Nexen Tire’s second quarter results failed to live up to average analyst expectations. Although unit sales rose 17% year-on-year, a 10% drop in average selling price compared with the second quarter of 2012 meant net sales revenue only increased 3.7% to KRW 451.1 billion (£262.0 million) – 12.1% lower than the consensus estimate of KRW 463.21 billion. Gross profit rose 4.6% to KRW 125.1 billion (£72.7 million) and gross profit margin increased 0.2% to 27.7%.
Operating profit, at KRW 45.8 billion, (£26.6 million) was down 14.7% year-on-year and operating margin dropped from 12.4% in Q2 2012 and 11.0% in Q1 2013 to 10.2% in the second quarter of this year. EBITDA decreased 3.8% to KRW 71.4 billion (£41.5 million) and EBITDA margin was down from 17.1% in Q2 2012 to 15.8%.
Deutsche Bank quotes deterioration in product mix, dealer incentives and higher advertising outlay as other reasons why Nexen’s second quarter sales missed consensus, although quarter-on-quarter revenue was helped by a weaker South Korean won. Korea’s Tong Yang Securities lowered its rating for Nexen Tire from “buy” to “hold,” but retained its target price at KRW 17,000 (£9.87) per share. Deutsche Bank has revised its target price from KRW 15,300 per share to KRW 16,500.
North America remains Nexen Tire’s largest regional market, accounting for 27.6% of sales in Q2 2013. European sales were 19.1% of the total and the region enjoyed the largest growth in aftermarket revenue, increasing 24.8% year-on-year to KRW 86.4 billion (£50.2 million). Original equipment sales, which were 16.8% of the total, grew 25.2% year-on-year to KRW 76.2 billion (£44.3 million). The Korean home market generated 12.6% of all sales, China 2.3% of and unspecified “other” markets the remaining 21.6%.
The tiremaker has lowered its full-year 2013 revenue guidance by 5.3% to KRW 1.8 trillion (£1.05 billion), and its anticipates third quarter 2013 revenue and operating profit of KRW 450 billion (£261.4 million) and KRW 49 billion (£28.5 million) respectively; this revenue figure is below consensus estimates of KRW 469.89 billion, although Deutsche Bank says revenue and operating profit are close to its own estimates.
Although Nexen confirmed that seeing green shoots of recovery in the U.S. and European Union, it anticipates price discounts and high selling, general and administrative (SG&A) expenses in the second half of this year, with the situation only improving in the first half of 2014. (Tyres & Accessories)
