Tire maker Nokian plans U.S. plant, raw material costs dent profits

HELSINKI (Reuters) - Finland's Nokian Tyres NRE1V.HE said on Wednesday it would build a new plant in the United States to boost growth outside Europe and forecast higher Russian sales, but its shares slid more than 6 percent as quarterly profit missed expectations.

Nokian tyres are pictured on display at the "Krepost" Toyota dealership in Russia's Siberian city of Krasnoyarsk, August 8, 2014. F REUTERS/Ilya Naymushin

Nokian said raw material costs would rise 20 percent in the full year, mainly due to increased oil prices. It said this would add about 60 million euros ($65 million) to costs, which analysts expected to hit profits in coming quarters.

Nokian, which has a large plant in Russia and a smaller one in Finland, said the new U.S. plant would be built in Dayton, Tennessee with capacity to make 4 million tires a year.

Construction of the $360 million plant was due to start in early 2018 with production beginning in 2020, Nokian said, announcing investment in a factory it has long considered.

“Locating the factory in North America at this point is a higher priority for us than other possible locations,” acting CEO Andrei Pantioukhov told a conference call.

“To increase our sales in North America significantly ... we need local production,” he said, adding that the firm also needed a factory in central Europe in the long term and such a project could be discussed in “a couple of years”.

The new factory, planned to create 400 jobs, would focus on producing tires for the North American market. Dayton is close to Chattanooga, where Volkswagen VOWG_p.DE has its U.S. factory. Nokian said the plant would be expanded in the future.

Last year, Nokian made 43 percent of its sales in the Nordics, 29 percent in other areas of Europe, 16 percent in Russia and central Asia and just 11 percent in North America.

Nokian’s early investments in Russia and its focus on high-margin winter tires have boosted profits.

In 2016, Nokian's operating margin was 22.3 percent, compared to 13.5 percent at Bridgestone 5108.T, 13.3 percent at Michelin MICP.PA and 10.1 percent at Continental CONG.DE.

Nokian’s high exposure to Russia cut into its bottom line after the Ukraine crisis, a slowdown in the Russian economy and a weakening of the rouble. But a recovery in the value of the rouble has helped improve the overall outlook.

The company lifted its full-year guidance, saying it expected at least 10 percent sales growth and more than 5 percent profit growth, compared to a previous forecast of at least 5 percent for both measures.

First-quarter operating profit climbed 17 percent from a year before to 59 million euros but failed to match the average forecast in a Reuters poll of analysts of 62 million euros.

By 1345 GMT, shares were down 6.3 percent at 37.57 euros.

“Impact from raw materials (in the first quarter) was surprisingly high, which raises concern over profitability in the coming quarters,” said analyst Sauli Vilen from Inderes Equity Research with a “reduce” rating on the stock.

Additional reporting by Joe White in Detroit; Editing by Stephen Coates and Edmund Blair