Bridgestone Corp. (5108), the world’s biggest maker of tires, may extend output cuts in the second half as Europe’s debt crisis and China’s slowdown curb demand.
“In Europe, we reduced production through the second quarter as demand was lower than we expected, and if necessary, we may continue to do so in the third and fourth quarter as well,” Masaaki Tsuya, Bridgestone’s chief executive officer, said in an interview at its headquarters in Tokyo yesterday. “We will watch inventory levels carefully and be very lean.”
The Japanese tiremaker is concerned that Europe’s turmoil may impact other markets such as China, depressing demand for its products even as it targets a record operating profit ratio this year. In Europe, the company reduced production through the second quarter by 20 percent on lower-than-expected demand.
“What concerns us is the global impact that may come from Europe,” Tsuya said. The “European Union seems to be in a very shaky position.”
Europe contributed 14 percent of Bridgestone’s revenue last year, while Japan accounted for 23 percent.
“Our business in specialty tires is doing very well,” Tsuya said. “The price of rubber is stable” and benefits tire companies, he said, declining to comment on Bridgestone’s forecast for the price of the commodity.
November-delivery rubber lost as much as 4 percent to 234.5 yen a kilogram ($2,920 a metric ton), the most since June 6, before trading at 235.4 yen on the Tokyo Commodity Exchange at 1:19 p.m. Futures have lost 28 percent this quarter, the most since the global financial crisis in 2008.
Bridgestone forecasts net income will rise 63 percent to 168 billion yen this year.
Second-quarter profit will be “very much in line” with Bridgestone’s forecast, Tsuya said. The company has no plans of revising its full-year earnings forecast for now, he said.
Bridgestone fell as much as 2.5 percent to 1,732 yen in Tokyo trading today. The stock’s 12-month price target is 2,308.18 yen, according to the average of 11 analysts’ estimates compiled by Bloomberg.
While commodity analysts are getting more bearish, those following tiremakers are increasingly bullish, with 71 percent covering Bridgestone recommending investors buy the shares. The proportion was 21 percent in January 2011, a month before rubber reached a record, data compiled by Bloomberg show.
The 12-month price target for Michelin & Cie. (ML), the second- biggest tiremaker, is 65.85 euros, according to the average of 13 analysts’ estimates. Of the 22 analysts covering the Clermont-Ferrand, France-based company and tracked by Bloomberg, 77 percent recommend buying the stock.
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