Hankook Tire Q3 profit falls 11% as costs rise

Hankook Tire, the world’s seventh-largest tire maker by sales, said Monday its third-quarter net profit fell 11 percent on higher raw materials costs.

Net profit for the three months that ended Sept. 30 fell to 184.88 billion won ($166 million) from 207.56 billion won a year earlier, the company said in a statement.

As the prices of natural rubber and synthetic rubber rose this year compared to 2016, it weighed on the quarterly results, a company spokesman said over the phone.

The prices of natural rubber jumped to $1,911 per ton in the third quarter from $1,457 a ton a year ago. Those of synthetic rubber climbed to $1,959 from $1,858 during the cited period, he said.

Moreover, the costs involving the initial operation of Hankook Tire’s Tennessee plant since April also cut into the tire maker’s profitability, he said.

This year, Hankook Tire aims to produce a total of 104 million tires at its eight plants - two in South Korea, three in China, one in Hungary, one in Indonesia and another in the United States. This compares to 99 million units produced and sold last year.

Operating profit declined 29 percent to 214.09 billion won in the third quarter from 302.64 billion won a year earlier. Sales rose 10 percent to 1.824 trillion won from 1.658 trillion won during the same period, the statement said.

The third-quarter bottom line was also affected by lower demand from major buyers, such as Hyundai Motor and its affiliate Kia Motors, whose sales plunged this year due to lower demand from China amid a diplomatic row over a military system.

Hankook Tire earns about six percent of its total sales from the two carmakers by supplying original equipment (OE) tires to their assembly lines.

The company earns 30 percent of its total sales from OE tire sales, with the remaining 70 percent coming from replacement equipment (RE) tires sales.

Supplying OE tires to car manufacturers does not make much money for tire makers, but securing luxury carmakers as clients helps improve brand image and raise product prices in the long term.

For tire makers, it is more profitable to sell RE tires in the after-sale markets.

In the January-October period, the tire maker’s net profit plunged 21 percent on-year to 532.20 billion won from 669.43 billion won.

Operating profit declined 25 percent to 650.95 billion won on sales of 5.131 trillion won, a 2.4 percent on-year gain.

YONHAP