Pirelli outperforms expectations in Q1 2024 results, pointing to better Q2

Financial analysts have said Pirelli’s first quarter 2024 results feature “strong sales”, which outperformed consensus estimates by 1 per cent. During the same period pre-tax profits (adjusted earnings before interest and taxes [EBIT] outperformed expectation at twice that rate [+2 per cent compared with the analysts consensus].

Writing in an investor’s note dated 9 May 2024, Jefferies analysts interpreted the results as signalling “an upbeat message for second-quarter” volumes and margins, adding:

“We’d expect upward pressure on consensus for both sales (6.7 billion euros versus guidance of 6.6 billion euros to 6.8 billion euros) margins (14.9 per cent versus guidance of 15 to 15.5 per cent). Consensus moving to the top of the range would be a circa 5 per cent upgrade (from 1,002 million euros to 1,054 million euros)…”

On the subject of profitability, not only did Pirelli’s adjusted EBIT outperform consensus expectations by 2 per cent, Pirelli’s first quarter 2024 Adjusted EBIT coming in at 263 million euros equates to a 15.5 per cent margin, “which was +3 per cent ahead of the Jefferies Estimate of (255 million euros).”

A 49 million euro hyper-inflation and foreign exchange charge was on the only thing to really rain on Pirelli’s parade in the first quarter.

Positive outlook for Q2 high-value tyre growth

Moving forward, Pirelli reiterated its full-year 2024 guidance at all levels with a positive outlook for the second quarter. On that note, it is worth highlighting that volume growth in the second quarter is expected to be 6-7 per cent in high value (that is +8 per cent in replacement and +5 per cent in OE) and flat when it comes to “standard” products.

Margins are expected to remain at the upper end of the guidance range (15-15.5 per cent) as in 1Q (15.5 per cent).

However, despite all the good news, as well as the flagged inflation charge, the analysts also noted that “high value manufacturing saturation of 96 per cent does look high.” Their interpretation? Pirelli’s high-value (that is high-performance and 4×4/SUV tyre production lines) are flexible enough to reduce exposure to the top-end by producing more bread and butter sizes too:

“If you adjust for standard tyres manufactured on the high value lines (circa 10 million) that would bring saturation down to circa 80 per cent ([based on] circa 55 million units of high value capacity).”