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March 25, 2020 09:49 PM

Tire makers' 2020 fiscal outlooks reflect uncertain climate

Bruce Davis
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    AKRON — Even before the outbreak and spread of the coronavirus cast its shadow over the global economy, the world's leading tire makers had — for the most part — expressed only muted optimism for 2020.

    The tire makers' outlooks for 2020 follow a year when only three of the largest dozen or so companies — Cooper Tire & Rubber, Group Michelin and Pirelli & C. S.p.A. — recorded improved earnings over fiscal 2018.

    In their fiscal 2020 outlooks, various tire makers referenced situations such as a "deteriorated environment and shrinking markets" or a "challenging global environment, including recessionary demand trends in many international markets."

    Even those firms that are projecting growth — mostly in the 1% to 2% range — are predominantly those that are looking for a rebound from flat or down years in 2019.

    In its 2020 market outlook published March 3, the U.S. Tire Manufacturers Association projected overall shipment growth of just 0.1% over 2019, with falling demand in the OE sector a big concern.

    In its fiscal 2019 report, Michelin shared its expectations for the various global markets: consumer OE down 3%; consumer replacement stable; commercial down 2%-3% (based on OE being down but replacement up); declining demand in the mining sector due to inventory adjustment; and a deep drop in OE demand on the agricultural and industrials sectors.

    A sampling of the individual tire makers' outlooks include:

    • Group Michelin — a slight drop in earnings for fiscal 2020, reflecting negative outlooks for original equipment demand in both the consumer and commercial sectors worldwide.

    • Bridgestone Corp. — a rebound in earnings of 5% or better, based on a recovery in manufacturing activity (higher volumes), a better price/mix component and reduced raw materials expenses.

    • Goodyear — did not issue a forecast for 2020, but President and CEO Richard Kramer said the firm would "remain focused on further improving our cost structure and working capital management" in the face of a "challenging global environment, including recessionary demand trends in many international markets."

    • Continental A.G. — earnings should rebound while sales at best will be on par with 2019, owing to continuing market uncertainty.

    • Sumitomo Rubber Industries Ltd. — a slight rebound in operating income and sales, based on the expectation that the global "economic uncertainty" will continue and even increase in light of the U.S.-China trade issues, a slowing Chinese economy and the United Kingdom's decision to leave the European Union.

    • Pirelli — revenues to grow roughly 1.5% as the company derives more and more of its sales from higher value-added products.

    • Yokohama Rubber Co. Ltd. — a rebound in business profit of nearly 10% and a 1.5% gain in sales revenue.

    Toyo Tire Corp. — sales to increase 2.3% over 2019, which in turn fell 4% versus 2018, and operating income to rebound by double-digits after falling 9.3% last year versus 2018.

    • Cooper Tire — continued improvements in earnings and a "modest" gain in global unit sales throughout 2020.

    Fiscal 2019 proved to be a challenging year for the world's tire industry, with just three major tire makers reporting improved profits over 2018.

    Otherwise, the leading tire companies all reported lower earnings than in 2018, and Goodyear fell into the red on a net basis.

    Of those that reported improvements:

    • Michelin cited gains associated with recent acquisition for helping improve the operating and net income — up 8.4% and 4.2%, respectively, to $3.37 billion and $1.94 billion — on 9.6% higher sales of $26.9 billion.

    The company said its performance was enhanced by "tight production management," which included $125 million in reduced inventories at constant scope of consolidation. Sales volume was down 1.2%, but Michelin said the price/mix effect and lower raw materials costs added over $360 million to the bottom line.

    • Pirelli credited "internal levers" such as price/mix, efficiencies and an ongoing cost-reduction program for helping contain the impact of production cost inflation, weak demand and pressure on prices. The company reported a 6% increase in adjusted EBITDA, to $1.46 billion, on 2.5% higher sales of $5.96 billion.

    • Cooper cited a number of factors for its earnings improvement — up 5.5% to $174.5 million on slightly lower sales of $2.75 billion — including favorable price/mix and raw-materials costs and the "non-recurrence" of a goodwill impairment charge from a year ago.

    Offsetting these gains were $141 million in higher costs, including elevated manufacturing costs, reduced sales volumes and costs associated with elevated tariffs on truck tires imported into the U.S. from China.

    Other company summaries for fiscal 2019 include:

    • Bridgestone — a 19% drop in operating profit to $3 billion, on 3.4% lower sales of $32.4 billion.

    • Goodyear — segment operating income down 25.8% to $945 million, and a net loss $311 million, versus income of $693 in 2018.

    • Continental — 20% drop in adjusted pre-tax operating profit to $5.57 billion and a $1.37 billion net loss on sales of $49.8 billion, which yields an operating ratio of 11.2% versus 14% a year ago.

    • Sumitomo Rubber — operating profit fell 42.1% to $304.2 million and profit attributable to owners of parent decreased 66.7% to $111.1 million on 0.1% lower sales of $8.22 billion.

    • Hankook Tire — a 22.7% drop in operating income to $464.7 million on 1.5% higher sales of $5.9 billion. For the year, the operating ratio fell two points to 7.9%.

    • Yokohama Rubber — business profit fell 15.4% to $460.8 million due to higher production and fixed costs, exchange rate conversion losses and an unfavorable price/mix component, the company said. Sales essentially were unchanged at $5.8 billion.

    • Toyo Tire — operating profits fell 9.3% to $353.7 million on sales of $3.47 billion, dropping the operating ratio slightly to 10.2%. Net income more than doubled from 2018 to $225.2 million.

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