Tire maker financial outlooks improving in 2021

AKRON — A year after suffering unprecedented declines in sales and earnings, the world's major tire makers staged historic comebacks in the first six months of 2021, posting high double-digit increases in sales and solid earnings across the board.

The positive first-half results prompted nearly all the major tire makers to issue revisions to their fiscal 2021 business forecasts, boosting projections for both sales and earnings.

Collectively, the sales reported by a dozen of the larger publicly traded companies jumped 29% over the first half of 2020.

Individually, Goodyear and Pirelli & C. S.p.A. led the pack, with sales increases of 43.3% and 41.2%; Goodyear's gain was aided by the addition of a month's worth of sales from Cooper Tire & Rubber Co.

On the earnings side of the ledger, seven of the 12 returned to the black after posting operating losses a year ago and the others posted triple-digit earnings gains. The average operating ratio was 8.8%.

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All of the companies posted net income for the period, whereas a year ago it was only two of the 12.

Despite the robust market recovery during the first half, a number of companies warned that supply-chain interruptions remained a concern.

"These solid results should not overshadow the persistent impact of the health crisis, which is causing major disruptions, particularly in the supply chain," Michelin CEO Florent Menegaux said.

Individually, the companies' results and projections — in order of their relative standing in the global tire rankings — are as follows:

Michelin

Group Michelin revised its full year segment operating income outlook by nearly 14% on the strength of a "very good first half," the company announced July 26.

The group expects operating income this year to exceed $3.3 billion, compared with the $2.9 billion initial forecast. Michelin did not provide a sales outlook.

During the first half, operating income surged 360% year-on-year to $1.7 billion and pre-tax operating earnings (EBITDA) nearly doubled to $2.7 billion, on 19.6% higher sales of $13.2 billion.

Sales were lifted by a 22.8% increase in volumes, reflecting market share gains in every segment, especially 18-inch and larger tires.

Sales of non-tire activities also increase 4.6% during the first six months of the year, Michelin reported. Michelin also linked the strong results to a $149 million increase from the positive net price-mix/raw materials effect.

The results were, however, negatively affected by an unfavorable currency effect, stemming primarily from the U.S. dollar's weakness against the euro. This, Michelin said, reduced income by $177 million.

For the full year outlook, Michelin said it expects passenger car and light truck tire markets to expand by 8% to 10% over the year while truck tire markets are set to rise 6% to 8%. The specialty markets — including farm, mining, two-wheeler and aircraft tires — are expected to deliver 10% to 12% growth over the year.

Bridgestone

Citing strong first-half results and the softening of the COVID-19 impact on global businesses, Bridgestone Corp. raised its forecasts for full-year operating profit and sales by 38.5% and 10.3%, respectively, over what it projected in February, yielding an operating ratio of nearly 11%.

For the first six months of the year, Bridgestone reported a five-fold increase in adjusted operating profit of $1.6 billion on 24.4% higher sales of $14.3 billion, with earnings growth aided by the group-wide expense and cost restructuring program.

The tire segment mirrored the corporate performance with 24% sales growth, to $12.3 billion, and a nearly four-fold jump in operating income to $1.73 billion, which equates to an operating ratio of 14%. All of the segment's operating units posted sales gains of 20% or more.

In particular, Bridgestone noted that demand for truck and bus tires and construction vehicles grew significantly, underpinned by solid construction and transport demand. That helped fuel 170% growth in operating profit and 24% higher sales in the truck/bus tire business to $375 million and $3.38 billion, respectively.

The consumer (passenger and light truck) tire segment reported an 11-fold jump in operating profit to $1.02 billion on 25.5% higher sales of $16.5 billion. Demand for replacement tires returned to the pre-pandemic levels of 2019.

The firm's specialties business unit — covering construction, farm, aircraft and two-wheeler tires — reported a 39% rise in operating profit to $328.8 million on 19.7% higher sales of $1.74 billion.

Viewed by geographical reporting segments, business in Europe/Middle East/India/Africa improved the most, jumping 37% to $3.02 billion, followed by the Americas (up 27.3% to $6.12 billion) and China/Asia-Pacific (up 25.5% to $1.69 billion).

In disclosing the more optimistic forecast, Tokyo-based Bridgestone noted countries around the world are making progress in addressing the COVID-19 pandemic and carrying out vaccination programs. The company's earlier forecast was based on the assumption that the global economy wouldn't return to pre-COVID levels until 2023 and that global tire demand would remain low.

"As a result, global tire demand in the first half of 2021 has shown a dramatic recovery at a pace exceeding the group's expectations," Bridgestone said.

Goodyear

Goodyear reported segment operating income of $525 million for the first half of fiscal 2021 on 43.3% higher sales revenue of $7.49 billion. Net income was $79 million for the first six months, compared with a net loss of $1.3 billion.

Goodyear cited "above-market" growth in many sectors, the addition of three weeks of sales from Cooper Tire, increased sales from other tire-related businesses and favorable foreign currency translation for the improvements.

Second-quarter sales increased 85.3% to $3.98 billion, and the firm returned to the black on a net basis with income of $67 million, which contrasts with a net loss of $696 million a year ago.

These factors were partially offset by higher selling, administrative and general expenses (SAG), reflecting the impact of payroll and advertising expenses returning to more normal levels after last year's COVID-19 response actions, and higher raw material costs.

"Broad economic recovery remains robust, particularly in the U.S. and China," Goodyear Chairman, CEO and President Rich Kramer said. "Our second-quarter results demonstrate our ability to capture value in the marketplace with innovative products and services while overcoming inflationary cost pressure."

The addition of Cooper Tire also contributed to the merger-adjusted earnings growth, Mr. Kramer said, noting that the combined staffs "are now focused on integrating our businesses and leveraging the combination to provide enhanced service for our customers and consumers."

The reported results also include a Cooper Tire operating loss of $16 million, which includes $40 million of amortization of Cooper Tire inventory step-up, $6 million of other transaction-related items, and $4 million incremental amortization of Cooper Tire intangible assets.

Tire unit volumes in the half year totaled 72.5 million units, up 40.2% from the 2020 period. The impact of the COVID-19 pandemic on industry demand moderated significantly relative to the prior year.

Replacement tire volume increased 78%, reflecting both continuing industry recovery and market-share gains, Goodyear said. Original equipment unit volume more than doubled, driven by higher vehicle production and increased market share.

Tire unit volumes totaled 72.5 million, up 40% from 2020. Replacement tire shipments increased 41%, reflecting stronger industry demand and market share gains. Original equipment volume increased 39%, driven by higher global vehicle production and increased market share.

Goodyear's North American business unit reported operating income for the half of $347 million, versus an operating loss of $287 million a year ago. Sales revenue jumped 44% to $4.04 billion, driven by 125% higher volume, the Cooper Tire merger and increased sales from other tire-related businesses.

Replacement tire volume increased 120% in the quarter, Goodyear said, reflecting stronger industry demand, U.S. consumer replacement market share gains and the addition of Cooper Tire. OE unit volume increased 155%, reflecting higher industry demand and market share gains in Latin America.

Goodyear's other operating units — Europe/Middle East/Africa and Asia/Pacific — returned to the black as well in the half on 47.4% and 36.6% higher sales, respectively.

Continental

Based on a strong first-half performance, Continental A.G. said it expects sales in the Rubber Technologies group to come in around $20.4 billion to $21.1 billion, compared to previous estimates of $19.5 billion to $20.7 billion.

The group has also raised adjusted EBIT margin guidance to 12.5% to 13% from the previous estimate of 11.5% to 12.5%.

For the first half, the tires business reported a 90% rise in earnings on 28.1% higher sales of $6.58 billion.

The raised outlook, Conti said, includes the impact expected from higher raw material costs of around $592 million, which mainly relates to synthetic and natural rubber.

"After an already subdued start to the year, the ongoing shortage of semiconductors severely slowed automotive production in the second quarter, as expected," CEO Nikolai Setzer said.

The chip bottleneck and rising raw material prices, he warned, are set to weigh on the automotive industry throughout 2021.

However, the group continued to build on the positive performance of the first quarter in the Rubber Technologies sector.

"Despite the increasing challenges posed by rising raw material prices, we had a strong first half of the year overall," Mr. Setzer said about the rubber segment's performance.

Second-quarter sales in the Rubber Technologies group, which includes the tires business and industrial components manufacturer ContiTech, climbed 46% year-on-year to $5.2 billion, Conti announced Aug. 5. For the first half, sales rose 23% to $10.2 billion.

Segment earnings (EBITDA) grew two-fold to $1.1 billion during the second quarter. For the first half, earnings were up more than 88% at $2.1 billion.

Second-quarter earnings for the tire business surged nearly 200% to $856 million, on 50% higher sales of $3.4 billion.

Group consolidated sales totaled $11.7 billion in the second quarter of 2021, up nearly 50% from $7.8 billion reported in 2020. Adjusted EBIT increased to $842 million, up $1.5 billion from the negative $752 million reported in the second quarter of 2020.

Sumitomo

Sumitomo Rubber Industries (SRI) returned to profit in the quarter and half-year periods ended June 30, helped by a recovery in demand and despite ongoing challenges posed by Covid-19 and materials shortage.

The company returned to the black in the second quarter, helping to put it in the black for the half-year as well, at $265.3 million, or 6.5% of sales.

Sales increased 29.4% year-on-year to $4.09 billion, buoyed by higher sales domestically and globally, compared with the pandemic-impacted lower base of 2020.

Net income stood at $190.3 million, versus a loss a year ago.

SRI's tire unit reported operating income of $218 million in the half on 27% higher sales of $3.43 billion, yielding an operating ratio of 6.4%. The improvement, it said, was achieved despite the decrease in car production as a result of semiconductors' shortage.

The Japanese group said both OE and replacement tire sales improved in Japan and overseas, with Asia, particularly China, seeing a strong recovery in the replacement market.

Replacement tire sales in the Americas region were also strong, particularly in the SUV segment, despite the delayed arrival of imports due to the shortage of shipping containers.

Hankook

Hankook Tire & Technology reported marked improvements in operating income and sales for the quarter and half-year based in part on business recoveries in North America and Europe.

Hankook's second-quarter operating income more than doubled (up 167%) to $167 million on 32.4% higher revenue of $1.61 billion, the company said, yielding an operating ratio of 10.4%.

Operating income for the first half of fiscal 2021 jumped 112% over fiscal 2020 at $333 million on 22.6% higher sales of $3.42 billion.

Hankook cited growth in both original equipment and replacement market business for the improvement, with demand for larger rim-diameter (18 inches and higher) tires growing faster.

In the U.S. market, sales of larger diameter tires grew at a faster pace than that of market demand recovery, Hankook said.

As it builds toward its fiscal 2021 sales goal of $6.3 billion, Hankook noted it's focusing on strengthening its supply position for electric vehicles (EVs) and high-performance cars.

Recently Volkswagen A.G. selected Hankook's Ventus S1 evo3 ev for its all-electric ID.4 SUV and the Audi e-Tron GT sports car, and BMW A.G. spec'd a bespoke version of the Hankook Ventus S1 evo Z as for its X3 M and X4 M models.

Pirelli

Pirelli & C. S.p.A. experienced a strong rebound in first-half sales and earnings, helped by a "decisive demand recovery" in its main geographical regions and the positive effects of its competitiveness plan.

Earnings (EBITDA) for the first six months of the year rose 114% year-on-year to $674 million, on 41% higher sales of $2.9 billion, Pirelli reported Aug. 5.

Pirelli linked the higher sales to a "significant" 42% growth in volumes, including a 46% increase in high-value, larger rim-sized tires and 38% rise in the standard segment.

The trend for the second quarter of the year was particularly marked as group volumes rose nearly 70% year-on-year, representing a 68.8% growth for the high-value segment, and a 72.9% increase for the standard segment.

Adjusted EBIT increased more than five-fold to $443 million during the six-month period, helped by a $370 million contribution of volumes.

The positive price/mix effect improved the figure by $55 million or 3%, which substantially offset the $45 million increase in the cost of raw materials.

The higher raw materials' costs, Pirelli said, was mainly due to the depreciation of the main currencies of the group's manufacturing countries in South America, Romania and Russia.

Adjusted EBIT also improved by the positive effect of the second phase of Pirelli's competitiveness plan which generated structural efficiencies amounting to $97 million, while the exchange rate effect had a negative 4.1% ($15 million) effect on the figure.

Yokohama

Yokohama Rubber Co. (YRC) reported record earnings for the half-year on 27.7% higher sales, prompting YRC management to revise upward the company's sales and earnings outlooks for the full fiscal year.

Operating profit for the six-month period increased nearly 16-fold over the 2020 period to $451.7.6 million, on revenue of $2.82 billion, yielding an operating ratio of 16%. The 2021 operating profit was nearly double that reported in the first half of 2019, pre-COVID-19 pandemic.

YRC cited "resurgent" momentum in its tires segment in Japan and overseas for the sales and earnings growth during the period.

Based on the positive earnings report, YRC revised its full-year fiscal projections for 2021 upward by 2% to 3% over those issued in May.

YRC's tires segment reported business profit of $151 million for the period, reversing a loss reported a year ago and more than double the earnings reported in fiscal 2019.

Sales rose 26.7% over 2020 to $1.96 billion, buoyed by "recovering" OE demand in Japan and China and strong replacement market demand globally, YRC said, reflecting the company's "vigorous promotion" of high-value-added products and expanded production to meet demand.

Yokohama's ATG (Alliance Tire Group) segment posted business profit of $66.1 million on 60% higher sales revenue of $447.8 million, yielding an operating ratio of 14.8%, four full points higher than a year ago and one point better than in 2019.

Yokohama said ATG's first-half performance reflected "robust demand" in the product categories it serves.

In January, YRC merged its off-highway tires business with those of ATG and Aichi Tire into a subsidiary named Yokohama Off-Highway Tires (YOHT), which the company said positioned it as a growth driver. The company recently disclosed plans to double its investment in an OTR tire plant it's building in India.

Toyo

Toyo Tire Corp. reported significant improvements in sales and operating income for the six months, mainly due to the strong performance of its tires business unit.

For the full year, Toyo said it estimated sales to come in at $3.6 billion, up 14% compared with 2020. Operating profit is expected to reach $439 million, more than 32% above last year's levels.

Operating income for the period rose 240% year-on-year to $247 million, on 23.8% higher sales of $1.7 billion, Toyo announced Aug. 10.

The tire business unit posted net sales of $1.5 billion for the six-month period, up 23.8% over the comparable 2020 period.

The segment's operating income rose 186.5% to just under $256 million for the period.

Toyo's tires operations reported growth in all regions, including Japan, North America and others.

Sales particularly improved in North America, with a 34% year-on-year increase to $998 million.

Toyo's automotive parts business unit performed stronger than last year, posting a 23.3% increase in sales to $183 million, and narrowing its loss to $8.6 million, up from a loss of $16.5 million reported in 2020.

Apollo

Apollo Tyres Ltd. saw a sharp increase in sales and operating profit in the fiscal first quarter, despite the impact of India's second wave of COVID-19 on its operations.

Operating profit for the three months, ended June 30, was up 131% year-on-year at $75 million, on 59% higher sales of $615 million, Apollo reported.

Net profit increased 195% to close at $17 million, compared to a loss of $18 million reported last year.

"While the second wave of the pandemic did impact the operations, it was comparatively lesser than the first wave witnessed in first quarter last year," Apollo said in a statement.

Apollo said both Indian and European operations performed well, with their revenues increasing 82% and 28% respectively, compared to the same period last year.

With the improving business sentiment and demand for its products, Apollo said it was "optimistic" about its performance across geographies.