January 24, 2020 / 10:14 AM / 23 days ago

Nokian Tyres sees weaker 2020 on Russia slowdown

HELSINKI (Reuters) - Finland’s Nokian Tyres (TYRES.HE) on Friday warned of a significant fall in its 2020 operating profit hurt by its Russian operations, sending its shares sharply lower.

It said the Russian market was weaker than expected in 2019 and that it expects a substantial decline there this year.

“Low consumer spending, declining new car sales and increasing competition resulted in a significant increase in carry-over stocks at the year-end in Russia,” the company said in a statement.

Nokian said it expected its 2020 group sales to decline as profits and sales in Russia, which contribute around 20% to group revenue, would drop significantly.

Falling real incomes have hit the Russian car market since 2018’s 12.8% growth. New car sales fell 2.3% in 2019 and are set to slip a further 2.1% in 2020, according to the Association of European Businesses.

Analysts had expected Nokian Tyres’ 2020 operating profit growth of 2% on sales up 4%, Refinitiv data showed.

Nokian shares fell 9% to their lowest level since August 2015.

Equity analyst firm Inderes called the 2020 guidance “an ugly miss” and “a rough disappointment”.

“Nokian’s mid-term strategy of growing top-line at a more than 5% CAGR (compound annual growth rate) and maintaining group profitability at least at 22% looks far out of reach for the company as the underlying market environment has turned out to be much weaker than expected,” JP Morgan analysts said in a note.

Nokian, which is scheduled to release its fourth-quarter numbers on February 4, reiterated its October outlook for flat net sales for 2019, with an operating profit margin of approximately 20%.

“In 2019, the car and tyre markets continued to be soft in Europe, which resulted in tightening competition. Winter tyre demand in October-December was negatively impacted by the warm winter in Nokian Tyres’ key markets,” the company said.

Nokian warned already back in September that European distributors were holding back from buying winter tyres due to high inventories, with oversupply also putting pressure on prices.

Shares in Nokian peers Continental (CONG.DE) and Pirelli (PIRC.MI) also fell on the news.

Analysts at Italy’s Equita said the warning was attributable to company specific problems, but it still generated some additional doubt over the sector’s profitability going forward.

Reporting by Tarmo Virki, Boleslaw Lasocki, Rita Plantera and Anne Kauranen; editing by Sam Holmes and Jason Neely

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