Sumitomo Rubber warns on earnings, to raise prices 7%

Sumitomo Rubber Industries announced full year 2010 results and issued a profit warning on 9 February, but analysts warned that while positive sales projections look conservative the firm may have underestimated raw material costs as well. During the last financial year, higher raw materials prices reportedly cut earnings by 30.6 billion yen year-on-year and yen appreciation had an adverse impact to the tune of 5.0 billion. While higher selling prices boosted profits by 8.9 billion yen and volume/composition is said to have given a 39.8 billion yen boost. Higher productivity also contributed to earnings.

However, the company’s full year 2011/2012 guidance predicts a 45.7 billion yen negative impact from higher raw materials, which will be somewhat offset by 31.8 billion yen of higher selling prices and 7.2 billion yen of product mix effects. Therefore Sumitomo Rubber is to raise shipment prices 7 per cent for domestic replacement tyres starting 1 May (excluding the previous announcement for truck/bus tyres).

Analysts at Deustche Bank commented that the company’s guidance “seems conservative” adding: “Management expects tyre selling volume to rise 4 per cent year-on-year, but based on higher utilization rates and increased output capacity, we see upside for sales volume.”

However, while the Bank said Sumitomo’s sales projects seem on the bearish side, it also suggested the firm’s raw materials price projects were too conservative: “The company assumes a $2.05/kg year-on-year increase in the natural rubber procurement price, but if the price remains at the current level, there could be a $2.40/kg increase (each $0.1/kg increase pushes up procurement costs by 2 billion yen).

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