Pirelli may reduce 2014 sales goal due to Russia, emerging market pressures

While Pirelli’s recent sale of a 13 per cent shareholding to Russian petrochemical giant Rosneft brings it access to 2,800 petrol station/tyre points of sale, some industry observers are also warning that the political environment and the deal itself are on shaky ground. On the one hand the collaboration is expected to put Pirelli on a par with the premium leader in Russia, Finnish tyremaker Nokian Renkaat, in terms of a distribution network size there is more than one way to skin a cat in terms of distribution and other factors could end up affecting Pirelli’s overall sales targets. The company is set to publish its full year 2013 results this evening, along with its 2014 outlook commentary.

Writing in an investor’s note, Edoardo Spina, an analyst at Exane BNP Paribas said: “The timing of (the Rosneft deal) is particularly negative given the current volatility in Russian politics.” but it wasn’t all bad and he also added: “After the dust is settled, we believe the market will re-evaluate this deal and start to see the potential benefits of a partnership with Rosneft in Russia…We believe cooperation with Rosneft can help Pirelli develop its Russian business faster than expected.”

However, with Russian car sales falling 5.5 per cent in 2013, bringing three years of double-digit growth to an end, and with this figure forecast to drop again this year it looks likely that Russian market is experiencing an automotive spending slowdown and even recession.

2014 outlook

Pirelli is set to publish its full year 2013 results this evening (17:30, 27 March 2014), along with its 2014 outlook commentary. According to a Reuters report, analysts expect Pirelli to meet 2013 operating profit and revenue targets of around 790 million euros and 6.2 billion euros, respectively. But some say Pirelli may lower its 6.6 billion euro sales goal for this year. This follows Pirelli’s decision to cut its 2013 profit guidance in November. The word is that the slowdown in Russia that precipitated this revision could continue through to 2015.

“Beyond politics, there are wider economic factors in Russia and its car market, including the end of the car incentive scheme, that are likely to increase the downside risks,” Reuters cited one Milan-based analyst as saying.

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