Pirelli shares drop after presentation delayed

MILAN Mon Apr 8, 2013 8:18am EDT

Pirelli Formula One tyres are seen in the paddock during a training session at Circuit de Catalunya racetrack, in Montmelo, near Barcelona, February 21, 2012. REUTERS/Albert Gea

Pirelli Formula One tyres are seen in the paddock during a training session at Circuit de Catalunya racetrack, in Montmelo, near Barcelona, February 21, 2012.

Credit: Reuters/Albert Gea

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MILAN (Reuters) - Shares in Italian tiremaker Pirelli SpA (PECI.MI) fell more than 5 percent on Monday after the company's decision to delay a business plan presentation raised concerns about its prospects.

The world's fifth largest tiremaker had said late on Friday it delayed the presentation of its plans for 2013 through 2017 from May 8 to November, hoping it would gain "better visibility" by that time on a business climate which was worsening even for its more expensive products.

"We deem that the news is negative as it confirms that even the premium tire market is suffering in Europe," said analysts at Banca Akros in a comment for clients.

European car sales shrank again in March after a dismal 2012, depressed by the region's financial crisis and weak consumer sentiment as unemployment hits a record high of 12 percent.

The malaise is spreading to Germany, Europe's biggest car market, where new car sales plunged about 17 percent in March.

Pirelli plans to offset weakening demand in Europe for its premium tires - for marques such as Porsche (PSHG_p.DE), Mercedes Benz (DAIGn.DE) and BMW (BMWG.DE) - by shipping tyres to emerging markets, where demand is growing, said an industry source on Sunday.

"The idea is to keep the factories busy in Europe where these tyres are made ... to serve growing markets elsewhere," the person said. "It entails some extra transport costs, but the margin on premium tyres is enough to cover it.

Another person familiar with the matter said Pirelli had no plans to cut production or close factories outside Europe, indicating the company is counting on growing sales in emerging markets to soak up European production.

Pirelli's move to export from European factories echoes a similar plan by Italian carmaker Fiat (FIA.MI) to use its idling Italian plants to build more expensive Maserati and Jeep cars to ship to foreign markets.

PREMIUM SEGMENT

Pirelli's focus on building its premium tire segment, where margins are higher, has helped it protect profits despite a recession in most of Europe, where Pirelli made 35 percent of its sales in 2012.

Premium tire sales, which accounted for about a third of Pirelli's total revenue, are expected to grow in 2013 more than three times faster than non-premium tyres, Pirelli said last month. The company confirmed its 2013 targets on Friday.

The tiremaker, headed by Marco Tronchetti Provera, trimmed its 2012 revenue targets twice last year to 6.15 billion euros ($8 billion) from 6.45 billion, then missed its target slightly at 6.07 billion euros.

"Pirelli likely does not want to miss again on guidance, so they probably hope visibility is better next year," said Philippe Houchois at UBS, which rates the stock "buy".

Pirelli is not alone in being uncertain about short- to medium-term prospects.

Michelin (MICP.PA), the world's second-largest tiremaker, forecast a challenging year ahead in Europe on February 2 after narrowly missing 2012 profit forecasts, as sales of specialty tyres failed to offset the region's prolonged slump in car sales.

Pirelli said on March 11 it sees 2013 earnings before interest and taxes (EBIT) at between 810 million and 850 million euros, in line with the 819.9 million before restructuring costs it earned in 2012.

It forecast 2013 revenue up 4 to 5 percent to between 6.3 billion and 6.4 billion.

Pirelli shares were down 5.8 percent at 7.74 euros by 8.55 a.m. ET.

(Editing by David Holmes)

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