Nokian's North American Growth Not Enough to Offset Soft Markets

Oct. 22, 2019

Despite a double-digit increase in sales in North America during the second quarter of 2019, Nokian Tyres plc has downgraded its guidance for the full year.

The tire maker says it expects markets to remain soft, and that as a result it is adjusting capacity in its factories accordingly.

A day after announcing the company was lowering its guidance, the company said negotiations with employees at Nokian's Finnish factory resulted in the loss of 41 jobs, including 11 through retirement and the others through "agreed arrangements." Additionally, Nokian said, "Temporary layoffs will continue during the remainder of the year, and up to a maximum of 90 days in 2020."

As for the financials: “Despite the headwind in the market, Nokian Tyres focuses on executing its strategy.”

That strategy includes major investments in the U.S. — namely the upcoming start of full-scale tire production at its new plant in Dayton, Tenn. — as well as the construction of a new tire testing center in Spain, plus the expansion of capacity for Nokian’s Heavy Tyres business. Each of those projects is “proceeding according to plan,” the company said.

The revised expectation is that Nokian’s net sales for 2019 will match those of 2018, and operating profit margin will be at about 20%.

“In line with Nokian Tyres’ updated 2018 strategy, the company is targeting further growth in Russia, Central Europe and North America. As a result of ongoing investment programs to support the growth, operating profit in 2019 will include significant additional operating costs.

Here's a look at Nokian’s overall, global performance in the first half of 2019:

  • Passenger tire sales were down 2%, from 568 million euros to 556.5 million euros.
  • Heavy tire sales were up 7.2%, from 89.6 million euros to 96.1 million euros.
  • Vianor sales (these are company-owned retail stores) were up 0.3%.
  • Total sales were down 0.3%, from 765.2 million euros to 762.8 million euros.

Geographically, North America has been the site of Nokian’s strongest growth. In the second quarter the company increased sales in the U.S. and Canada by 14.3%. For the first half of the year, Nokian has recorded 97.8 million euros in sales in North America, up 7.5% from 91 million euros for the same period in 2018. Those numbers are in line with Nokian’s stated goal of doubling sales in North America by 2023, a goal which the company expects to achieve with the recent opening of its new tire factory.

Nokian will publish its third-quarter results on Oct. 30.