Pirelli SpA (PC), Europe’s third-largest tiremaker, will look at a partnership for its steel-cord unit and will sell 150 million euros ($202.5 million) in financial assets by 2017 as it adapts to shifts in global car markets.
The asset disposals, and gross cash generation of 3 billion euros in the period, will finance 1.6 billion euros in investments and a dividend payout of 40 percent of net income, the Milan-based company said today. The board agreed to the steel-cord division strategy to expand its international role.
The tiremaker scaled back earnings forecasts for 2013 and coming years amid a contraction in Europe’s car sales to a two-decade low and questions about economic growth elsewhere. The company has been pushing sales of its high-end products and expanding into markets outside its home region to compensate for changing demand.
“The positive news here is the start of the disposal process, with the concrete step of the mandate to the chairman to examine partnerships” for the cord business, Massimo Vecchio, an analyst at Mediobanca, wrote in a report to clients today. “It could mark the beginning of a process that should reduce the net debt of the company through the disposal of assets not properly incorporated” in Pirelli’s share price.
Pirelli rose as much as 5.3 percent to 10.79 euros, the highest intraday price since Oct. 23, and was trading up 3.9 percent at 10:05 a.m. in Milan. The stock has gained 23 percent this year, valuing the company at 5.17 billion euros.
Third-quarter operating profit rose 2.9 percent from a year earlier to 201 million euros, Pirelli said yesterday. Earnings were burdened by slower-than-estimated economic growth in Russia that caused a drop in tire sales, greater difficulty in gaining credit and plants operating at less than capacity, it said. Sales fell 1.9 percent to 1.52 billion euros, mainly because of currency shifts in Latin America, Turkey, Egypt and Japan.
Earnings before interest and taxes this year will total 790 million euros ($1.07 billion), the tiremaker said. The previous prediction, outlined in August, was for Ebit of 810 million euros. Ebit excluding reorganization costs will amount to more than 15 percent of sales in 2017. The previous target was for a margin exceeding 16 percent in 2015.
“The automotive market will continue to be impacted by external factors, such as persisting macroeconomic uncertainty, regulatory obligations, exchange-rate volatility and the evolution of demand in relation to consumer and lifestyle habits,” Pirelli said today.
The company also plans spinoffs or partnerships for its environmental and filter division to “focus on more remunerative businesses,” it said.
“Value creation will be a key outcome of this plan,” Chairman Marco Tronchetti Provera said today at an investor meeting in London.
Michelin & Cie. (ML), Europe’s largest tiremaker, forecast in October that full-year operating profit will rise by 150 million euros before one-time items and currency effects, which will be “more deeply negative” than anticipated earlier in 2013. Nokian Renkaat Oyj (NRE1V), the biggest tire producer in the Nordic region, cut sales and profit forecasts because of slowing Russian sales and the ruble’s decline against the euro.
Pirelli’s eight main shareholders dissolved an agreement on Oct. 31 that protected the Italian company from takeovers, six months before the pact’s expiration in April 2014. The move frees the investors to sell Pirelli stock.
To contact the reporter on this story: Tommaso Ebhardt in Milan at email@example.com