Bridgestone Profits Doubled In 2002

Japanese tyre giant Bridgestone Corporation has reported a strong rise in net profit for the year ended December 31, 2002, and predicts a gain for 2003 as well, even though it warns that business conditions are getting tougher. Bridgestone’s group net profit more than doubled to US$378 million, from US$145 million, on brisk overseas sales. Group sales climbed 5.

3 per cent to US$18,700 million, with pre-tax profit jumping 99 per cent to US$1,233 million. For the year to December 2003, the company said it expects group net profit to come to US$584 million, the same mark it initially set for 2002. It forecasts pre-tax profit to shrink to US$1,042 million and sales to slip to US$18,682 million.

Bridgestone is boosting its capital spending in 2003 by more than 60 per cent to US$1.6 billion. The company’s president, Shigeo Watanabe, said the investment is aimed at boosting output capacity in Thailand and Poland, as well as upgrading each plant in Japan.

Helping power the improvement in 2002 was the company’s US unit, Bridgestone/Firestone Americas Holding Inc, which returned to the black after the massive Firestone-brand tire recalls and consequent sales drop caused huge losses in the previous year. Sales increased by seven per cent to US$8,228 million as strong growth was recorded in unit sales of truck and bus tyres. There was also growth in car and light truck tyres, as gains in the replacement market – led by Bridgestone-branded tyres – more than made up for a fall in OE sales.

In Europe, sales growth hit double figures jumping by 11 per cent to US$2,029 million. Unit sales gains were recorded for car and light truck tyres as well as truck and bus tyres. Helping bus and truck tyre gains was a growth in sales to manufacturers in the sector.

Japan itself saw growth of three per cent, with annual sales hitting US$8,621 million. Unit sales in Japan were almost unchanged on the year, with the growth coming from exports (of Bridgestone-brand tyres) to America, the Middle East, Africa and Asia.In the company’s other regions, sales jumped 28 per cent to US$2,438 million on the back of increased sales OE and replacement tyres fuelled by recovering demand and vigorous marketing efforts.

Profit forecasts for 2003 whow a fall in profitability attributed to higher raw material costs. The impact of higher natural rubber prices on group earnings is expected to cost up to US$242 million, pushing down Bridgestone’s pre-tax earnings by a similar amount.An expected increase in sales volume could make up for part of the higher rubber costs, but the company is also bracing for a stronger yen and losses related to Bridgestone’s market-scarred employee-pension fund.

A strong yen erodes Japanese companies’ overseas earnings when repatriated. The company’s earnings outlook is based on its forecast that the dollar will average Y120 in 2003, compared to around Y125 in 2002.Compounding the issue, an expected fall off in demand could well weaken the company’s pricing power, with the prices of both replacement and OE tyres falling at present.

The strong North American auto market has been boosting Bridgestone’s sales of OE tyres, but competition is eroding profitability in the replacement market.Though tire makers are also vulnerable to other external factors, including prices of carbon and oil for synthetic rubber production, Bridgestone’s bottom line has significantly improved after having implemented the costly restructuring in the US and Europe.Now that the restructuring is raising productivity and lowering depreciation costs, Bridgestone has started to further shift its focus to long-term growth strategies by expanding overseas facilities and preparing more sophisticated manufacturing systems.