Analysts Disappointed With Kumho 2Q Results - Tire Review Magazine

Analysts Disappointed With Kumho 2Q Results

(Clacton, U.K./Tyres & Accessories) Kumho Tire Co.’s second-quarter sales amounted to 429 billion won (≤241.094 million), lower than the 469 billion won figure that was widely expected.

At the same time, operating profit of 14 billion won (£7.868 million) was said to be similarly disappointing compared with market estimates of 40 billion won.

Operating profit fell by 70.5% year-on-year and 45.2% quarter-on-quarter.

Net profit was the worst affected figure. According to Deutsche Bank analysts, net profits (300 million won, £168,617) fell 99.3% year-on-year and 98.2% quarter-on-quarter way short of the 20 billion won that was expected.

Explanations for the poor performance can be found in the global distribution of Kumho’s sales. The stagnant U.S. market accounts for 23% of Kumho’s global unit sales. And as many distribution companies are aiming to de-stock, replacement tyre sales have fallen 4.6% year-on-year in the first half of 2006 following a 2.3% increase in year-on-year in 2005. In addition, the value of Kumho’s sales was hit by the depreciation of the Korean won against the U.S. dollar.

According to the company, around 40% of Kumho’s U.S. sales are of UHP tyres, which have been under price pressure since 2005. On top of this, raw material costs are reported to have increased 25%.

Of course, these negative factors have been affecting all tyre manufacturers recently, but there are company-specific reasons for the performance decline as well. According to a Deutsche Bank report on the subject, Kumho makes merchandizing profits from tyres made by its Chinese subsidiaries. However, the volume from the Chinese plant fell 25.9% quarter-on-quarter in the second quarter as the Chinese plant had to meet the rising demand in its local market.

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