Very Revealing: An Inside Look at Pirelli's 1Q Financial Results

Bob Ulrich
Posted on May 23, 2018

Quarterly financial reports from public companies are always filled with a wealth of information. They almost have to be, because the company is required by law to tell the truth.

The company may not reveal everything, but if the government believes it is hiding something, well, let's just say the company would have a lot of explaining to do. And this is generally the case regardless of the company's country of origin.

The recent first-quarter 2018 report from Pirelli & Cie SpA is no exception. Here are some fun facts about Pirelli.

Marco Tronchetti Provera holds a number of positions within Pirelli & Cie SpA.
Marco Tronchetti Provera holds a number of positions within Pirelli & Cie SpA.

1. Who runs the show? Many of you know the name Marco Tronchetti Provera. As chairman, he was the driving force behind Pirelli for many years. But since China National Chemical Corp. (ChemChina for short) acquired majority control of Pirelli in 2015, ChemChina President Ren Jianxin has been the chairman. Provera remains executive vice chairman and CEO.

Jianxin is also a director on the Nominations and Successions Committee. Guess who chairs that committee? Provera, who is also chairman of the Strategies Committee. Provera, it seems, remains the driving force behind Pirelli.

2. U.S. economy. Even though Pirelli is an Italian company, the health of the U.S. economy is still an important part of its financial success. Here's an abridged version of what the 1Q '18 reports says on the U.S.:

The recovery of the global economy that characterized 2017 was further strengthened during the first quarter of 2018, although there remained growing risks linked to the trade tensions following the protectionist measures announced by the United States.

The U.S. economy recorded a growth in GDP of 2.9% for the first quarter, compared to 2.6% for the fourth quarter of 2017. The new chairman of the Federal Reserve, J. Powell (Jerome Powell), confirmed a policy of gradual interest rate increases, as shown by the 25 basis point hike in March, aimed at countering the first signs of renewed inflation.

The statement also said the U.S. dollar "was weak not only against the euro, but also against some of the main currencies of emerging countries." That will probably change as U.S. interest rates rise, but in the meantime it is good for our country's trade deficit because it makes U.S. exports more competitive.

3. Raw material costs. The average price of oil is up compared to the first quarter of 2017 (22%) and the fourth quarter of 2017 (8%), a trend that may lead to tire price increases down the road. However, while butadiene and natural rubber prices were stable compared to 4Q '17, they were way down compared to a year ago.

4. Premium tires. Overall, NAFTA tire sales were down 2% compared to 1Q '17, according to Pirelli. But the decrease was not because of premium tire sales, which were up 7.5% compared to a 5.5% drop for standard sales. In the replacement channel, new premium car tire sales were up 10.3%; at OE they were up 3.3%.

Pirelli says one of its goals is to continue to strengthen its high-value (also known as high-value-added, or HVA) tire sales, which represent 63.6% of its revenues. Its high-value volume grew 12.8% for the first quarter of 2018; premium tires, part of the high-value segment, were up 18.6%.

5. Net income. Pirelli & Cie SpA posted net income of 92.4 million euros ($74.7 million) on net sales of 1.3 billion euros ($1 billion) for the first quarter ended March 31, 2018. It also recorded a net profit margin of 7%. For more information, check out "Pirelli Improves Income-to-Sales Ratio for 1Q 2018."

One last thing I learned: The "SpA" in Pirelli's official name stands for Società per Azioni. That translates into "joint stock company." I like SpA better; it sounds more refreshing.

Related Topics: HVA, Marco Tronchetti Provera, Pirelli financials, raw material costs, Ren Jianxin, U.S. economy

Bob Ulrich Editor
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