Japanese Tire Co's Flattened by Higher Costs

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Includes: CTB, GT
by: Steven Towns

In today's Wall Street Journal Asia Edition, Yoshio Takahashi and Sayaka Yakushiji cover Japan's leading tire makers' quarterly earnings in: Yokohama Rubber, Bridgestone Post Earnings Declines.

Tire makers seem to be getting hit harder than most industries when it comes to higher costs and an inability to pass these costs on to customers. Japan's Bridgestone Corp. and Yokohama Rubber Corp. are no exception as the former's first-half net income dropped 68% to 32.82 billion yen ($285.1 million) and the latter's fell 16% to 1.25 billion yen ($10.9 million). Bridgestone is the world's second largest tire manufacturer by volume after Michelin, which saw its first-half net profit decline by 29%. Bridgestone's CFO comments:

"The rise in prices of raw materials, such as natural rubber and oil, is likely to continue to make our profitability unpredictable."

Both Japanese firms cut their full-year net profit forecasts.

Comment: Bridgestone (Tokyo: 5108) and Yokohama Rubber (Tokyo: 5101) don't trade in the U.S., where the situation is equally as ugly for tire makers. Goodyear (NYSE:GT) reported a 97% drop in quarterly earnings with a majority of the decline related to plant closing costs -- on a 3% increase in sales. Back on May 30th, Catablast Media said Don't Count on a Recovery at Goodyear. Cooper Tire & Rubber (NYSE:CTB) said its quarterly net loss widened by nearly 3x despite a sales increase of 22%, citing product placement issues in the North American market. Paolo Pezzutti's post yesterday entitled, "Smart Money Already Shifting Into Defensive Sectors," includes 3-month Dow Jones sector index performance rankings and the DJ US Tires Index was down 24.77% making it the fourth worst performing of all.