HANOVER, Germany—Continental A.G. expects its North American passenger and light truck tire business to hit breakeven by the fourth quarter, as the impact of higher prices, increased sales of lower-cost imported tires and restructuring takes effect.
At the same time, though, Conti was forced to write down $64 million in assets at its Charlotte, N.C., tire plant, and management reportedly is considering a number of options for the facility—including closing it—if negotiations with the labor union there don´t yield progress, according to an analyst´s report.
"Things are going as planned," Conti Chairman Manfred Wennemer said, referring to its passenger/light truck tire business in North America, which reduced its losses last year from 2003 by an undisclosed amount.
Conti´s replacement market business in North America declined "as intended," according to Martien de Louw, executive board member responsible for the P/LT division.
Overall, the business marked improvements in product mix and margins. Total passenger/light truck tire shipments increased about 2.4 percent to 102.2 million units as the firm´s original equipment business improved.
Regarding commercial tires, Conti said its OE business was up nearly 20 percent over 2003, but replacement sales were down slightly "as a result of capacity shortages." Conti said it intends to import 100,000 medium truck tires from Malaysia this year to supplement its U.S. capacity.
Longer term, Conti is spending $260 million in Brazil to build a passenger and light truck tire factory, from which it will supply North America after it comes on stream in 2007.
In Charlotte, Conti said the $64 million charge against 2004 earnings covers "impairment" costs as a result of "unsatisfactory results" at that facility. The tire maker said the charge is related to property, plant and equipment—specifically the depreciation of older, two-piece molds.
A spokesman said this indicates the company feels the facility needs investments to upgrade the infrastructure to improve efficiencies, but no specifics are available at this time.
Morgan Stanley Equity Research said in a commentary on Conti´s earnings that the charge "could imply further cost-cutting and/or capacity reduction actions" and that "while a decision has not yet been made, it will consider closing (Charlotte) if negotiations...do not show progress."
When contacted, United Steelworkers of America Local 850 in Charlotte said it is engaged in midterm reopener talks with Conti on a number of topics, including health care expenses.
Commenting on the Morgan Stanley report, Conti said: "We continuously evaluate the performance of all our facilities and possible activities to improve independently from negotiations with the union."
Conti also booked $129 million in charges related to the phase-out of tire production at its Mayfield, Ky., factory at year-end. The firm had no update on negotiations to sell its Bryan, Ohio, earthmover tire plant.
Globally, Conti reported record sales and earnings for last year, and management expects more of the same in 2005 as Conti integrates new acquisitions, raises investments and reduces debt.
For the year, Conti reported a 28.2-percent jump in operating earnings to $1.36 billion as sales jumped 9.2 percent to $15.6 billion. The addition of two months of revenue from industrial rubber products manufacturer Phoenix A.G.—acquired during 2004—accounted for $200 million in new sales. Net income more than doubled to $390 million, or 2.5 percent of sales.
All the firm´s divisions contributed with improved operating earnings and better sales. Despite higher unit sales, the North American P/LT business continued to be the one problem area.