Tire makers offer mixed outlook for rest of 2016

The world’s leading tire makers are wide-ranging in their expectations when it comes to the remainder of 2016.

On the one hand, uncertainty about growth prospects in the second half of 2016 has prompted all four of Japan’s tire makers to scale back on their earnings expectations for the fiscal year.

On the other, Group Michelin, Continental A.G., Goodyear and Cooper Tire & Rubber Co. have issued relatively bullish forecasts for their fiscal 2016 prospects.

Bridgestone Corp., Sumitomo Rubber Industries Ltd., Yokohama Tire Corp. and Toyo Tire & Rubber Co. Ltd. all have revised downward their projections for sales and earnings for fiscal 2016, citing the appreciating Japanese yen and lower tire sales during the first half.

In Bridgestone’s case, the new forecasts are down double-digits from the firm’s earlier projections, which in turn already were lower than the company’s fiscal 2015 performance.This report appears in the Aug. 29 print edition of Tire Business.For the full year, Bridgestone is forecasting flat demand growth for replacement passenger tires in Japan, North America and Europe and 1- to 3-percent growth in aftermarket truck tire sales. In contrast, Bridgestone anticipates much higher demand growth in Asia/Pacific, including China.

Bridgestone sees some volatile swings in OE demand for truck/bus tires, ranging from an 11-percent gain in Asia/Pacific to an 18-percent drop in North America.

Group Michelin’s top executives said they expect to report increased operating income for the full year, at constant exchange rates, and generatevolume growth exceeding global trends in key markets.

Michelin said it expects both consumer and commercial tire markets in North America and Europe to “lose some momentum” while remaining buoyant in China. The specialty tire market will continue to be impacted as mining companies complete their inventory drawdowns.

Goodyear Chairman Rich Kramer told analysts in a conference call recently his company expects to report 10- to 15-percent growth in operating income for the fiscal year despite profits being up only 1.3 percent in the first half.

He deferred discussing specifics about strategy until the firm’s Investor Day on Sept. 15 but indicated in his remarks that Goodyear’s optimism is based on above-average growth in demand for the company’s “high-value-added” tires — larger-rim diameter tires, for the most part.Tire Business data compilationTire makers' half-year sales and earnings comparison.Continental raised its earnings forecast for fiscal 2016 slightly based on better-than-expected first-half figures — especially pertaining to the tire and rubber goods sectors.

Continental Chairman Elmar Degenhart singled out the company’s Rubber Group’s “excellent operating performance” for the firm’s confidence, noting the unit’s “very positive unit sales development…has given us an additional boost.”The company expects its full-year pre-tax operating margin to exceed 11 percent, up from the previously published estimate of about 11 percent. Its development is also being helped by lower-than-expected raw materials costs.

Continental is maintaining its earlier forecast of 2-percent volume growth worldwide in replacement consumer tires and is raising its expectations for medium and heavy commercial vehicles to 2 percent growth from 1 percent.

Sumitomo Rubber based its lowered forecast on “severe” business conditions related to “intensified competition” in markets afflicted by “sluggish demand caused by a worldwide sentiment of economic stagnation….” Sumitomo also referenced expectations of further yen appreciation.

Pirelli Tyre S.p.A. did not issue any specifics regarding the rest of 2016. The company is evolving toward a new makeup under the ownership of China’s ChemChina.

Hankook Tire Co. Inc. did not issue specific financial expectations, stating instead it plans to enhance its market share by strengthening its global distribution channel strategy, including more direct contact with global customers.

Yokohama projects that operating income for the full fiscal year will fall 30 percent from fiscal 2015 on 4.7-percent lower sales as “profit attributable to owners of parent” will decline 44.9 percent. YRC attributed the lowered forecast on weakening demand in its home markets and the appreciating value of the yen.

Cooper, which reported 12-percent higher operating income in the first half, is bullish on the rest of the year, with retiring Chairman Roy Armes stating:  “…we look forward to a strong second half and full year…” despite expectations of moderating raw-materials cost benefits and more competitive global markets.

Toyo Tire held pat on its earnings forecast for 2016, although the outlook published earlier already represented an 18-percent drop from fiscal 2015. The company’s sales projection is a 2.5-percent drop from the earlier forecast and 3.1 percent from 2015.

Nokian Tyres P.L.C. expects its fiscal 2016 earnings and sales to be on par with those in 2015, after reporting slight drops in both in the first half. Nokian said its forecast depends on stable currency markets.

Despite a net loss in the first half and 16-percent lower sales, Titan International CEO and Chairman Maurice Taylor noted “some great reasons to be optimistic” in his comments accompanying the release of the figures.

In particular, Mr. Taylor said Titan has seen an “uptick” in aftermarket construction and forestry tire sales and said he believes the agriculture market slump is at or near the bottom.

For the first half, half of the dozen major publicly traded companies suffered declines in operating income and all but three reported sales drops. See chart above for details.

Bridgestone reported an 8.2-percent decrease in operating income on 11.2-percent lower first-half sales. The company’s tire business unit’s income dropped 8.5 percent while sales fell 14.9 percent. Regionally, first-half sales fell 10 percent in Japan and 14 percent in North America.Michelin’s first-half operating income grew 9 percent despite 2-percent lower sales. Michelin attributed the lower sales to a combination of factors, including currency translation effects, a reduction in the price/mix relation and the contracting OTR segment. These factors offset a 2.5-percent gain in volume sales.

Goodyear reported slightly higher operating income for the period on 7.7-percent lower sales. Net income fell 7.2 percent.

Tire unit volumes climbed 2 percent to 83 million, Goodyear said, driven by growth in Asia/Pacific — primarily in Japan and China. Replacement shipments edged up 3 percent while OE volume slid 1 percent.

Continental reported 6-percent higher pre-tax operating income on 2.3-percent higher sales. Net income jumped 13.1 percent to $1.84 billion. Tire division earnings surged 7.5 percent on 2.8-percent higher sales, yielding a 27.5-percent earnings ratio.

Conti reported increased unit sales in the consumer sector in both replacement and OE markets and said commercial vehicle tire sales increased 8 percent.

Pirelli’s earnings fell slightly in the half-year but profitability rose slightly as revenues fell 5.9 percent. Pre-tax operating income fell on the effects of non-recurring restructuring charges related to the merger of Pirelli’s industrial tire business with that of China National Tire & Rubber Co. Ltd.

Pirelli’s consumer business delivered 7.4-percent organic growth while the industrial business reported no growth due in part to a slowdown in South America.

Sumitomo Rubber reported a 5.2-percent improvement in operating income for the six months despite a 3.9-precent drop in sales. Sumitomo attributed the operating income gain to cost-reduction activities throughout the company’s operations, while an appreciating Japanese yen took its toll on sales revenue. The operating ratio improved marginally to 8.2 percent.

The profit attributable to shareholders — roughly equal to net income — shot up 40.5 percent on the positive effects of extraordinary income from the sale of Goodyear shares SRI held as part of the firms’ global alliance that was dissolved last fall.

SRI’s tire business reported a 0.3-percent drop in operating income on 3.5-percent lower sales of $2.85 billion. Sales volume increased in a number of categories, including the domestic replacement market and the replacement markets in North America and Europe, where SRI said it now has a “greater degree of flexibility” because of the dissolution of the global alliance with Goodyear.

Hankook Tire posted 38.9-percent better operating income on 8-percent higher sales, thereby raising the operating ratio three-plus points to 16.7 percent. Hankook did not elaborate on the reasons for the improved earnings, other than to point out above-average growth in higher-value-added performance tires in Europe and North America, and an expansion of OE tire sales outside of South Korea.

Toyo’s operating income for the period fell 10 percent while sales declined 4.1 percent. Toyo cited the negative effects of lower sales, the appreciating yen and higher operating expenses for the income decline, which offset the positive effects of lower raw materials costs.

Titan reported a loss from operations in the first half on 16-percent lower sales.