Top Japanese tyre maker Bridgestone posted a worse-than-expected 18 percent drop in first-half operating profit on Friday citing expensive raw materials and a stronger yen, and slashed its forecasts as vehicle sales slump in Western markets.
Bridgestone, like rivals Michelin and Goodyear Tire & Rubber, has been trying to pass on at least part of the spike in rubber and crude oil prices to its customers. It recently announced its third price hike in North America this year, for an increase of as much as 10 percent from next
While natural rubber and oil prices have come down slightly from recent peaks, analysts said they were still higher than the company's projections.
Bridgestone made an operating profit of 83.66 billion yen ($763.1 million) in January-June, far below an average estimate of 92 billion yen in a poll of three brokerages by Reuters Estimates. First-half net profit plunged 30 percent to 37.24 billion yen on revenues of 1.641 trillion yen, up 1.6 percent.
"Profits at this point are behind our plans after raw materials prices rose further than we expected," Chief Financial Officer Koki Takahashi told a news conference.
For the full year to Dec. 31, Bridgestone now expects operating profit of 155 billion yen instead of 195 billion yen and net profit of 66 billion yen rather than 90 billion yen. It expects a rise in commodity prices to erase 190 billion yen from operating profit, wiping out a positive contribution of 147 billion yen from selling more tyres.
Consensus forecasts are for an annual operating profit of 187.5 billion yen and net profit of 87 billion yen.
Michelin, which is neck-and-neck with Bridgestone measured by market share in the global tyre market, last week also reported a bigger-than-expected decline in half-year operating income and cut its profit target citing raw material prices.
Tyre makers also face the blow of more production cutbacks in North America at most top automakers due to a slump in demand for large vehicles amid high fuel prices. The United States makes up about 45 percent of Bridgestone's total revenues.
Shares in Bridgestone have lost 8 percent in the year to date, while the benchmark Nikkei average has fallen 14 percent.
Prior to the earnings announcement, Bridgestone shares ended down 0.4 percent.