and 9.2 percent, respectively, on 0.2-percent higher sales.
Taking the African divestiture into account, Apollo's geographic breakdown now stands at 65 percent India, 28 percent Europe and 7 percent other markets.
Conti reported 8.3-percent higher pre-tax operating earnings for the quarter, and management is projecting that Conti will “comfortably achieve” a full-year adjusted EBIT margin of more than 10.5 percent owing to lower raw materials acquisition costs.
The pre-tax earnings rose to $1.1 billion, Conti said, on sales of $10.8 billion. Sales climbed 14 percent, largely on the first-time inclusion of revenue from the former Veyance Technologies industrial rubber products business.
Conti CEO Elmar Degenhart said Conti expects earnings to benefit by about $170 million in lower raw materials acquisition costs, owing to the stable price trend for rubber and lower crude oil prices. Conti's tire division reported 6.3-percent better pre-tax operating income of $653.6 million on 4.4-percent higher sales of $2.73 billion.
Conti said consumer OE sales volumes rose globally, as did replacement market consumer sales in the Americas. Commercial vehicle tire business was down.
Cooper Tire suffered double-digit drops in sales, operating and net income in the quarter, declines the company attributed principally to absence of revenue from the former Cooper Chengshan Tire (CCT) joint venture in China.
Operating and net income fell 13 and 18.5 percent, respectively, to $64.6 million and $42.2 million, while sales fell 16.7 percent to $663.2 million. CCT contributed $157 million to net sales, net of intercompany eliminations, in the first quarter of 2014, Cooper said.
Excluding CCT—which Cooper divested in the fourth quarter of 2014—first quarter 2015 sales rose 4 percent as a result of higher unit volume of $35 million, which was partially offset by negative foreign exchange of $7 million, Cooper said.
Raw material costs declined about 14 percent in the first quarter, compared with the fourth quarter last year. The tire maker said it anticipates second-quarter raw material costs will fall slightly from the first quarter, but that they will generally trend slightly higher during the second half of 2015. The Americas unit's operating income jumped 31.1 percent to $90 million on 6.2-percent higher sales of $598.5 million.
Cooper's light vehicle tire shipments rose 2.4 percent in the quarter, matching the performance of other Rubber Manufacturers Association members.
Goodyear reported record operating earnings for the first quarter of 2015 and returned to the black on a net basis on 10-percent lower sales. Goodyear's segment operating income rose 4.8 percent to $391 million on sales of $4.02 billion. The net result was $236 million, up from a $38 million loss a year ago.
Volume growth was 2 percent, Goodyear said, to 40.8 million units. OE volume was up 3 percent, while replacement shipments rose 2 percent. Goodyear cited higher sales volume, a net benefit from changes in price/mix and raw material costs and improvements in other cost items for its earnings improvement. Unfavorable foreign currency translation of $393 million impacted sales.
These improvements were partially offset by unfavorable foreign currency translation.
The net income includes a one-time non-cash gain of $155 million ($99 million after taxes and minority interest) for the recognition of deferred royalty income, resulting from the termination of a licensing agreement associated with the company's former Engineered Products business.
The first quarter 2014 net loss was affected by a foreign currency exchange charge in Venezuela. In North America, Goodyear reported a 26.9-percent improvement in operating income to $198 million on 1.1-percent lower sales of $1.86 billion.
Unit sales edged up 1.4 percent to 14.8 million tires. OE unit volume climbed 2 percent. For fiscal years 2015 and 2016, Goodyear said it expects segment operating income growth of between 10 and 15 percent per year and positive free cash flow from operations.
Hankook suffered double-digit drops in sales and earnings for the quarter, declines the company attributed to the global economic recession, slow growth in China and fluctuating exchange rates, especially with the euro. Operating income for the period fell 21.9 percent to $184.7 million on 11.3-percent lower sales of $1.49 billion, cutting the operating ratio two percentage points to 13.7 percent.
Hankook said sales of ultra-high-performance tires in Europe and North America showed “robust” growth in both the OE and replacement sectors in those regions. UHP tires accounted for roughly one-third of the firm's financial profit for the first quarter, the company said.
Group Michelin reported a 5.6-percent jump in sales in the quarter on 1.5-percent higher unit sales and a nearly 10-percent favorable currency effect. Sales rose to $5.66 billion for the period, with nearly all of the gain coming in the passenger/light truck tire business unit, Michelin reported, where revenue jumped 10.2 percent to $3.13 billion.
By contrast, revenue in the truck tire unit edged up 0.8 percent to $1.66 billion and sales in the specialty business unit fell 0.8 percent to $869.2 million, the tire maker reported. Michelin did not report earnings at this time but said it expects lower raw materials costs and currency effects to generate positive impacts of about $625 million and $365 million, respectively, throughout the year.
The company is projecting capital spending this year of nearly $2 billion, which it said it will devote to its policy of “value-creating investment,” focusing on the growing passenger/light truck tire businesses, innovation, truck fleet operator services, digital strategy and raw materials/semi-finished products.
Prices declined due to the application of raw materials-based indexation clauses in contracts with OE manufacturers, Michelin said, and price repositioning in the replacement market in 2014 and 2015, taking into account lower oil prices.
Globally, Michelin noted that OE demand in North America increased both in the consumer (2 percent) and commercial (21 percent) segments, whereas replacement consumer market shipments fell 6 percent in the quarter due in large part to excess inventories tied to above-average imports in the fourth quarter of 2014. Truck tire shipments, on the other hand, “remained strong,” rising 3 percent on sustained demand from the freight services industry.
Pirelli reported increased operating and net income for the quarter on 6.5-percent higher sales, with the consumer business outperforming the commercial business. Operating earnings rose 4.5 percent to $236.9 million while net income surged 12.2 percent to $114.3 million.
Revenue rose to $1.77 billion. Pirelli attributed the earnings performance on a combination of positive effects from the price/mix correlation, manufacturing efficiencies, lower raw materials expenditures and foreign exchange rate changes. Pirelli's consumer business (car/light truck and motorcycle tires) outperformed the commercial sector, reporting a 9.6-percent sales improvement vs. a 3.8-percent sales drop. Consumer business sales rose to $1.4 billion, although unit volume was up only 0.4 percent, Pirelli said.
The growing weight of higher value-added premium products (now nearly 59 percent of the business) helped push the revenue up. Premium unit sales grew 10 percent in the quarter, Pirelli said, with especially high growth in Asia/Pacific, Middle East/Africa and Latin America. Overall, Pirelli's North American business grew 17.3 percent in the period to $230 million, or 13 percent of global revenue.
Commercial business unit volume sank 6.7 percent in the period, Pirelli said, with larger decreases noted in Latin America, Europe and China.
Sumitomo (SRI) suffered double-digit declines in operating and net income for the quarter on a combination of factors including currency exchange losses and pricing and volume/mix issues. Sales also declined by 2.9 percent to $1.55 billion, but Sumitomo said it is sticking with its fiscal 2015 results forecast from February—a 4-percent gain in operating income and 7-percent rise in sales.
First-quarter operating and net income fell 34.4 and 29.3 percent, respectively, to $101.7 million and $64.5 million, according to the company. In its commentary, SRI said its results suffered from a “weak” overall global economy, which was affected by the stagnant European economic recovery and slowing Chinese growth.
A lone bright spot was the continued U.S. expansion. SRI said factors affecting the business environment in its key sectors included “intensified” competition in overseas markets, weakening conditions in many markets and the yen depreciation. Offsetting these to an extent were low natural rubber prices.
The company's tire business also suffered a double-digit drop in operating profits—down 27.9 percent to $100 million, on 2.9-percent lower sales of $1.33 billion.
Overseas replacement market sales rose primarily due to higher sales volumes in the U.S., which offset lower volumes in Europe, Russia and Brazil. Overseas OE volumes rose on an expansion of business with car makers in Europe, North America and Thailand. SRI's overall sales in North America—tire and non-tire businesses combined—jumped 27.9 percent to $213.9 million. Sales in Europe, by contrast, fell 15 percent.
Titan suffered double-digit drops in sales and earnings for the quarter, but Titan Chairman and CEO Maurice Taylor expects to see improvements as the year progresses based on the anticipated success of new products Titan is rolling out.
Titan's gross profit fell 21.6 percent to $42.8 million as a cyclical downturn in demand for higher horsepower agricultural equipment led to lower sales of high-margin tires for this sector.
Sales fell 25.4 percent to $402.1 million, although Titan attributed half of the decline to the negative effects of currency translation swings with the euro, Russian ruble and Australian dollar. Income from operations for the first quarter was more than double that of a year ago, $800,000 vs. $300,000. The net result was a loss of $1.06 million, an improvement over the loss of $5.13 million a year ago. “North America large agriculture is down approximately 35 percent, and we believe it will remain that way for the balance of 2015. We also believe our market share will continue to grow as Titan's recently introduced products gain further momentum,” Mr. Taylor said, adding, “We believe that construction market will also remain steady, and we expect to grow sales within our LSW tires and wheels.”
Toyo suffered a net loss of $25.7 million in the quarter as the company took a $102-million, one-time extraordinary loss to cover estimated costs related to sub-par seismic isolation rubber bearings sold in Japan. On an operating basis, Toyo's operating income increased 13.3 percent to $105.8 million on 0.1-percent lower sales of $804.4 million.
The company attributed the increase to the positive effects of currency exchange rate changes and lower raw materials expenditures. The extraordinary loss is considered a “provision of reserve for product warranties based on an estimate for the cost of repair work and other measures” related to seismic isolation bearings produced and sold by Toyo Chemical Industrial Products Ltd., the firm said.
The loss may actually be greater, Toyo said, since it's unable to make a “reasonable calculation” at this time what the actual costs might be to remedy the situation. Toyo's tire business reported a 16.6-percent rise in operating income to $98.3 million on 0.8-percent higher sales of $636.5 million. The company reported unit sales were down in most of its major markets, including North America, but that an improved product mix skewed more to higher value-added products resulted in higher revenues in Europe, North America and the Japanese OE sector. Toyo reported its sales in North America jumped 17.3 percent to $372.1 million. Operating income, however, fell 34.2 percent to $16.8 million. For fiscal 2015, Toyo now expects to report a net loss in the $75 million range.
Trelleborg Wheel Systems suffered a 21.6-percent drop in first quarter operating earnings on 0.4-percent lower sales, according to parent Trelleborg A.B. Operating income dropped to $13.9 million on sales of $134.9 million. Organic sales at Trelleborg Wheel fell 11 percent during the quarter on the negative effects of reduced OE demand from agricultural machinery makers, the company reported.
Aftermarket ag tire sales also declined, albeit to a lesser degree. Industrial tire sales also fell slightly, Trelleborg reported, impacted by the difficult weather conditions in North America during the quarter as well as the port slowdown on the U.S. West Coast. Overall, Trelleborg A.B. reported operating and net income of $112.4 million and $82.8 million, respectively, on sales of $765.6 million. Both sales and earnings were up double-digits, the company reported.
Yokohama (YRC) reported a 1-percent increase in operating income for the quarter to $99.3 million, a record for the first quarter. The company's sales fell 0.9-percent to $1.16 billion and its net income dropped by 10.1 percent to $48.9 million. Yokohama attributed the operating income per- formance to a downward trend in raw materials prices and a weakening yen.
Lower revenues in Japan offset sales gains overseas, YRC said.
In the tire segment, operating income increased 0.5 percent to $78.1 million on a 1.1-percent decline in sales to $908 million. YRC's overseas tire business expanded overall in yen value and in unit volume as strong sales in China and in Russia “more than offset” weakness in North America and in Europe.
The tire company said it is adhering to its full-year sales and earnings projections announced in February: an 8.4-percent increase in operating income but an 11-percent decrease in net income and a 7.6-percent increase in sales.