Nexen profits down 20% on higher materials, freight costs

Seoul – Nexen Tire has reported a 20% decline in second quarter profits amid increased costs, geopolitical uncertainty and a one-off adjustment to US anti-dumping duties.

For the three months ended 30 June, the Korean tire maker reported KRW34.3 billion (€20.8 million) in operating profit, down 19.5% year-on-year, on 10.8% higher sales of KRW891.3 billion.

The revenue increase reflected “continued growth centred on key markets including Europe, despite persistent external uncertainties in the business environment,” said Nexen 29 July.

Operating profit was impacted by higher cost of sales driven by rising raw material and freight costs following the Middle East conflict as well as “non-recurring costs” reflecting a “higher tariff rate than projected” in the US.

Results were also impacted by a product mix shift, driven by weaker performance in high-priced markets and increased OE volumes.

Amid slowing demand in the automotive market and “persistent geopolitical risks,” Nexen said it expanded its lineup of OE vehicles and diversified sales in the replacement market, resulting in a “solid performance.”

By region, Europe stood out for growth, with second-quarter revenue reaching KRW407.2 billion, the first time it has surpassed KRW400 billion in a single quarter.

The growth was driven by higher OE sales from the company's European plant, business expansion into the UK, Turkey and other markets, and stronger local distribution and logistics capabilities due to the addition of a finished-goods warehouse to the plant.

In Korea, strong sales of EV and SUV tires have continued, with an increase in both OE revenue and high-inch sales mix, helped by OE portfolio covering the Hyundai Ioniq 6, Kia's full EV lineup from the EV3 to the EV9, and other domestic electric vehicles.

In North America, sales dropped by nearly 9% to KRW178 billion, due to lower replacement volumes amid weaker demand and “intensified competition”.

OE demand in the region remained “resilient”, driven by pickup trucks and SUVs despite weaker North American vehicle sales.

The Korean tire maker said North America profitability enhancement was underway through stronger retail partnerships, including Walmart, and expanded sales of high-value-added products.

Alongside its earnings announcement, Nexen shared information on its business status and key strategies.

In the second quarter, it said, “brand presence expanded with the initiation of new OE supply for electrified models such as BYD vehicles and the Hyundai Staria EV.”

Supply to premium brands in particular grew sharply year-on-year, showing that “performance-focused R&D efforts – including AI-based performance prediction – are translating into tangible results.”

"Despite growing cost pressures from external factors, we have continued to achieve top-line growth on the back of strong sales in key markets," said John Bosco (Hyeon Suk) Kim, CEO of Nexen Tire.

"With the stable ramp-up of the second-phase expansion at our European plant and the results of our distribution improvements in North America, we expect more tangible improvements in earnings."