Italy's Pirelli makes deeper cut to margin forecast after testing quarter

MILAN (Reuters) - Italian tyre-maker Pirelli PIRC.MI on Wednesday cut its full-year margin forecast for a second time and scaled back its cash flow guidance after the COVID-19 pandemic delivered a quarter it said had tested it "more than ever".

Slideshow ( 3 images )

The manufacturer of tyres for Formula One and high-end carmakers such as BMW BMWG.DE and Audi said the margin on its adjusted earnings before interest and tax (EBIT) would be around 12%-13% this year.

That compares with an already-reduced forecast of around 14%-15% it provided in April, when it also cancelled its planned dividend.

"The second quarter has tested the company more than ever," Chief Executive Marco Tronchetti Provera told analysts, as his company joined competitors such as Michelin MICP.PA and Continental CONG.DE in offering a cautious view of the year.

Pirelli said in an earlier statement demand for car tyres had slid 28% in the first half and 36% in the second quarter in volume terms due to the spread of the pandemic.

Tronchetti said however the group expected to “outperform” the car tyre market in the second half in volume terms, including in the high-value segment of tyres with a diameter of at least 18 inches.

He said he saw no major risks ahead that would prevent the group from recovering in 2021.

Adjusted operating profit (EBIT) fell 85% in the first half to 66.7 million euros ($79.3 million), in line with a company-provided market consensus of 68 million euros. Cost controls helped limit the impact of the reduction in demand, Pirelli said.

The company said it expected to generate cash flow of between 190 million and 220 million euros this year, versus a previous forecast of 230 million-260 million euros.

A planned review of the group’s business plan to 2022, initially scheduled for the fourth quarter, has been postponed until the first quarter of next year, it said, to allow for clearer visibility on how the wider economic situation would develop.

Reporting by Giulio Piovaccari; Editing by James Mackenzie, Kirsten Donovan and Jan Harvey