Tire makers cautiously optimistic about financials

AKRON — While the optimism of 2021 has cooled — weighed down by the ongoing war in Ukraine, the COVID-19 pandemic and economic uncertainties — recovery continues for the world's major tire players.

Many of the top publicly traded tire makers posted higher sales in the first half of 2022, and several raised their fiscal outlook for the remainder of the year, though others expressed caution about the "headwinds" facing the industry.

Among those optimistic about the remainder of 2022, Titan International Inc. started the year with a near tripling of income from operations in the second quarter on 30.6% higher sales revenue.

Titan management has boosted the firm's earnings outlook for fiscal 2022 by 20% to 25% to what could be record levels, saying that the year could be strongest in the company's history.

Italy's Pirelli & C. S.p.A, also boasted a strong start to the year and raised its earnings guidance for 2022 or a second time Aug 2, anticipating revenues of between $5.6 billion and $5.7 billion, up from previous estimates of $5.3 billion to $5.5 billion.

Despite warning of challenges ahead, Bridgestone Corp., Continental A.G., Toyo Tire Corp., and Yokohama Rubber Co. Ltd. raised their fiscal 2022 earnings forecasts as well.

Other major players, including Group Michelin, are staying the course and maintaining their original outlook.

Sumitomo Rubber Industries Ltd. (SRI) suffered an operating loss of $12.3 million in the second quarter, which contributed to a 56% drop in operating income. With more expected second-half headwinds, SRI downgraded its full fiscal year earnings forecast by nearly a third to roughly $228 million, which would be a 43% drop from the fiscal 2021 result.

Bridgestone Corp. has revised up its full year financial guidance after recording double-digit growth in first half sales and operating profit.

The Japanese group expects sales for 2022 to come in at $29.6 billion, up from an earlier forecast of $27.3 billion issued in February.

Adjusted operating profit is set to come in at $3.37 billion, up from an earlier forecast of $3.18 billion, Bridgestone reported Aug. 10.

Over the first six months, it noted, the global economy followed a path of recovery but presented a series of challenges including the suspension of tire production in Russia and exports to that country, significant production losses in China due to the COVID-19 resurgence and a cyber breach in the U.S.

"The group also worked to respond quickly to the unprecedented sharp rise in raw material prices and high inflation while minimizing the damage," said the tire and rubber parts maker.

Despite these issues, and the effects of the weak yen, Bridgestone achieved "significant increases" in both sales and earnings during the first half.

First-half adjusted operating profit stood at $1.54 billion, up 13% year-on-year, on 25% higher sales of $14.1 billion, reported Bridgestone. Profit attributable to owners of parent, however, fell 74% to $696.8 million during the period.

For the third quarter, Bridgestone said it expected the unpredictable business environment to continue, including various risks such as the "Russia-Ukraine situation becoming prolonged" and further acceleration of inflation.

However, the group expects global tire sales to perform strongly through strengthening of price management and "premium business strategy."

Continental A.G.'s tire business suffered a 7% drop in pre-tax operating earnings (EBITDA) for the quarter ended June 30 to $735 million on 17% higher sales of $3.7 billion.

Over the first six months, earnings were up 4.5% to $1.57 billion on 18.5% higher sales of $7.3 billion.

Conti reported 35.3% higher tire business revenue of $2.19 billion in North America in the first six months of 2022 versus the same period a year earlier.

Based on the first-half performance and the firm's assessment of the economy in the second half, Continental raised its expectations for the tire business for the full year from earlier forecasts by nearly 3% to between $15 billion and $15.5 billion, while at the same reducing the adjusted EBIT margin outlook a point and a half to 12% to 13%.

Overall, Conti reported 20.7% lower operating income over the first six months of 2022 and "hurricane-like" headwinds — geopolitical uncertainties resulting from Russia's war with Ukraine; disrupted supply chains; "massive" price increases for raw materials, semi-finished products, energy and logistics, as well as a COVID resurgence in China — in the second half of the year. Despite these, Conti management expressed optimism for the remainder of the current fiscal year.

"The current headwind is rather like a hurricane and will not subside any time soon. Given this environment, we have performed well and become more resilient," Duerrfeld said.

In the second half of the year, Continental said it anticipates a stabilization of global supply chains, a slight improvement in the availability of semiconductors and continued stable energy supplies in Europe, and particularly in Germany.

Goodyear reported 21.7% higher segment operating income for the quarter ended June 30 on 31% higher sales revenue, based on solid business results by both Goodyear's "legacy" business and the contribution of results from Cooper Tire & Rubber.

Second quarter segment operating income rose to $364 million during the period on sales of $5.21 billion. Goodyear attributed the revenue increase to sales related to the acquisition of Cooper Tire, improvements in the price/mix component, higher volume and increased sales from other tire-related businesses.

Net income rose 148% to $166 million, aided by a number of extraordinary items, including a one-time pre-tax gain of $95 million on a sale and leaseback transaction related to retail properties in Americas and a gain of $14 million related to a tariff-rate change. The gains were offset partially by rationalization charges of $26 million and pension settlement charges of $18 million.

The company did not issue a detailed forecast for the full fiscal year but did indicate it expects the current positive price/mix benefit over rising materials costs to continue in the third quarter. At the same time, Goodyear said it expects to encounter continued inflationary pressures and an adverse effect on international earnings.

Segment operating income for the first six months of the year grew 26.2% to $667 million on 35.1% higher sales of $10.1 billion.

During the quarter, the company approved a plan to close "redundant" Cooper Tire warehouse locations in Americas. The plan will result in approximately 490 job reductions.

Goodyear did not elaborate on the how many or which warehouses will close, but said the program is in line with previously announced planned synergies, costs to achieve, and cash rationalization payment estimates.

Hankook Tire & Technology Corp. suffered a 6.3% drop in pre-tax operating income for the quarter ended June 30 despite a 12.9% increase in global sales.

Second-quarter operating profits dropped to $139 million, Hankook said, on sales revenue of $1.62 billion, for an earnings ratio of 8.6%.

Hankook cited by "external challenges," including global supply-chain disruptions and rising raw-materials costs, for the earnings decline.

"Q2 sales volumes and operating profit … [declined] due to the market impact of the Russia-Ukraine conflict, lockdown in China and historically high inflation rates," Hankook said.

For the first half of 2022, Hankook reported a 19.2% drop in pre-tax earnings to $239 million on 3.1% higher sales of $3.04 billion.

Hankook went on to state its aim of achieving double-digit growth this year and raising the share of revenue generated by larger-diameter tires to 42% of total sales of passenger car tires.

Group Michelin posted a 7.7% improvement in segment operating income in the six months ended June 30, to $1.66 billion, on 18.7% higher first half sales of $14.4 billion.

The gains, Michelin said, came despite "turbulent" trading conditions over the first six months of 2022, with impacts from the continuing war in Ukraine and COVID-19.

Due to the lower earnings growth, the operating ratio slipped a full point to 11.5% from a year ago.

Supply chain disruptions and cost inflation intensified over the period, further dragging tire markets down to the lower end of forecasts, Michelin stated.

With market projections lowered to reflect global economic growth uncertainties, Michelin said it barring any new systemic impacts it is maintaining its fiscal 2022 earnings guidance from earlier this year — full-year segment operating income of more than $3.4 billion at constant exchange rates.

Net earnings fell 18.3% to $916 million, in part due to a $212 million earnings impairment linked to the suspension of operations in Russia.

Nokian Tyres P.L.C.'s decision to exit the Russian market — a consequence of Russia's war with Ukraine — resulted in a one-time financial charge that pitched the Finnish tire maker into the red in the quarter and half ended June 30.

Nokian reported a second-quarter operating loss of $207 million, due to a $306 million impairment caused by the firm's pending exit from Russia. Sales for the quarter were up 15.8% at $492 million,

In June, Nokian initiated a controlled exit from Russia, where it generated more than $397 million in sales last year. Its factory there is rated at more than 17 million passenger and light truck tires a year.

Second quarter operating profit went into red as the company recorded a loss of $207 million, down from the roughly $96 million reported last year. This, Nokian said in an Aug. 2 statement, was due to a negative $295 million booked as non-IFRS exclusions.

Nokian's operating loss hit $146.5 million for the first half, versus earnings of $148 million a year ago, as the firm booked a $302.5 million charge as non-IFRS exclusions. Sales grew 18.5% to $917.4 million, as the year "began with good demand in all markets."

The tire maker said it expects its exit from Russia to "significantly impact" its financial results in 2022.

Pirelli & C. S.p.A. raised its earning outlook for the second time Aug. 2, anticipating revenues to be between $5.6 billion and $5.7 billion, up from previous estimates of between $5.3 and $5.5 billion.

For the first half of 2022, Pirelli reported a 77% rise in net profit to $212 million while adjusted earnings (EBITDA) rose 21% to $632 million.

Revenue for the first six months of the year grew 24.6% to $2.9 billion, driven by the 20% impact of increased prices and mix improvement and a 5% positive foreign currency effect.

The growth was achieved amid a 1% decline in overall volumes, as demand for standard tires fell 8.8%.

Sumitomo Rubber Industries Ltd. (SRI) suffered an operating loss of $12.3 million in the quarter ended June 30, which contributed to a 56% drop in operating income for the half year.

The second quarter operating loss came despite 16% higher sales of $2.02 billion. Sales for the first half were up 16.4% over the same period in 2021 at $4.16 billion, while the operating profit was 56% below the 2021 result, yielding an operating ratio of 2.5%, down four full points from 2021.

Sumitomo cited growing inflationary pressures, restrictions on economic activities in China and the negative effects of the war in Ukraine and the lingering impact of the COVID-19 pandemic for the loss.

Based on the first half performance and expected second-half headwinds — including the decline in automotive production volume due to the shortage of semiconductors, the impact of soaring freight costs and the rising prices of raw materials — SRI downgraded its full fiscal year earnings forecast by nearly a third to roughly $228 million, which would be a 43% drop from the fiscal 2021 result.

Sales are projected to be slightly above earlier forecasts, but if achieved would be 22% above the fiscal 2021.

Titan International Inc. reported a near tripling of income from operations in the quarter ended June 30, on 30.6% higher sales revenue.

Based on the second-quarter and first-half performance and "continued positive signs" for demand of its products, Titan management has boosted the firm's earnings outlook for fiscal 2022 by 20% to 25% to what could be record levels.

"Our expectations for financial performance remain strong and during the second half of the year we anticipate continued top-line and bottom-line expansion relative to prior year performance," Titan President and CEO Paul Reitz said.

"By almost all standards, we expect this year to be the strongest in Titan's history, and we continue to see positive signs for demand to remain robust into 2023."

Income from operations in the quarter improved 194% to $69.7 million on sales of $572.9 million, yielding a 12.2% earnings ratio.

For the full fiscal year, Titan management said it now expects to report adjusted pre-tax earnings (EBITDA) of $240 million to $250 million, up from $200 million. Sales could end up roughly 5% higher at $2.2 billion.

Toyo Tire Corp. reported a slight rise in operating income for the first six months of fiscal 2022 over the same period a year ago on 20% higher sales revenue, driven mainly by the firm's tire business.

Operating income for the January-June period rose 3.7% to $213.9 million on revenue of $1.84 billion. Net income jumped 50.1% to $255.6 million.

Based on the first-half results and Toyo's projections for the second half, Toyo raised its full-year earnings forecast 13% to nearly $500 million.

Toyo's tire business, which accounts for 91% of the corporation's sales, posted a 22.5% increase in revenue, to $1.68 billion, along with a 2% improvement in operating income.

North America led the way, with sales up nearly 35% in the period to $1.22 billion, or nearly two-thirds of Toyo's revenue for the period.

For the full year, Toyo raised the sales forecast 3.6% more than the May 2022 projection to about $4.15 billion. That amount of revenue, however, would be 27% up over fiscal 2021.

The earnings forecast was unchanged at 10% of revenue. Compared with 2021, though, it represents a drop of nearly 6%, Toyo said.

Trelleborg A.B's Trelleborg Wheel Systems S.p.A. unit — the off-road tire and wheel business being acquired by Yokohama Rubber Co. Ltd. — posted double-digit increases in sales and earnings for the quarter and half-year ended June 30 on increased demand in all product and geographic markets.

Trelleborg Wheel generated 48% higher operating income in the quarter of $51.3 million on 31.4% higher sales of $341.7 million. Trelleborg cited higher sales volumes, structural measures implemented earlier and effective cost controls for the earnings improvement.

The company pointed to "healthy increase" in demand in all tire categories in all geographic markets, with "particularly" strong demand in North and South America.

For the six-months ended June 30, Trelleborg reported a 47% improvement in earnings at $105 million on 29.7% higher revenue of $684 million.

Overall, Trelleborg A.B. reported a 22% year-on-year increase in earnings (EBIT) excluding items affecting comparability to $128 million on 21% higher sales of $718 million during the quarter.

Trelleborg agreed in March to sell Trelleborg Wheel Systems to Yokohama Rubber for $2.3 billion in a cash and debt-free basis.

The transaction, which will in effect double the size of Yokohama Rubber's off-highway tire business, is set for completion "in the latter part of 2022," subject to regulatory approvals, the companies disclosed in separate announcements.

Yokohama Rubber Co. Ltd. (YRC) suffered a 44.6% drop in operating income for the six months ended June 30, despite nearly 29% higher sales.

Yokohama cited the adverse effects of the prolonged Russia-Ukraine war, the rising costs of raw materials and logistics and declines in unit production by auto makers globally for the earnings decline, to $219.1 million.

Sales revenue grew 28.8% to $3.18 billion, reflecting "robust growth" in overseas sales of tires, including off-highway tires for agricultural machinery and industrial machinery. The operating ratio fell nine points to 6.9%.

Despite the operating income decline, YRC has revised upward its full-year fiscal projections for 2022 sales and earnings that it announced in February. Yokohama now expects sales revenue of nearly $7 billion, up 14% more than the earlier projection and 27.5% more than fiscal 2021. Operating earnings are projected to end the year up more than the earlier forecast but down nearly 28% versus 2021.