Pirelli profits dive in Q1, stronger full-year anticipated

The first quarter of 2013 appears to have been a "brutto trimestre" for Pirelli & C. SpA, with the Italian firm’s net profit dropping 41.7 per cent year-on-year between 1 January and 31 March. It was, in Pirelli’s words, a period “characterised by an economic scenario still strongly influenced by the crisis affecting Europe, where the demand for goods and services continues to shrink.”

Consolidated revenues on 31 March 2013 stood at 1,536.3 million euros, a decrease of 1.3 per cent compared with the first quarter of 2012. The figure includes a negative impact of -4.9 per cent linked to exchange rates, essentially owing to the devaluation of South American, Japanese, UK and Egyptian currencies. Net of the exchange rate effect, overall revenues grew by 3.6 per cent.

Gross operating margin (EBITDA) before restructuring costs was 255.3 million euros, a decrease of 8.5 per cent compared with the same period of 2012. Operating result (EBIT) declined year-on-year from 212.7 million euros to 179.8 million euro, with profitability falling from 13.7 per cent to 11.7 per cent of sales. The decline was negatively affected by, amongst other things, an exchange rate impact of about 10 million euros, higher industrial costs (about 10 million euros) mainly due to the acceleration of work to establish the a greater focus on premium production at the company’s Settimo Torinese plant and the start-up in Mexico, greater amortisation of 10.8 million euros stemming from investment activity in prior years, as well as restructuring costs of 3.2 million euros (2 million euros in the first quarter of 2012).

The result from shareholdings on 31 March 2013 was minus 6.6 million euros and primarily reflects the consolidation, using the net equity method, of Rcs Mediagroup, which amounted to minus 6.8 million euros.

Total consolidated net profit came to 72.1 million euros, a decline of 41.7 per cent compared with 123.6 million euros for the same period of 2012. The result was impacted by an increase in financial charges, 58.6 million euros compared with 24.3 million euros for the same period of 2012, and essentially due an increase in debt, a negative impact of 8.3 million euros from the devaluation of the Venezuelan currency and non-recurring inflows of 8.7 million euros registered in the first quarter of 2012 and linked to the launch of the Russian activities. Net profit attributable to Pirelli & C. Spa amounted to 72.9 million euros, compared with 121.3 million euros in the same period of 2012.

Pirelli Tyre

These days Pirelli is purely a tyre company, and this focus is reflected in the proportion of total revenues accounted for by its tyre business; these came to 1,526.7 million euros in the first quarter of 2013, up one per cent on a year earlier and up 3.9 per cent net of exchange rate effect. EBIT, at 185.6 million euros, was down 15.1 per cent on a year earlier and EBIT margin was 12.2 per cent (compared with 14.2 per cent on 31 March 2012). The consumer business EBIT margin decreased from 16.1 per cent a year earlier to 12.2 per cent in the first quarter of 2013, while the industrial business EBIT margin rose from 8.5 per cent on 31 March 2012 to 12.1 per cent at the end of Q1 2013.

2013 targets confirmed, analyst comment

Pirelli says it anticipates 2013 revenues to be between 6.3 billion and 6.4 billion euros, with a consolidated EBIT between 810 million and 850 million euros and a margin in line with or slightly higher than 2012. The company will invest approximately 400 million euros in projects this year. Cash generated before dividends is expected to be more than 200 million euros, equal to approximately three per cent of sales.   

In Deutsche Bank Markets Research’s 8 May morning report, research analyst Gaetan Toulemonde comments that Pirelli’s revenues, EBIT and net income were in line with consensus, but lower than Deutsche Bank’s respective estimates of 1.55 billion euros, 190 million euros and 95 million euros. Toulemonde also notes that the strong recovery management expects in the last nine months of the year will particularly involve Pirelli’s premium tyre business, which according to Deutsche Bank estimates will account for 35 per cent of group revenues and 70 per cent of group EBIT. Deutsche Bank’s full-year estimates are at the “low end” of Pirelli’s guidance, Toulemonde adds.