The term "double-digit"—as in double-digit decline—permeated the tire industry's financial reporting through the first half of fiscal 2020. But what does the rest of the year hold in store for the industry and its various sectors?
While business has begun showing signs of life midway through the third quarter, few—if any—of the world's leading tire makers expect sales to rebound sufficiently in the third and fourth quarters to overcome the pandemic-induced deficits that piled up in the first half.
Of the dozen larger publicly traded tire makers that have reported half-year finances, nine reported net losses and all reported high double-digit drops in operating income, or even operating losses and sales declines ranging from 16 percent to nearly 32 percent.
Most of the industry's major companies shied away from making specific forecasts for the year, owing to the possibility of renewed flareups of COVID-19 and their potential impact on the economic situation.
Of the majors that have reported, Michelin, perhaps, summarized the industry's outlook most succinctly.
"After a first half shaped by the effects of the health crisis, notably the various restrictions on freedom of movement, global tire demand is expected to be impacted in the second half of the year by the economic recession ensuing from the pandemic," the tire maker said.
In light of what it called a "highly uncertain market scenario," Michelin expects passenger and light truck tire markets to be off by 15-20 percent versus 2019. The truck and OTR tire markets should be off by 13-17 percent.
Continental A.G., in its half-year report, said it expected sales of consumer tires in the third quarter would be down 10-15 percent in Europe, 5-10 percent in North America and up to 5 percent in Asia. Sales of medium and heavy-duty truck/bus tires are expected to dip 5-10 percent in both Europe and North America.
Despite the first-half sales implosion and the uncertainty of the second half, Michelin still expects to deliver full-year segment operating income in excess of $1 billion and cash flow of more than $500 million, "barring any new systemic impact from COVID-19."
In its half-year report, Bridgestone said full-year earnings likely will plummet 70 percent or more from 2019 on 23 percent lower sales, provided the virus is kept in check.
Continental noted that the uncertain economic environment makes it difficult to "gauge possible further adverse consequences for production, supply chains and demand." As a result, it is unable to forecast fiscal 2020 results to the "usual level of detail and accuracy."
It is "reasonably certain," however, that Continental's sales volumes and revenue will fall short of prior-year levels with a "noticeable" decline in earnings as well.
Sumitomo Rubber Industries is expecting earnings to be off by as much as 45 percent with sales down 16 percent.
Pirelli & C. S.p.A., which suffered a sales drop of nearly 32 percent in the first half, is projecting sales will decrease close to 22 percent for the full year, indicating a second-half resurgence. The operating ratio is expected to be in the 12-13 percent range, or about half of what Pirelli reported in 2019.
Yokohama Rubber Co. Ltd. is expecting full-year earnings to drop nearly 66 percent versus 2019 on 17.5 percent lower sales.
At Cooper Tire & Rubber Co., Chairman and President Brad Hughes said Cooper management expects a second-half improvement even though the coronavirus "presents a level of risk going forward."
Hughes noted that, while Cooper's first half results were "significantly impacted" by the pandemic, "our performance materially exceeded our expectations." Cooper reported an operating loss of $900,000 on 20.8 percent lower sales in the half.
Hughes said Cooper was able to improve its market share in the U.S. during the latter part of the second quarter as it was able to deliver products to consumers "who are increasingly looking to buy high quality, affordable tires."