Pirelli outperforms, but markets cautious about inventories

Pirelli’s financials means that the Italian tyre manufacturer outperformed market expectations of its second quarter EBIT performance by 5 per cent, according to financial analysts. The firm also maintained its full-year financial guidance, Morgan Stanley wrote in an investors note reflecting on the figures:

“We think Pirelli will be able to meet its guidance and remain overweight but short-term trading may be negatively impacted by high net debt and inventory.”  

The analysts also pointed out that so-called clean margin was was a record high of 13.9 per cent, due to “strong price/mix (up 11.6 per cent year-on-year) and in spite of weak volumes (down 7 per cent).” Net debt was in line with estimates at 1.7 billion euros.  

“While we can foresee 1 – 2 per cent upgrades to consensus, we believe the market is becoming incrementally more skeptical about Pirelli’s ability to reduce inventory in the second half, given the continued weaknesses in non-premium segments,” the analysts continued.

One suggestion of how to increase confidence was offered. “With the help of lower raw material prices, we expect 3Q net debt at less than 1.5 billion euros, a figure that will support confidence in full-year guidance, in our view.”