Are Nokian earnings losing traction?

In the run-up to Nokian’s publication of fourth quarter financial results, some financial analysts are asking if the Finnish company’s earnings are losing traction. The reason is said to be that “decelerating Russian sales and an unexciting European winter tyre season are a recipe for disappointment”.

According to Morgan Stanley car sales are slowing down in Russia, which together with the CIS states, accounted for nearly 40 per cent of Nokian’s total revenue and an estimated 60 per cent of profit in 2012. New car volumes are said to be important for Nokian because the analysts estimated that sales of winter tyres for new cars in Russia account for greater than 50 per cent of total premium winter tyre unit sales in the country. 

“We think the market’s growth expectations are too high for Russia and revenue will not be strong enough to support current consensus expectations. European winter tyre season just not good enough. Our recent feedback from European tyre dealers suggests the winter tyre season is not seeing a great deal of support from the temporary cold spell in late November and early December, leaving fourth quarter market sales down double digits and Nokian likely underperforming,” Morgan Stanely wrote in an investor’s note dated 20 November. And all this is expected to be particular bad news for Nokian as it could mean it is difficult for the company which specialise in the so-called “dual niche” of winter tyres in Eastern Europe, Nordic markets and Russia, to shift inventory without the help of discounting.

All that said, the bankers maintained greater than 25 per cent pre-tax profit (EBIT) margin predictions. The warning is that it may be tricky for the company to tap enough demand to keep pace with its capacity.