SRI profits down despite higher sales in 2017

Kobe, Japan — Sumitomo Rubber Industries Ltd. (SRI) reported an 8% drop in operating income for fiscal 2017 despite 16% higher sales, as gains in pricing and volume/mix weren't enough to offset higher raw materials-related costs.

Operating income slid to $602.2 million on revenue of $7.84 billion, dropping the earnings ratio two full points to 7.7%. Net income rose 13.6% to $419.5 million.

SRI noted that the prices of both natural rubber and butadiene — a key ingredient in synthetic rubber — surged throughout the first half of the year before plateauing and falling back in the second half.

SRI's tire business's performance mirrored the parent's, with operating earnings falling 14.1% to $520.9 million and revenue rising 16.7% to $6.76 billion. As a result, the operating ratio fell more than two points to 7.7%.

Commenting on the fiscal year, SRI said it "endeavored to achieve greater sales of high-value-added products, including fuel-efficient tires, and enhance our sales force in Europe and the US, while proactively entering new markets and business fields."

The company experienced exponentially high sales growth in North America and Europe, reflecting the enhanced business generated by the firm's new business units established in after the dissolution of its global alliance with Goodyear in late 2015.

Revenue in North America grew 15.7% over 2016 to $1.37 billion, while SRI's European activities nearly double sales there to almost $950 million.

Globally, tire unit sales grew 9.7%, SRI said, to 123.5 million. Production capacity, expressed in tonnes, increased 2.8% last year and should grow by the same amount again in 2018. Capacity in the US was up 12.5% last year and is projected to grow 9.3% this year.

SRI is projecting sales growth in sales and operating profits of 4 and 8%, respectively, on a corporate-wide basis, and 4% and 11% in the tire business segment.