So far, so good for tire makers' bottom lines

AKRON—Falling crude oil and natural rubber prices have helped to boost tire makers' bottom lines so far this year, prompting most of the major publicly traded firms to predict improved operating earnings for the full year.

Sales forecasts for the majors are less optimistic—ranging up to 6 to 8 percent growth—and some are cautioning cost advantages offered by falling raw materials costs are being offset by negative foreign currency translations and a mixture of weak and growing economies globally.

A review of the first-half earnings reports from the major tire makers shows that most experienced increased operating incomes and tire sales.

In general, tire makers see the U.S. economy improving, based on rising consumer spending, a European economy recovering but at risk because of geopolitical tensions, and a sluggish Asian economy influenced by slowing Chinese expansion.

Given the turbulent global markets and raw materials pricing, most major tire makers are optimistic with their projections for year-end financial results, noting that negative foreign currency translation will continue to impact earnings:

c Bridgestone recently revised its full-year projections after better-than-expected first-half results. The company is now expecting its full-year operating income will jump 9.6 percent on 6.2 percent better sales, compared with 2014.

c Michelin expects to end the year with increased operating income, although it cautions that changes in price mix and raw materials prices are expected to have a net negative effect over the full year on those aspects of its business that are contractual raw materials indexation clauses.

c Goodyear forecasts a segment operating income growth of 10 to 15 percent. The tire maker predicts raw material costs to be 10 percent lower than in 2014, offsetting declines in price and product mix. Rubber prices could experience volatility, the company warned, so the projection could change significantly.

c Continental A.G. expects its Rubber Group—comprising the tire business and the ContiTech industrial rubber products business—to report an operating earnings ratio of around 16 percent, based in large part on the falling price of natural rubber, which should generate close to $225 million in bottom-line benefits.

These benefits likely will be offset to a degree by higher synthetic rubber prices, based on the rising cost of butadiene, a base material for SR.

c Pirelli & C. S.p.A. expects its consumer business (passenger, light truck and motorcycle tires) to continue to post improved results—thanks to the positive performance of its premium segment—enough so as to compensate for the weakness of the industrial business unit, which is being dragged down by slowing markets throughout Latin America.

Consolidated revenues are expected to grow by about 6 percent, Pirelli said, on a unit volume increase of about 0.5 to 1 percent, owing to weakness in key markets.

c Sumitomo Rubber Industries Ltd. forecasts modest sales and earnings increases of 7.5 and 4.3 percent, respectively.

c Hankook Tire Co. Ltd. expects robust growth to continue in North America, as well as Europe, where its sales volumes increased in the first half.

c Yokohama Rubber Co. Ltd. anticipates an 8.4 percent increase in operating income and a 7.6 percent jump in sales.

c Cooper Tire & Rubber Co. expects to exceed industry unit volume growth in the U.S. and strong unit growth internationally, but—in contrast with most of its tire industry brethren—it predicted raw material prices will rise in the second half, contributing to diminished operating profit and “will impact what is traditionally our strongest half of the year.”

Cooper CEO Roy Armes said the firm expects the global markets to “remain highly competitive.”

For the first half of fiscal 2015, the major tire makers, with a couple of exceptions, reported improved sales and earnings.

The North American market provided increased sales for many tire makers, but the strong U.S. dollar impacted foreign currency exchanges. On the other hand, struggling economies in South America and Asia hampered tire sales for several companies. The European economy—slow to recover last year—is showing signs of a comeback, according to some tire makers.

Given the turbulent global markets and raw materials pricing, most major tire makers are optimistic with their projections for year-end financial results, noting that negative foreign currency translation will continue to impact earnings:

c Bridgestone Corp.'s tire division boosted its operating earnings 6.5 percent as sales grew 6 percent, mostly on the strength of its business in the Americas, where sales jumped 15 percent.

c Michelin reported record operating income for the half, a 9 percent jump, as sales climbed 8.5 percent.

c Goodyear's segment operating income surged nearly 14 percent despite a 10 percent drop in sales due to unfavorable foreign currency translation.

c Continental A.G.'s tire division reported 16 percent higher adjusted operating income on 7 percent better sales, which it attributed to higher aftermarket consumer tire sales volumes in the Americas, increased original equipment sales worldwide and better commercial vehicle tire business globally.

c Pirelli reported 5 percent higher operating income on 6 percent higher sales.

c Sumitomo's tire business operating income dropped nearly 13 percent as sales edged up 0.9 percent as price/mix and foreign exchange offset gains the company reported in lower materials costs.

c Hankook suffered a 21 percent drop in operating earnings as sales fell 7 percent, mostly due to falling prices and exchange rate fluctuations, along with slow market growth in China and South Korea.

c Yokohama's tire segment sales rose 4 percent on the strength of overseas sales, generating a 4.5 percent jump in operating earnings.

c Cooper's operating income rose 8 percent despite a 16 percent drop in sales for the half.

c Toyo Tire & Rubber Co. Ltd. attributed its tire business growth of 4 percent and operating earnings surge of 35.5 percent to its activities in North America, where it said “healthy sales” in the high value-added SUV product category helped push sales revenue up 21 percent despite unit sales unchanged from a year earlier.