Where The Rubber Meets The Road, Bridgestone

Japan's Bridgestone Corp. (5108.TO) switched up its management team Wednesday--thankfully for investors, the move was about as interesting as watching tires spin.
The c-suite shuffle includes splitting the chief executive and chairman roles, a move that separates oversight and management--it is a corporate governance plus that should be noted by other Japanese executives.

But it is also worth kicking the tires around Bridgestone's financial performance. The company is forecasting earnings of $1.5 billion for 2011, up 16% from the previous year. Several analysts expect further improvement in 2012. Mitsubishi UFJ Morgan Stanley is forecasting a 28% jump in operating profit to $3.3 billion. The company has especially negotiated the yen's rise better than many Japanese peers. About 70% of its production by volume is outside Japan, which closely follows its sources of revenue. Rival Sumitomo Rubber Industries (5110.TO) makes only about 40% of its tires abroad.
Falling rubber costs could also help profits next year. Slower growth in the Chinese economy and increased supply from rubber producers have some analysts forecasting a rubber glut that would see prices for a key raw material dropping in 2012. Certainly, that would improve profitability-over the next five years, Bridgestone wants to lift its operating profit margin from about 6.4% to about 10%, broadly in line with rival, Michelin.

There is work to be done. The Japanese company plans to sell more high-margin products like tires used in construction and mining. That will involve bringing on line a lot of new production facilities, including $1.4 billion in capital expenditure planned for the U.S., for instance. A global economic downturn would be challenging too--but even if drivers decide not to buy new cars, thinning tires have to be changed regularly.  
Still, the current management crop at the world's No.1 tire maker by revenue has been doing quite nicely. A change in drivers though doesn't mean a change of direction. Investors will hope Bridgestone stays focused on the road ahead.