March Sales Give Pirelli a Glimmer of Hope

Upon reporting its first quarter 2009 financials, Pirelli commented that its tyre division experienced “signs of recovery” in March; these indications of better times came in the form of a slowdown in sales decline in some countries and positive growth rates in others. Various government incentives to boost new car sales partly contributed to this reversal of fortune following OE business contraction in the first two months of the year, Pirelli comments.

Pirelli Tyre revenues as of 31 March 2009 amounted to 926.9 million euros, down 13.9 per cent from the 1,076.9 million euros in the corresponding period of 2008. Net of exchange rate effects the organic change was a decrease of 11.2 per cent, with a negative variation in volumes of 18.1 per cent and a positive price/mix variation of 6.9 per cent.

EBIT before restructuring charges stood at 61.0 million euros (6.6 per cent of revenues) compared with 102.8 million euros in the first quarter of 2008. This 40.7 per cent decline, says Pirelli, reflects the still high level of manufacturing costs registered in the period and the impact on sales volumes due to the negative market scenario. EBIT after restructuring charges amounted to 57.5 million euros (6.2 per cent of revenues) compared with 100.3 million euros in the first quarter of 2008.

Net income as of 31 March 2009 amounted to 14.6 million euros compared with 57.7 million euros in the first quarter of 2008 – a decrease of 74.7 per cent. “The first three months of 2009 showed signs of improvement over the last quarter of 2008, though the high level of raw materials costs continued into the period, with benefits from the decline in these costs to be produced starting in the second quarter of 2009 together with benefits linked to a decrease in warehouse stock, already significantly underway,” commented Pirelli’s Board of Directors in its interim financial report for the quarter.

Total Pirelli Group revenues amounted to 1,043.0 million euros as of 31 March 2009, down 12.9 per cent compared with 1,197.9 million euros in the first quarter of 2008. EBIT, at 46.8 million euros, was down on the Q1 2008 figure of 115.1 million, and the EBIT margin of 4.5 per cent was in line with the target foreseen by the 2009-2011 Group industrial plan. Total consolidated net income stood at 1.1 million euros, down 98.2 per cent compared with the 62.4 million euros in the first quarter of 2008, while consolidated net income attributable to Pirelli & C. SpA amounted to 9.5 million euros, compared with 33.8 million euros in the corresponding period of 2008. These results were largely in line with estimates from Deutsche Bank; the bank’s analyst report further notes that declining raw material prices should positively impact the division’s profit and loss statement in the second quarter.

Returning to the company’s tyre business, the consumer sector reported revenues of 670.5 million euros, a decline of 10.4 per cent (-8.1 per cent organic decline, net of exchange rate effects) compared with the first quarter of 2008, while EBIT before restructuring charges was 41.9 million euros and an EBIT margin of 6.2 per cent, compared with 72.5 million euros in the corresponding period in 2008. The original equipment channel, particularly in the first two months of the year, suffered from a contraction in demand in the automobile sector already registered starting in the second half of 2008 and exacerbated in the fourth quarter of 2008. In March signs of recovery were noted. The market contraction, adds Pirelli, was more limited in the replacement channel.

The company’s Industrial tyre business totted up revenues of 256.4 million euros, a decline of 22 per cent compared with the corresponding period in 2008 (328.6 million euros), while EBIT stood at 19.1 million euros, with an EBIT margin of 7.5 per cent. A year earlier EBIT was 30.2 million euros. Pirelli highlights the cyclical nature of the industrial tyre sector, a business area closely aligned with macroeconomic performance in general and certain specific industries such as public works and large construction projects. Its dependence on such factors was linked to a slowdown in both sales channels.

The Italian firm points out that the strategic positioning of Pirelli Tyre – with 87 per cent of total production in low cost areas and 75 per cent of sales in emerging markets, allowed it to maintain good levels of relative profitability.