Nexen Q2 results fall short of expectations

Nexen Tire’s second quarter results failed to live up to average analyst expectations. Although unit sales rose 17 per cent year-on-year, a ten per cent drop in average selling price compared with the second quarter of 2012 meant net sales revenue only increased 3.7 per cent to KRW 451.1 billion (£262.0 million) – 12.1 per cent lower than the consensus estimate of KRW 463.21 billion. Gross profit rose 4.6 per cent to KRW 125.1 billion (£72.7 million) and gross profit margin increased 0.2 per cent to 27.7 per cent.

Operating profit, at KRW 45.8 billion, (£26.6 million) was down 14.7 per cent year-on-year and operating margin dropped from 12.4 per cent in Q2 2012 and 11.0 per cent in Q1 2013 to 10.2 per cent in the second quarter of this year. EBITDA decreased 3.8 per cent to KRW 71.4 billion (£41.5 million) and EBITDA margin was down from 17.1 per cent in Q2 2012 to 15.8 per cent.

Deutsche Bank quotes deterioration in product mix, dealer incentives and higher advertising outlay as other reasons why Nexen’s second quarter sales missed consensus, although quarter-on-quarter revenue was helped by a weaker South Korean won. Korea’s Tong Yang Securities lowered its rating for Nexen Tire from ‘buy’ to ‘hold’ but retained its target price at KRW 17,000 (£9.87) per share. Deutsche Bank has revised its target price from KRW 15,300 per share to KRW 16,500.

North America remains Nexen Tire’s largest regional market, accounting for 27.6 per cent of sales in Q2 2013. European sales were 19.1 per cent of the total and the region enjoyed the largest growth in aftermarket revenue, increasing 24.8 per cent year-on-year to KRW 86.4 billion (£50.2 million). Original equipment sales, which were 16.8 per cent of the total, grew 25.2 per cent year-on-year to KRW 76.2 billion (£44.3 million). The Korean home market generated 12.6 per cent of all sales, China 2.3 per cent of and unspecified ‘other’ markets the remaining 21.6 per cent.

The tyre maker has lowered its full-year 2013 revenue guidance by 5.3 per cent to KRW 1.8 trillion (£1.05 billion), and its anticipates third quarter 2013 revenue and operating profit of KRW 450 billion (£261.4 million) and KRW 49 billion (£28.5 million) respectively; this revenue figure is below consensus estimates of KRW 469.89 billion, although Deutsche Bank says revenue and operating profit are close to its own estimates. 

Although Nexen confirmed that seeing green shoots of recovery in the US and European Union, it anticipates price discounts and high selling, general and administrative (SG&A) expenses in the second half of this year, with the situation only improving in the first half of 2014.