Analysts: Nokian Tyre 2Q Net Income 80% Ahead of Expectations

Following Nokian Tyres’s reporting of second quarter revenues of 260 million euros (13 per cent higher than consensus, up 36 per cent year-on-year), financial analysts have praised the Finnish tyremaker for beating net income predictions by up to 80 per cent and an overall “good quarter.” Searching the detail of the company’s second quarter presentation also reveals that, due to raw material price increases, the market can expect tyre price increases of 2 – 6 per cent during the summer and autumn of 2010. Other key company targets for the second half of the year include: to increase sales in all areas especially Russia, increase market share in core markets, and to “utilize the most feasible capacities.”

In addition to the strong revenues and net income figures, Nokian’s second quarter operating margin of 23.4 per cent was 470 basis points above consensus and operating profit was 42 per cent ahead of expectations. However, despite the positive results so far this year, in an investors note published 5 August, Morgan Stanley analyst Eduardo Spina stopped short of predicting the same in the next six months: “The outlook for second half is vague enough to keep consensus on its toes we think.

Nevertheless Nokian’s outlook is said to have slightly improved as the company is generically targeting 2010 revenue and operating profit clearly higher than in 2009. “The only difference versus the previous guidance is the use of the word ‘clearly’. No doubt in consensus that the guidance will be met this year,” Spina explained.

Deutsche Bank analysts put Nokian’s better than expected EBIT down to the positive performance of the firm’s Car Tyres division, which beat the analysts’ sales forecast by 17 per cent and reported a margin of 29 per cent, four points ahead of the 25 per cent expected. This was the second best Q2 EBIT ever at €51.5m (€63.8m in Q208, 32.6% margin). Another big driver of the positive surprise was said to be the 118.5 per cent growth in sales to Russia (on group level). The Heavy Tires division and Vianor – which now has more branches in Kazakhstan (12) than it does in the US (11) also did also materially better than we had expected. Vianor will reportedly continue expanding its network in 2010, including the opening of the retail chain’s first Belarusian deport this year.

The Deutsche Bank analysts pointed out that demand for Nokian Tyres has recovered, especially in Russia, where replacement market is already gaining strength: “Normalization of inventories should in our view further improve demand. We believe average selling price growth is likely to offset higher raw material costs, driven by improved country mix, price increases, and currency appreciation. We continue to see upside potential to estimates in Russia, given the significant growth potential in both the replacement market and new car sales.”

Related News:

• Nokian Increasing Capacity in Second Half to Meet Demand

• Russian Tyre Prices to Rise 5 – 10%

• Russian Tyre Market Value Shrunk 40% in 2009

• Nokian Aiming for Premium Segment Leadership in Russia

• Nokian Preparing for Growth in 2010