Bandag hopes to offset rising costs through internal measures

Muscatine, Iowa -- Bandag Inc. was counting on cost containment measures instituted during the June quarter to offset the impact of rising costs after the company reported lower operating and net income for the quarter, blaming higher raw material costs and lower tread rubber unit sales.

Bandag reported a 17.3 percent drop in net income to $10.5 million (€8.3 million) for the quarter and a 19.5 percent decline in pre-tax operating earnings to $16.1 million.

Sales rose 8.8 percent to $247.3 million (€195.7 million), primarily on higher sales volume by the company's Tire Distribution Systems (TDS) subsidiary and vehicle services units.

For the first six months of 2006, Bandag´s net income from continuing operations was down 13.3 percent to $16.2 million (€12.8 million) while operating income fell 16 percent from a year ago.

Sales were up 10.2 percent to $459.7 million (€363.9 million).

The net result actually was a loss of $168,000 after factoring in the deferred loss the company took on the sale of its business in South Africa.

To combat rising costs, Bandag closed its tread rubber plant in Shawinigan, Canada, frozen its US and Canadian pension plans, begun a programme to cut its North American workforce by about 175 jobs and initiated several programmes to simplify operations and cut costs.

''Overall, we anticipate the steps we are taking in our traditional business globally will simplify our operations and reduce our cost structure, better aligning operations with the forces shaping today´s markets and our dealers' needs,'' Bandag chairman and CEO Martin Carver said.

TDS, however, reported a 25 percent increase in sales for the quarter on the strength of off-the-road tyre sales to the construction and mining industries, Bandag reported.

The vehicle services business unit -- which combines Bandag´s Speedco Inc. and TruckLube1 businesses -- reported a 44 percent rise in sales, due to the inclusion, for the first time, of sales figures from TruckLube1, acquired during the first quarter.

''Though we don't anticipate any relief from rising raw material costs globally, we're hopeful that our simplified operations and slimmer cost structure will begin to offset the impact of the rising raw material costs in 2007,'' Carver said.

''TDS and Speedco are both expected to benefit from continued underlying strength in the trucking industry.''

From Rubber & Plastics News (A Crain publication)