Higher costs drive down Sumitomo's Q1 earnings

Kobe, Japan — Sumitomo Rubber Industries Ltd.'s operating income dropped 12.6% for the quarter ended 31 March as increased costs for raw materials ate into the margin.

Operating income fell to $104.1 million (€96 million), while sales rose 7.7% to $1.69 billion, yielding an operating ratio of 6.2%, down from 7.6% a year ago. Increased materials' costs impacted earnings by more than $60 million.

Net earnings rose 4.9% to $75.3 million.

On a regional basis, SRI's sales revenue in North America jumped 28.6% to $288 million, an increase Kobe-based Sumitomo attributed to the region's continued economic expansion.

SRI's tire business suffered a 22.6% drop in operating income, to $114.4 million, on 8.1% higher sales of $1.35 billion. The operating ratio dropped two-plus points to 6.1%.

In general, replacement sales in overseas tire markets grew despite sluggish consumption associated with political uncertainty in the Middle East. Sales volume increased in the United Kingdom stemming from the newly acquired Micheldever Group Ltd., a British tire sales company with annual sales of about $400 million.

In overseas OE markets, sales grew due to increased volumes in China, resulting from car tax reduction, and in Europe.

Based on the first quarter results, SRI management is forecasting 12% sales revenue growth for the fiscal year to roughly $7.5 billion. The operating profit, however, is expected to fall more than 30% shy of the 2016 figure, SRI said.