NASHVILLE, Tenn.—Bridgestone Americas Holding Inc. is poised to leap two key hurdles during 2005: its first $10 billion year as a company and the return to profitability of its North American Tire unit.
Since the end of 2001, Bridgestone Americas has comprised four limited liability companies—Bridgestone/Firestone North American Tire, BFS Retail & Commercial Operations, BFS Diversified Products and Bridgestone Metalpha, along with international manufacturing and sales subsidiaries located throughout North, South and Latin America.
Together these operations are expected to break the $10 billion sales barrier for the first time in 2005, boosting revenue from $9.15 billion in 2004 and $8.3 billion in 2003. Operating profits are expected to fall just short of $390 million, with after-tax earnings of more than $280 million, compared with after-tax profits last year of $183 million.
That´s a far cry from where the Nashville-based subsidiary of Japan´s Bridgestone Corp. was after the massive tire recall in 2000 caused deep financial difficulty and prompted some to predict the demise of the Firestone brand.
"At Bridgestone Americas, we´re profitable and continuing to get stronger year after year," said Chairman and CEO Mark A. Emkes. "We´re alive and doing well."
Perhaps most symbolic is the turnaround of the North American Tire unit. While the other limited liability companies have been profitable since the structure was established, North American Tire has not made money—until now.
"We do expect this year that profit after-tax will be positive," said Emkes, who also is chairman and CEO of North American Tire. "That´s quite an accomplishment, especially when you think about the raw material costs the industry has been hit with. It´s been a struggle, but we´ve been working hard at making it profitable."
Emkes estimated that rising material costs have amounted to more than $500 million for his company from 2003 through 2005. But the firm has been able to offset that through price increases, an improvement in size mix of its tires and sales of more Bridgestone- and Firestone-brand tires rather than less-profitable associate brands.
"We´ve been getting our price increases because we need our price increases," said John Gamauf, president of consumer replacement tires. "Even the price increases we´re getting aren´t enough to cover all of our costs."
Walking away from business
Emkes also advocates walking away from unprofitable business, both in original equipment sales and the aftermarket. That means concentrating on where the company makes money, including such areas as high-performance and ultra-high-performance lines, light truck tires, most truck/bus tires and off-the-road tires.
"Our market share in 2005 has been pretty much flat overall," he said. "But within that market share, there are segments of tires that have been very profitable, sort of profitable and not profitable. Some of these associate brands are not profitable. So what´s the point?"
The same goes for OE sales. He always was told the company must be in OE because that drives the replacement business. Emkes said there´s a lot of truth to that, but he urged his staff to look at the entire business model.
What they found were some tire sizes in OE where the company made little or no money, and also weren´t profitable in the replacement arena. It made no sense to chase that OE business, he said.
"In other sizes, we made little or no money in OE, but we made a ton of money in replacement," Emkes said. "That´s fine. I can live with that."
Michael Martini, president of North American consumer OE tires, said this strategy has caused Bridgestone/Firestone to go after more high-performance fitments rather than the high-volume lines.
"There´s definitely a new vision for the original equipment business," Martini said. "I think in the past we had a focus on mass market activity, growing the business from a volume and market share perspective. Now we have much more of an orientation for really improving brand image and having our OE piece be an important part of that brand enhancement, especially for the Bridgestone brand."
While Emkes isn´t afraid to walk away from business, don´t look for Bridgestone Americas to follow Goodyear´s lead in trying to divest some of its non-tire product lines.
The BFS Diversified Products unit mainly includes air springs and rubber roofing operations, two areas where the company has shown a strong return on assets.
So the company has opened an air springs plant in Poland to help drive sales and profitability in that business, and recently acquired a metal roofing business to complement the rubber roofing line. "We´re actually growing our diversified products business because of the return we get from that business," Emkes said.
Fitting with its parent
Emkes said Bridgestone Americas has a good relationship with its Japanese parent, and will play an important role in Bridgestone Corp.´s recent announcement that it will invest $5.2 billion in capital projects over the next three years as it strives to become the world´s top tire maker.
New tire plants going up in Mexico and Brazil are part of that spending, Emkes said. "We´re going to invest and we´re going to grow our business, but we´re going to grow our business in the profitable areas. It´s not going to be one of those things where you go after sales and market share."
And the best way for his company to do that is to continue working closely with its dealers. "The No. 1 thing to do is make sure our customers make money, because then there´s a pretty good chance we´ll grow."
Being part of a global giant like Bridgestone also helped when the recent hurricanes impacted synthetic rubber production at its plants in Lake Charles, La., and Orange, Texas. While the storms did cause a reduction in tire production, it wasn´t nearly as bad as it could have been. "The advantage to being a global company is that we had some material in South America, Europe and Japan we were able to bring in, so we were able to minimize the impact," Emkes said.
Bridgestone Corp. also has become more vertically integrated in recent years, adding capacity in carbon black and steel cord, and acquiring more natural rubber plantations. "I think maybe to some degree that sets us apart from our competitors because going forward, we foresee not only costs going up, but supply shortages," he said.
He also likes the type of direction he gets from Japan. "They tell us to be profitable, but they don´t tell us how to do it," he said. "It´s kind of like running your own business in that regard. They do have a focus on return on assets and making money. But it´s your market, you´re from there and you know what to do, so please do it."