Deutsche Bank analysts are expecting Cooper to announce losses of $0.14 per share when the company releases its fourth quarter results. The analysts are already describing the period as “another weak quarter.” Cooper is said to have under-performed the market in recent times. According to the Deutsche Bank analysts, Cooper’s third quarter North American (NA) volume declined 6 per cent compared with a drop of 1 per cent across the market.
Goodyear Tire & Rubber shares fell by as much as 17 per cent yesterday after the company warned raw-material costs will hit its bottom line harder than it originally expected. A number of analysts decreased their stock ratings, with at least one (Deutsche Bank) changing its recommendation to “sell.” Goodyear shares ended the trading day down $3.12 at $15.64 after rising to $19.31 on Monday. Cooper Tire & Rubber Co. also took a blow, loosing $1.30 or 8 per cent, to finish at $14.99.
In December Japan sold 13.9 per cent more tyres (year-on-year) than it did in the same month in 2004. Recent JATMA figures show that 7.9 per cent of the improvement came from OE sales, with a further 17.5 per cent coming from the replacement market.
Analysts are expecting tyre manufacturers’ raw material prices to increase by 10 per cent in 2006 following a 15 per cent increase in 2005. The Deutsche Bank representatives also reported that the 2005 prices increases are “likely…to be more or less fully offset by selling price increases.”
In 2005 Continental’s capital expenditure increased by 20 per cent and should increase by a further 7 per cent to 910 million euros (6.3 per cent of sales). Over the last three years (2002 – 2004) Continental’s capital expenditure (capex) reached 5.5 per cent of sales, approximately 650 million euros per annum, according to Deutsche Bank analysts.
While Continental remains bullish about its prospects in 2006, some analysts are questioning how long the company’s strong run of results can last. Needless to say, the Deutsche Bank market watchers are not complaining about the German business’ financial strength. As one report says “Continental’s CFO was bullish 12 months ago. And he was right.” As far as they are concerned its more a question of “how long can the company continue to grow at this pace?” rather than “when will the bubble burst?”
Michelin’s 2005 sales volume growth will be negative for only the second time in 10 years, Deutsche Bank analysts have reported. However, despite this seemingly negative news, the management is said to be aiming for “at least stable” operating profit margins, compared with 2004 (8.7 per cent).
Continental’s Charlotte, North Carolina, plant is likely to close happen when the company’s Brazilian operation is fully operational in 2007, Deutsche Bank analysts have reported. The analysts’ comments come after the plant’s management asked workers to choose between a 35 per cent wage reduction (from $21/hour to $13.7/hour) and production cuts in order to save $15 million dollars a year.
Sumitomo Rubber Industries has published sales of 120 billion yen (£581 million, up 8 per cent year-on-year) and operating profit of 9.3 billion yen (£45 million up 18.6 per cent year-on-year). Analysts report that results were ahead of plan and tyre sales particularly “outperformed forecasts.” Exports are reported to have been particularly strong and high performance tyres are said to have sold well domestically.
As a result of the strong quarter Sumitomo has raised its full year forecast to sales of 500 billion yen (up 6.3 per cent) and operating profit of 46 billion yen (up 1 per cent). However, Deutsche Bank analysts said: “We feel that the company is somewhat conservative about our fourth quarter. Our current forecasts are sales of 496.0 billion yen [and] operating profit of 50.0 billion.”
Nokian’s net sales between January and September were up 13.7 per cent to 445.6 million euros compared with 392 million the year before. Operating profits totalled 65.1 million euros, virtually the same as last year. According to Nokian, the company’s target is to increase sales while keeping operating profit margins constant.
Analysts have raised questions about the long-term staying power of Continental AG’s recent spate of impressive financial results. “Continental’s “clean” EBIT of 420 million euros was 70 million euros above consensus and 100 million above our expectations,” Deutsche Bank analysts reported, adding: “With current high EBIT margins, in excess of 11 per cent, it’s difficult to see further improvement especially since 62 per cent of revenues are OE related and since OEMs are currently struggling.”
October car sales of 14.7 million were the lowest since August 1998, Deutsche Bank analysts have reported. “GM’s retail sales declined 30 per cent year-on-year; Ford’s retail sales declined 31 per cent; We estimate Chrysler’s retail sales fell 24 per cent. This was weaker than expected, and it represents much more of a decline than can be explained by pull forward,” they explained.
Michelin is to report a sales increase of 4.5 per cent when the French manufacturer hosts a quarterly conference call this evening. Deutsche Bank analysts said the increase was entirely attributable to an improved price/mix effect. The analysts also pointed out that, with regards to EBIT, the improved price/mix effect should more than offset the “raw material price headwind” which is estimated at 80 – 90 million euros. The company is also effected to benefit from its policy of high-cost workforce reduction.
Continental is to increase its production capacity in so-called low cost European countries by 3-4 million units each year, analysts have reported. Given the fact that labour costs in Western Europe are five times higher compared to Central and Eastern Europe the Deutsche Bank analysts calculate a competitive advantage of five euros per tyre.
The Japan Automobile Tire Manufacturers Association (JATMA) has reported that domestic tyre production grew to 13.5 million units in August, up 1.1 per cent year-on-year. The 13th successive month is significant because output levels are generally down in August, when factories shut down for summer holidays.
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