Japan's Bridgestone Corp beat expectations with a rise in first-half operating profit despite higher raw materials prices, and lifted its full-year forecasts citing robust sales of high-end tyre products.
A revision to the conservative forecasts was expected after Japan's top tyre maker had hinted at the possibility last month, but the new figures - for a slight growth instead of a sharp slide - even exceeded analysts' numbers, sending Bridgestone's shares to an intraday high just after the news.
Until now, Bridgestone, which competes with France's Michelin and Goodyear Tire & Rubber of the United States, had projected the operating profit to drop in 2005 despite bigger sales as it faces higher costs of procuring steel cord, carbon black, synthetic and natural rubber and other materials.
Bridgestone said on Tuesday it now expected an operating profit for the year to December 31 of 198 billion yen ($1.77 billion) instead of the 170 billion yen forecast in February.
That is higher than a median forecast of 195 billion yen in a survey of 12 brokerages by Reuters Estimates, and up slightly from 197.7 billion yen booked last year. It lifted its net profit forecast to 163 billion yen from 140 billion yen.
Michelin last week also beat expectations to eke out a higher operating margin in the first half thanks to a better price mix. The story was similar for Goodyear in the second quarter.
"We're getting a bigger boost than we anticipated from higher sales volumes, a better product mix and a rise in selling prices," Chief Financial Officer Shoji Mizuochi told a news conference.
Bridgestone now expects those factors to add 98.3 billion yen to operating profit this year instead of 52.3 billion yen forecast in February. That would more than make up for an additional 20 billion yen impact from a rise in materials costs.
Attesting to the brisk demand, Bridgestone said it would spend 17.5 billion yen to expand capacity for truck and bus radial tyres in Thailand. The Tokyo-based company now expects to pour 216 billion yen into such strategic investment between 2005 and 2007, up from 125 billion yen estimated in February.
Mizuochi said sales volumes were growing steadily in the United States, Europe and Asia, while demand for value-added tyres that offer higher safety or better fuel economy was also strong.
Mizuochi said, however, that prices of raw materials such as synthetic rubber, carbon black and steel cords were climbing higher.
Bridgestone has been passing on some of the rising costs to customers through several price hikes outside Japan this year and Mizuochi said market trends warranted more increases in future.
"In the current environment, I think it is inevitable to reflect some of the higher costs in the price tag," Mizuochi said. He stressed that no final decision had been made to go through with a price increase.
While benchmark natural rubber prices had risen recently to highs of around $1.8 per kg due to a drought-induced supply shortage, Bridgestone said it now expected a smaller blow to profits, projecting a pullback ahead.
"Prices are high now but we believe they'll start to come down," Mizuochi said. Bridgestone now expects a 1 billion yen negative impact on 2005 profit from more expensive natural rubber, instead of 6 billion yen.
Operating profit for the six months to June 30 inched up 0.1 percent from a year ago to 92.08 billion yen ($821 million), beating its forecast in May of 78 billion and an average estimate of 80.7 billion in a survey of six brokerages.
Net profit jumped 95 percent to 101.71 billion yen mainly due to special pension-related gains. Sales climbed 8.9 percent to 1.256 trillion yen. Shares in Bridgestone ended up 1.83 percent at 2,220 yen after spiking to an intraday high of 2,230 yen one minute before the bell, when the results were released. The broad TOPIX index put on 1.21 percent.
During the first half, the stock gained 5.2 percent to 2,135 yen, outperforming a 1.6 percent fall in the transport sector subindex ITEQP.
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