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Published on August 23, 2004

All major tire makers post 1st-half profit

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Date Published August 23, 2004

The financial health of the tire industry took a marked turn upward in the fist half of 2004, with all of the major multinational tire firms reporting improved earnings-including Goodyear, which returned to the black in the second quarter after six quarters of bleeding red ink.

The surge of positive performances prompted Bridgestone Corp. and Cooper Tire & Rubber Co. to revise their full-year earnings forecasts upward.

However, there's one fly in the ointment: uncertainty about raw materials prices.

While the upward climb of prices for both natural and synthetic rubber-as well as other oil-derived raw materials like carbon black or certain processing chemicals-is well documented, tire companies also are confronted with increasing prices for steel, and even shortages of tire cord and/or bead wire.

Nearly every earnings projection for the remainder of 2004 is tempered with warnings of raw materials' pricing affecting future earnings performance. Cooper, for example, said it expects raw materials costs to be 5 percent higher than a year ago, while Goodyear put the estimate at 5 to 7 percent.

``Raw material costs remain stubbornly high and appear to be moving yet higher through the rest of 2004,'' said Tom Dattilo, president and CEO of Cooper. ``Prices for natural rubber appear to have leveled off, but steel and petroleum-based products and most other commodities we buy are still going up.''

Dattilo's comments accompanied a record sales and earnings performance by Cooper during the second quarter and first half. For the six months, net income more than doubled to $57.2 million on 20.3-percent higher sales of $1.97 billion. Tire unit operating income rose 40.8 percent to $42.1 million as sales climbed 20.3 percent to $999.7 million. Through the first six months of 2004, Cooper's shipments have risen 9.8 percent vs. the industry's 5-percent growth.

Bridgestone, coming off a 64-percent increase in first-half net earnings, boosted its net profit forecast for fiscal 2004 by 39 percent, citing continued sales growth, improved tire prices and a better product mix.

Bridgestone increased its forecast despite expecting a challenging business environment throughout the rest of the year, company management said. Bridgestone now expects 2004 net profit of about $945 million (4.4 percent of sales).

For the six months, Bridgestone reported net profit of $482 million while operating profit grew 29 percent to $833 million. First-half sales rose 3.7 percent to $10.6 billion, aided by a 4-percent increase in tire sales, mainly on healthy demand outside Japan.

Groupe Michelin's first-half net income nearly doubled as the French tire maker improved its position in supportive tire markets.

Net income surged 98.8 percent to $403.6 million as sales rose 6.4 percent to $9.6 billion, while operating income was up 20.1 percent to $852.5 million, raising the earnings/sales ratio to 8.9 percent.

Factors affecting sales included negative impacts of exchange rates and raw material costs, while positive impacts included higher sales volume, a better price/mix effect and the consolidation of the newly acquired Viborg distribution business in Europe.

Goodyear posted net earnings in the second quarter of $25.1 million-including operating earnings in the North American Tire unit of $30.4 million-but the company was still $51.8 million in the red for the first half after a $76.9 million first-quarter loss.

Tire division sales revenue grew 13.7 percent to $7.74 billion, while tire unit volume overall grew 5.1 percent to 110.7 million units. 2004 revenues include $579 million in sales from the first-time consolidation of Goodyear's South Pacific Tyres joint venture in Australia/New Zealand and T&WA Inc., a tire/wheel assembly venture.

North American Tire sales were up 14 percent, but unit volume grew only 0.6 percent to 50.4 million units.

Rising raw material costs, pension obligations and outstanding debt continue to present challenges to the tire maker's balance sheet, company executives said.

Continental A.G. anticipates 2004 operating earnings and sales will exceed the 2003 fiscal performance, despite having to take up to $144 million in charges against earnings to cover the costs of phasing out tire production at its Mayfield, Ky., plant.

For the period ended June 30, Continental's operating earnings climbed 21 percent to $594.4 million on a 9-percent boost in sales to $6.93 billion, pushing the earnings/sales ratio up nearly a point to 7.9 percent.

Sales of passenger and light truck tires grew 8.3 percent during the six-month period to $2.36 billion despite declining sales in North America. The division reported a 1.2-percent gain in operating earnings to $148.1 million.

The commercial vehicle division saw operating earnings rise 29.6 percent to $53.1 million on sales of $876 million, with growth coming primarily from Europe.

Pirelli S.p.A. reported 33-percent better operating income in the first half of 2004 on an 8.3-percent rise in sales, as the tire division provided the bulk of the earnings. Operating profit from tires grew 19.4 percent to $189 million, while tire unit sales improved 9 percent to $2 billion.

Hankook Tire Co. Ltd. reported double-digit increases in operating and net earnings for the first half as sales moved up 7.2 percent to $780 million. Operating profits rose 31.6 percent to $113.1 million (14.4 percent of sales) and the net jumped 58.6 percent to $86.5 million (11.1 percent of sales). The South Korean firm is predicting a 6.7-percent sales hike and a near doubling in net income, according to information posted on its Web site.

Sumitomo Rubber Industries Ltd. hadn't reported first-half results at presstime. Yokohama Rubber Co. Ltd. and Toyo Tire & Rubber Co. Ltd. operate on March 31 fiscal year-end and thus won't report half-year results until the fourth quarter.

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