Bandag’s Third Quarter Figures: Europe Remains the Problem

Bandag, Inc. was able to increase its turnover in the third quarter to $260.2 million; up by 5.2 per cent compared to the second quarter of this year and reaching a new record high. Compared to the same quarter last year turnover grew by 6.1 per cent. However, net income plummeted by 50.8 per cent. Bandag, Inc. based in Muscatine, Iowa, only achieved a net income of $9.2 million compared to $18.7 million for the same quarter last year. This net income equals a 3.5 per cent margin on Bandag’s turnover. Compared to the previous quarter the net income only fell by 12.4 per cent from $10.5 million. Obviously Europe remains the problem, as can be read up in Bandag’s current quarter report.

In Europe Bandag finally scored a plus in turnover when comparing quarter three to quarter two 2006 and thus ending a decline in turnover which started a year ago. Although stabilising its turnover, the American company continues to be in the red in Europe. The third quarter ended with an operating loss of $847,000 in Europe where Bandag’s only doing its traditional retreading business. During the last five quarters Bandag has only once been able to post an operating profit in Europe to the SEC which was in this year’s first quarter ($801.000). If we total the first three quarters of 2006, Bandag has piled up operating losses in Europe of $2.55 million. During the same period last year it at least reached an operating profit of $776,000. However, Bandag’s chairman and CEO Martin G. Carver is confident the current weakness in Europe is just temporary and will give way to new strengths from the beginning of the new year. It was true that this year Bandag has lost some licensees and some important fleet customers; furthermore, the company had to close down a facility in Canada, which contributed to the current global results.

While in Europe Bandag’s operating losses in the traditional retreading business have more than doubled – from $418,000 to $817,000 comparing third quarters – its operating profits in this business in North America have fallen to a third ($8.108 million) of what they were in the third quarter of last year. In the light of these figures, internationally Bandag’s retreading business can be almost be considered as being stable with a decrease of operating profits of 23.7 per cent down to $3.129 million. It has to be admitted that Bandag still earns good money with its retreading business and generates margins of 6.6 per cent (North America) or even 10.6 per cent (international). But in Europe the American system supplier and material provider loses money with every single retread its licensees produce.

If we suppose that the licensees in Europe produce between 900,000 and 1 million Bandag retreads every year, an operating loss of $2.55 million (during the first three quarters) is an incredible amount of money. Theoretically, Bandag loses $3.50 with every single retread the system partners produce and sell in Europe. Thus, it is unsurprising that rumours in the market persist that Bandag was going to close down its production facility in Lanklaar. Continued layoffs/resignations at Bandag Europe are not helping to calm down the gossips. In the end, Mike Tirona, vice president and general manager Bandag EMEA, emphasises that such rumours are mere speculation: they were wrong, Mr Tirona recently said in a statement sent to Tyres & Accessories.