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May 21, 2015 02:00 AM

Sub-par rubber bearings affect Toyo financials

Tire Business Report
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    OSAKA, Japan—Toyo Tire & Rubber Co. Ltd. suffered a net loss of $25.7 million in the quarter that ended March 31 as the company took a $102 million one-time extraordinary loss to cover estimated costs related to sub-par seismic isolation rubber bearings sold in Japan.

    On an operating basis, Toyo's operating income increased 13.3 percent to $105.8 million on 0.1 percent lower sales of $804.4 million. The company attributed the increase to the positive effects of currency exchange rate changes and lower raw materials expenditures.

    The extraordinary loss is considered a “provision of reserve for product warranties based on an estimate for the cost of repair work and other measures” related to seismic isolation bearings produced and sold by Toyo Chemical Industrial Products Ltd., the firm said.

    Some of these products—used as earthquake isolation bearings—initially were certified for quality by Japan's Ministry of Land, Infrastructure Transport and Tourism, Toyo said, but later it was discovered some of the delivered products did not conform to ministry certification performance standards.

    The loss may actually be greater, Toyo said, since it's unable to make a “reasonable calculation” at this time what the actual costs might be to remedy the situation.

    Toyo's tire business reported a 16.6 percent rise in operating income to $98.3 million on 0.8 percent higher sales of $636.5 million. The company reported unit sales were down in most of its major markets, including North America, but that an improved product mix skewed more to higher value-added products resulted in higher revenues in Europe, North America and the Japanese original equipment sector. Replacement sales in Japan, by contrast, fell due in part to unusually high sales in the fourth quarter ahead of tax change.

    Toyo reported its sales in North America jumped 17.3 percent to $372.1 million. Operating income, however, fell 34.2 percent to $16.8 million.

    Toyo also said the expanded production lines at its plant in White, Ga., have started manufacturing tires two months ahead of schedule.

    As a result of the extraordinary loss situation, Toyo is revising downward its earnings forecasts for the half and full year.

    For fiscal 2015, Toyo expects its net earnings to fall by about $75 million to about $129 million. Operating income and sales should hit the earlier projected marks.

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