Nokian Renkaat Rises as Raw-Material Costs Help Earnings

Nokian Renkaat Oyj (NRE1V), the Nordic region’s largest tiremaker, rose to a four-month high after saying it will maintain profitability as declining raw-material costs make up for a fall in sales in central Europe.

Nokian Renkaat jumped as much as 4.6 percent to 35.19 euros, the highest intraday price since April 8. The stock traded up 3.8 percent at 1:57 p.m. in the Finnish capital in the biggest gain on the benchmark OMX Helsinki 25 Index. (HEX25) Volume was more than double the three-month daily average. The stock has risen 16 percent this year, valuing the company at 4.63 billion euros ($6.19 billion).

Global rubber stockpiles will probably expand to the highest in more than a decade as slower economic growth damps demand, researcher Rubber Economist estimated in June. A forecast 9.5 percent reduction in raw-material costs in 2013 will give Nokian Renkaat a “tailwind” of about 45 million euros, the manufacturer said today in a statement, in which it also said revenue and earnings may fail to rise this year.

“The results had a more positive tone than competitors,” Tom Skogman, an analyst at Svenska Handelsbanken AB, said in an interview. A “slight” forecast reduction was already expected, based on competitors’ recent comments, he said.

Second-quarter operating profit rose 6.7 percent from a year earlier to 120.2 million euros as revenue increased 1.3 percent to 419.1 million euros, the Nokia, Finland-based company said. The operating margin widened to 28.7 percent of sales from 27.2 percent in the 2012 period.

‘Positive’ Margins

“Margins were a positive aspect,” Skogman said. “Nokian Renkaat has lower cost levels and a better distribution network, which takes many years to build.”

The tiremaker forecast that net sales and operating profit may be unchanged from 2012 or show “some growth.” That compares with an earlier prediction that both measures would increase.

Second-quarter earnings were “solid,” Bernard Donges, a London-based analyst at Bank of America Merrill Lynch, said today in a report to clients. The company’s forecast drop in raw-material costs exceeds the 6 percent drop estimated by Merrill Lynch, the analyst said.

Continental AG, Europe’s second-biggest tire producer, and Italian competitor Pirelli SpA (PC) scaled back full-year forecasts amid a contraction in the region’s car market. Michelin & Cie. (ML), the European tire-industry leader, and auto-component producer Faurecia SA reported first-half profit declines exceeding 10 percent. Michelin stuck to a forecast of “stable” operating profit and “steady” volume.

Competitive ‘Blocking’

“Our view on the Russian market development doesn’t differ much from our competitors, but the view on inventory levels is different,” Nokian Renkaat Chief Executive Officer Kim Gran said at a briefing in Helsinki today. “Some have been whining about blocked distribution. We don’t have that problem, as it’s our stuff that’s blocking other guys’ tires.”

Central European demand for tires will probably fall, while sales will grow in Russia, Nokian Renkaat’s most important market, as well as in Nordic countries and North America, the tiremaker said. Tire pricing is “challenging,” the company said.

“The company’s margins endured the challenging environment in an excellent way,” Mikael Rautanen and Sauli Vilen, analysts at Inderes Oy, said in a report to clients. Nokian Renkaat’s earnings statement “is apt to remove uncertainties about the resilience of the company’s margins.”

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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