GuruFocus -
- Revenue: Approximately EUR5.2 billion with organic growth of 4.9%.
- Adjusted EBIT: EUR816 million, up 4.3% year-over-year, with a margin of 15.7%.
- Net Profit: EUR371 million, stable compared to the same period of 2023.
- Net Financial Position: Negative EUR2.82 billion, down EUR322 million compared to September 2023.
- Net Cash Flow Before Dividends: Negative EUR357 million, improved by EUR11 million compared to the first nine months of 2023.
- CapEx: EUR236 million, mainly for high value activities and sustainability support.
- Gross Debt: Approximately EUR4 billion, with a net financial position of about EUR2.8 billion.
- Liquidity Margin: Approximately EUR2.45 billion, covering debt maturities until Q4 2028.
- Cost of Debt: 5.15%, slightly down compared to June 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pirelli & C SpA (PLLIF) reported solid volume growth and improved profitability, achieving the highest profitability among tier one players.
- The company successfully reduced its debt and generated positive cash flow in the third quarter due to efficient working capital management.
- Pirelli & C SpA (PLLIF) confirmed its 2024 targets, supported by its strong positioning in the high-value market segment and resilient business model.
- The company is advancing in connectivity and sustainability, with a partnership with Bosch (NS:BOSH) to integrate tire sensors into car control systems.
- Pirelli & C SpA (PLLIF) achieved significant efficiencies, offsetting inflation impacts and progressing on its decarbonization journey with validated targets by the Science Based Targets initiative.
- The company faces an uncertain environment with geopolitical tensions, slowing demand from carmakers, and raw material volatility.
- Pirelli & C SpA (PLLIF) reported a negative net financial position of EUR 2.82 billion, despite improvements compared to the previous year.
- The replacement market in China showed weakness, and the company does not expect a recovery in the last quarter of the year.
- The company anticipates a negative impact from raw material costs in the fourth quarter, which could affect profitability.
- Pirelli & C SpA (PLLIF) is exposed to potential risks from geopolitical developments, such as the Golden Power investigation concerning its Chinese stakeholder.
A: Pirelli plans to increase production capacity in North America, following a local-for-local strategy. Currently, 60% of sales are supported by local production in Mexico and Georgia. Regarding the Golden Power investigation, it concerns a possible breach by CNRC of organizational and functional links with Pirelli. The outcome is pending, and CNRC believes they can defend their position.
Q: What are the expectations for the fourth quarter market, particularly for winter tires?
A: The market is expected to be slightly negative, around minus 1%, with high-value segments growing by about 3%. This growth is anticipated in both the replacement and original equipment channels, driven mainly by Asia Pacific and China. In Europe, the performance will depend on winter tire sell-out, which has been positive in October.
Q: Why is the adjusted EBIT margin for Q4 expected to be lower than last year? Is it due to seasonality or market conditions?
A: The Q4 EBIT margin is expected to align with last year's due to normal business seasonality, with sales accounting for about 22.5% of the year. Fixed cost absorption is lower in Q4, and there is a negative impact from raw materials, which were slightly positive in the first nine months but are worsening in Q4.
Q: Can you provide insights into Pirelli's market share gains in high-value tires and the impact of inflation?
A: Pirelli's market share gains are driven by innovation and technology, particularly in high-value segments. The company has expanded its customer base, partnering with North American and Chinese carmakers. Inflation in 2024 was offset by efficiencies, and for 2025, efficiencies are expected to exceed inflation, with a similar or better efficiency plan than in 2024.
Q: How is Pirelli performing in North America, and what is the price positioning compared to other markets?
A: North America is central to Pirelli's growth strategy. The company is increasing market share with American carmakers and introducing products tailored to American consumers. Pirelli has improved its price position and is recognized as a price reference in the US. Inventory levels are normal, and the company monitors stock levels closely.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.