Analysts on Pirelli results: ‘fewer tyres…more profits’
Following the publication of second quarter/first half 2011 financial results showing Pirelli doubled net profits year-on-year, financial analysts have lauded Pirelli “over any other auto part or tyre maker in EU.”
Writing in an investor’s note published today (28 July 2011), Morgan Stanley analysts attributed the tyre manufacturer’s greater than 10 per cent outperformance on second quarter pre-tax profit estimates (EBIT) and increased margin guidance for 2011, which is said to imply more than 5 per cent upgrade in consensus, to its “ever impressive pricing power. “
The main story the analysts are telling is that while Pirelli’s 1.4 billion euros of sales were 2 per cent shy of consensus expectations, EBIT of 147 million euros was 11 per cent above expectations. According to Morgan Stanley, the implied 10.6 per cent margin is 124 basis points better than expected, driven by 16 per cent growth in price/mix. Or, in other words, less tyres and more profit.
Pricing power at Pirelli is seen as “particularly remarkable” due to the fact that it comes after 10 per cent growth in 2Q10. And the analysts interpreted the presentation they saw as saying that the relatively small 1 per cent growth in volume is the function of “a deliberate strategy: quality over quantity” with Pirelli aiming to save its limited capacity for high-end premium tyres.”
Overall the analysts concluded that this is “a winning strategy in today’s undersupplied tyre markets.”