Analysts: Nokian Q3 ‘better than expected’, Q4 ‘weak’

Financial analysts have described Nokian’s latest third quarter financial results as “better than expected”, however they also pointed out that any optimism will be have to be balanced against the details of a recent profit warning. The profit warning referred to forthcoming fourth quarter figures, which are expected to be “weak”, with pre-tax profits (EBIT) estimates projecting a -13 per cent decline.

According to an investor’s note published by Deutsche Bank on 1 November, “overall, 2013 looks disappointing”. These analysts commented that, while there may be a limited rebound of volumes in 2014, unit sales should be “stable in Nordic countries (mature markets) and are not expected to recover in Russia since A+B segments should [also] be stable at 20 million units”. Their calculations suggest, therefore, that volumes should be more or less stable at 70 per cent of revenues, considering will struggle to increase its market share (currently 30 per cent in Nordic countries and 40 per cent in Russia on winter tyres, according to Deutsche Bank).

The bank’s thesis suggests the volume effect will rely on growth in Europe, which are said to account for 26 per cent of Nokian’s sales, and where margins are “below average”.

This could be due to weaker price discipline than most bankers like to see. Commenting on this aspect, the analysts acknowledged that Nokian’s management announced price increases of +3/5 per cent (summer tyres) and +3 per cent (winter tyres) in Europe on 1 November; and that  they might increase prices in Russia as well. However, with leftover tailwinds from raw material prices there was little confidence that “any price increase will stick” perhaps explaining the underlying scepticism of the analysts when it comes to Nokian’s forthcoming fourth quarter results.

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