MILAN—Pirelli & C. S.p.A. reported solid increases in earnings for the first quarter of 2018 despite slightly lower sales revenue.
Pirelli's adjusted pre-tax operating income rose 6.5 percent to $353.9 million on 2.2 percent lower sales of $1.65 billion. Pirelli blamed the lower revenue figure on foreign currency exchange losses, citing organic sales growth of 5.7 percent, based on the strength of higher sales in the company's high-value segments.
The adjusted operating income takes into account nearly $18 million in costs related to start-up programs, such as the conversion of the Aeolus car tire plant in Jiaozou, China, to Pirelli-brand production and the launch of activities such as Cyber and Velo.
Otherwise, the improvement is linked to the effect of internal levers such as price/mix and efficiencies, which more than offset the increase in raw material costs, cost inflation and other costs linked to business development, Pirelli said.
The company reported net income of $104.8 million vs. a net loss of $29.3 million in the same period of the previous year.
Regarding revenue, Pirelli said "high-value" revenues grew 13.4 percent to $1.02 billion, raising the high-value products' share of overall revenue nearly six points to 63.6 percent.
In particular, Pirelli said sales volumes of larger rim size (above 18 inches) grew 18.6 percent. By contrast, total volumes fell 1.5 percent because of a drop of nearly 11 percent in the standard tire size categories. This trend reflects the decrease of the standard demand in mature markets (Europe, NAFTA and Asia/Pacific) and the decision by Pirelli to accelerate the reduction of volumes on products with lower profitability in these regions plus Latin America.
Geographically, Russia and Eastern Europe recorded the highest growth at 10.7 percent, followed by Asia-Pacific at 5.8 percent and Europe at 1.3 percent.
Sales in the NAFTA realm slipped 2.9 percent to $299 million, followed by Middle East/Africa at 9.8 percent and Latin America at 16.7 percent.
Pirelli is forecasting a full-year improvement in operating profit of about 14 percent over fiscal 2017 on 4.4 percent higher sales, based on organic revenue growth of roughly 9 percent and continued exchange rate volatility.