Bridgestone: results boosted by Americas operations

Here is an English translation of this article in the Nikkei: ブリヂストン、今期営業益1%増 値上げ浸透 米州で稼ぐ .  At a time when Toshiba/Westinghouse is dominating the news,  Bridgestone-Firestone seem one of the success stories of Japanese-US cross-cultural M&A activity. Geographic diversification is helping business growth during the current strong JPY environment (despite negative translation impact on results).

On 17th (Feb) Bridgestone announced an adjustment to forecast consolidated operating  income to end-Dec 2017, to increase 1% yoy to JPY452bln (c. USD4bln).  Whilst the price of rubber, the core raw material for tyres, has been increasing, price of manufactured goods has also increased.  As the main source of revenues, the Americas (USA, Central & South Americas) accounted for over half of operating profits for the first time.  Key focus will be the extent  to which the company can pull away from their French rival Michelin.  

Turnover is set to increase 9% to JPY3.63trillion (USD32.2bln)  net profit to JPY280bln (USD2.48bln).  The last time profit increased was 3 years ago.

The move to fundamental increase in price of natural rubber since September 2016 held back operating profit to its rise of 1%.  Also considering the effect of cheaper oil in the previous term, this causes a drop in current quarter profit to JPY137bln (USD1.2bln).

However, Bridgestone expressed confidence in their forecast profit increase.  On the 17th Executive Vice President Akihiro Eto stressed that “Now is the time to make use of Brand strength.”  An environment of steady price rises can be achieved using brand strength and technical innovation such as the ‘Run-Flat’ tyre which can keep running event in the event of a puncture,  and high-mileage tyres.  Unit sales are also forecast to increase.  As such operating profit will be boosted JPY166bln (USD1.47bln),   counteracting the negative impact of high raw-material costs. 

“Results are hauled up by the Americas business” was the view of Morgan Stanley MUFG securities analyst Shinji Kaito, “Bridgestone’s strength is their in-house sales channel”, as indicated by their c. 2200 direct sales offices in the USA.   It is difficult for a volume retailer to be on the receiving end of price pressure, close adherence to regional service needs and reasonable sales pricing are contributing to profits.

Operating profit for the Americas region is expected to increase 18% to JPY2390bln (USD1.2bln), reaching over 50% of the global total for the first time.  This contrasts with the 9% drop in Japanese domestic operating profit.  The Bridgestone North Carolina factory is to recieve USD1.8bln (c. JPY203bln) in additional investment.

The focus is to pull away from the global #2 Michelin of France.  Bridgestone have surpassed in Net Profit and Market Capitalisation,  and a previously worse Net dividend rate is now 40% higher.  On the 17th, the company announced its first share buy-back since 2005.  The buy-back will be as much as JPY150bln (USD1.3bln), 6.4% of outstanding shares.

Michelin’s turnover trails that of Bridgestone by around JPY1 tln (USD8.9bln), but in terms of profitability  the operating profit of Michelin is 12.9%, compared to 13.5% of Bridgestone.  Michelin’s revenue base is strong from Europe to Asia and Africa. 

 

 

 

 

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