Pirelli pumps up profitability in 1Q, but shares down 10% after announcement

Pirelli & C. SpA has announced first quarter revenues of 1.556.5 billion euros, up 11.1 per cent compared with 1,400.9 million euros in 31 March 2011. Pre-tax profits (EBIT) after restructuring charges grew by almost half to 209.4 million euros (up 46.1 per cent compared with 143.3 million in the first quarter 2011).

At the end of the first quarter EBIT margin stood at 13.5 per cent compared with 10.2 per cent for the same period in 2011. Consolidated net profits totalled 125.3 million euros, an increase of 54 per cent compared with 81.4 million euros at end March 2011. Attributable consolidated net profit 122.9 million euros, an increase of 48.4 per cent compared with the prior 82.8 million euros.

Tyre business revenues, which now represent 99 per cent of sales, totalled 1.542.6 billion euros, up 11.4 per cent compared with 1,384.5 million euros on 31 March 2011. Profitability here hit a record level of 14 per cent compared with 11 per cent in the same period of 2011.

According to the company, these results were achieved thanks to increasing focus on premium products and “the ability to use the price lever” to offset increases in the cost of raw materials. In the first quarter of 2012 revenues generated from premium products grew 29.2 per cent compared with the same period a year earlier in 2011 to 584.4 million euros, and represented 52.6 per cent of the total in the car business, with an increase of over five percentage points compared with 47.4 per cent in the same period of 2011.  This is particularly noteworthy when you consider that the volume performance was negative for both of Pirelli’s tyre business units (Consumer was down 5.1 per cent and Industrial down 12.3 per cent). 

In the Consumer (car, light truck and moto tyres) business, revenues totalled 1,151.8 million euros, an increase of 17.1 per cent compared with 983.3 million euros in the first quarter of 2011. The operating result before restructuring charges was 184 million euros, compared with 119.7 million euros for the corresponding period of 2011. 

Things weren’t as great in the Industrial business (industrial vehicle tyres and steel cord) where revenues totalled 390.8 million euros compared with 401.2 million euros, compared with a decline of 2.6 per cent compared in the same period of 2011. This trend was spread across all areas. South America registered a decline of 30 per cent in Original Equipment and 13 per cent in replacement, while Europe saw a fall of 6 per cent in Original Equipment and 30 per cent in replacement. In the first quarter of 2012, the profitability of the Industrial division was 8.5 per cent, down by 0.4 percentage points on the same period in 2011.