KOBE, Japan — Sumitomo Rubber Industries Ltd. (SRI) suffered double-digit drops in operating and net income for fiscal 2018, declines the company pinned on foreign-exchange losses and an impairment loss related to its South African subsidiary.
Operating income for the period dropped 15.3 percent to $519.6 million on 1.9-percent higher sales of $8.13 billion. As a result, the operating ratio fell nearly one and a half points to 6.3 percent.
The results are in line with a forecast SRI published along with its third-quarter earnings report, when the company cited rising raw materials and fixed costs, eroding prices and an unfavorable price/mix component as key factors in adjusting the fourth quarter outlook.
SRI cited the "deterioration in the sales environment" in South Africa for its decision to record an impairment loss on goodwill related to its Sumitomo Rubber South Africa (Pty.) Ltd., where it added capacity for radial truck and bus tires last year at the Ladysmith factory it acquired from Apollo Tyres Ltd. in 2013.
Net income fell 22.8 percent to $329.5 million.
For fiscal 2019, SRI is forecasting a further erosion of earnings on a slight increase in sales. Specifically, the company sees operating income falling about 5.5 percent for the year, with a second-half improvement offsetting to a large degree a nearly 45-percent drop in the first half.
Business profit for SRI's tire business fell 12.3 percent to $465.3 million on 1.5-percent higher sales revenue of $6.98 billion.
SRI said domestically sales improved both in the OE and replacement segments, while overseas, replacement-market sales declined due primarily to an economic slowdown in China and sluggish consumption associated with political uncertainty in the Middle East. OE sales in international markets improved, SRI said, due to expanded business in Europe, North America and emerging countries.
Overall sales in North America — comprising both and tire and non-tire businesses — fell 3.4 percent to $1.35 billion.