Sumitomo Q1 profits drop despite higher sales

KOBE, Japan—Sumitomo Rubber Industries Ltd. suffered a 45.2-percent drop in operating income for the quarter ended March 31, despite 10.5-percent higher sales revenue.

SRI cited "unrealized" profits and other volume/mix issues along with higher raw materials costs for the drop in earnings.

Operating profit fell to $58.7 million on revenue of $2.09 billion, dropping the operating ratio three points to 2.8 percent. Net earnings fell by nearly two-thirds to $30.3 million.

SRI noted in its earnings statement that the first quarter played out amid concerns over economic growth, due to the geopolitical tension reflecting the war in Ukraine, high levels of inflation in certain regions and drastic interest rate hikes.

For the rest of fiscal 2023, SRI said it expects earnings to exceed the previous forecast because of signs that rising freight and raw materials costs are peaking and starting to reverse direction. That led management to revise the firm's consolidated financial results projection upward over the forecast issued in February.

Sales revenue, on the other hand, is expected to fall below the previous forecast mainly because the impact of production cuts at vehicle makers, which are still dealing with shortages of semiconductors.

For the quarter, SRI's tire business reported a business profit drop of 81.5 percent to $14.6 million on 9-percent higher sales of $1.74 billion, yielding an operating ratio of 0.8 percent, down from 5 percent a year ago.

The company reported lower sales in both OE and replacement markets in most regions.

Tire business unit revenue in North America increased 2.5 percent in the period to $373 million.

Earlier, SRI published a five-year business plan that raised the possibility the firm would build additional production capacity in North America starting in 2026 or later, as part of initiatives designed to increase profitability and performance.

Sales fell in the Asia and Oceania region, although sales in China, Indonesia and Thailand started to recover partly due to the easing of COVID-19 restrictions.

In Europe, demand for tires is somewhat slowing down due in part to growing inflation, while in the Americas region, SRI said, it was able to maintain momentum in the sales of its Wildpeak SUV/light truck tire series in North America and in South America sales were "solid," backed by robust local demand.