BRIDGESTONE CORPORATION (5108) Q3 2026 Earnings Call Transcript

Thank you very much for attending Bridgestone Corporation briefing for financial results for third quarter fiscal 2026, despite your busy schedule. Let me first introduce the attendees from our side. Vice President and Senior Officer CFO Naoki Hishinuma. Director, IR and Finance Planning Division, Kazuchika Higuchi. These two are attending from our side. First, Mr. Hishinuma, CFO, would like to present the financial results for the third quarter of fiscal 2026. I am Hishinuma, serving as CFO. At the outset, on Sunday, November 8th, a fire broke out at our TOSU plant. Thanks to the swift response of the public fire department, the fire was extinguished within a few hours. We sincerely apologize to the local community, our customers, and all related parties for the concern and inconvenience that this has caused. As the company that holds the safety mission statement, Safety First Always, we take the occurrence of this incident extremely seriously. Since the morning of Monday, November 9th, we have set up an emergency response headquarters at our head office and the TOSU plant, headed by our global CEO, Morita. We're holding emergency response meetings on a daily basis and working company-wide to make swift decisions on various internal and external matters. The investigation into the cause of the fire is underway in cooperation with the fire department and the police, and we are working to identify the cause. Based on the cause once identified, we will make every effort to prevent a recurrence. Some production equipment was damaged in the fire. But as we just announced the press release earlier, we conducted the safety confirmation check and started the production partially from Wednesday, the 11th. We will continue to consult with and seek the cooperation of all the relevant parties as we strive to minimize the impact. Once again, we sincerely apologize for the concern and inconvenience that the fire caused. I will now explain our Q3 financial results and the four-year consolidated guidance. This is today's agenda. Let me begin with the summary of financial results for the third quarter and fiscal 2026 guidance. In consolidated financial results through the third quarter, 2026, while the impact of the rising raw material cost has become more pronounced in the third quarter, improvements in pricing and sales mix, continued growth in sales volume, and favorable exchange rates enabled us to achieve a record high revenue and adjusted operating profit. I will explain the details of the consolidated results later. In addition, the capital policy that we announced in February progressed steadily and was completed as planned. Next, on the four-year guidance. Regarding the TOSU plant fire I mentioned earlier, the specific financial impact is currently under assessment, but at this point in time, we expect its impact on the four-year forecast to be quite limited. For revenue, taking into account that the yen has been weaker than initially planned throughout the year, and the impact of the Middle East situation, and with other various measures, we have revised our forecast upward from 4.5 trillion yen to 4.7 trillion yen. Meanwhile, for adjusted operating profit, although we recognize some upside potential based on the current progress, We have kept the guidance unchanged as the cost impacts from the Middle East situation are expected to expand in the fourth quarter, and a more challenging business environment is anticipated. Next, I will explain the details of the consolidated results for the first nine months of 2026. The consolidated results for the first nine months of 2026 came in at revenue of 3,554.3 billion yen, adjusted operating profit of 445.3 billion yen, and an adjusted operating margin of 12.5 percent. The factors behind the year-on-year change in adjusted operating profit are shown on the next page. The profit attributable to owners of the parent was 318.9 billion yen. In addition to higher adjusted operating profit, the business rebuilding is now mostly complete, and the related expenses decreased significantly year on year, resulting in a substantial profit increase compared with the previous year.

Let me explain the year-on-year variance factors for adjusted operating profit. While rising raw material costs materialized in the third quarter, we are steadily advancing our transition to growth with quality supported by improved pricing, a better sales mix driven by expanded sales of HRD tires, and continued sales growth. Also, production volume increased alongside sales volume growth, improving capacity utilization and contributing to better conversion costs. Ongoing, steady global business cost reduction initiatives and strengthening of business fundamentals through business rebuilding also firmly underpinned our performance, resulting in a year-on-year profit increase, even excluding foreign exchange impacts, despite higher operating expenses and the effect of U.S. tariffs. Next is performance by segment. We achieved year-on-year revenue and profit increases across all segments. In the Japan segment, replacement tire sales increased, partly due to last-minute demand ahead of price hikes in the third quarter. Also, Combined with the profit-boosting effects of a weaker yen and an improved price and mix, we achieved year-on-year growth in both revenue and profit with an improved profit margin. Sales of PSOE tires also remained strong, contributing to the performance improvement. In the Asia-Pacific, India, and China segment, sales of PS and TB tires remained steady, resulting in year-on-year growth in both revenue and profit, along with an improved profit margin. In the Americas business, we finished with year-on-year increases in both revenue and profit. In North America, new products and our multi-brand strategy contributed to market share gains in the replacement market for both PS and TB tires for the nine-month period ended Q3. Additionally, demand for OE-TB tires recovered from Q3, achieving sales significantly exceeding the previous year and underpinning our performance. In Latin America, despite the continued challenging business environment, we secured profitability by ongoing efforts to strengthen business fundamentals and sales. In the Europe, Middle East, and Africa business, while revenue and profit declined in the Middle East due to the regional situation, Europe achieved higher revenue and profit as well as an improved margin driven by continued sales growth of HRD tires and steady contributions from business rebuilding efforts. Please note that while changes in intercompany royalty rates negatively impacted profits in the Europe and America segments, there is no impact on consolidated financial results. Now I'd like to explain our performance by product. For PS and LT tires, expanded sales and an improved mix of HRD tires continued. Supported also by improved profitability in the retail business, we achieved year-on-year increases in both revenue and profit, along with improved profitability. For TB tires, as sales remained solid and aided by business rebuilding effects in the Americas and Europe, We achieved year-on-year increases in both revenue and profit, also with improved profitability. In North America, we achieved market share gains in both the replacement and OE markets. Demand in the North American OE market, which had faced a continued harsh business environment, shifted to a recovery trend from the third quarter. Regarding specialties, sales of ultra-large mining tires remained steady, and with tailwinds from foreign exchange, we achieved increases in both revenue and profit. It continues to maintain high profitability above 20%, underpinning overall consolidated performance. Regarding the diversified products business, while steady efforts to improve business quality continued, it resulted in a year-on-year revenue increase in profit decrease. Please note that excluding the impact of a one-time item in the prior year, profit and margin improved year-on-year. Next, I will explain performance by business portfolio. In the tire business, sales remained solid for both PS and TB tires, resulting in increases in both revenue and profit, with the adjusted OP margin recovering to 14.7%. The solutions business, our growth area, achieved growth in both revenue and profit with improved profitability. In the retail business, increases in both revenue and profit, along with profitability improvements, also continued. And in commercial B2B solutions, profitability improved, achieving a margin exceeding 13%. Finally, here's the status of our balance sheet and cash flows. Total assets increased by 20.4 billion yen from the end of the previous year to 5,768,000,000,000 yen. While total assets are trending upward alongside revenue growth, the cash conversion cycle improved slightly year-on-year, excluding foreign exchange impacts. Finished products decreased year-on-year, excluding foreign exchange impacts, as we continue to strictly enforce lean inventory management. We will continue working to further strengthen our balance sheet management. Free cash flow resulted in an inflow of 309.7 billion yen. This represents a year-on-year increase of 66 billion yen, driven by improved operating cash flow resulting from higher profit before tax. Additionally, regarding the capital policy announced in February, we have completed our shared repurchases and debt utilization as planned. This concludes my explanation. Thank you for your kind attention.

So that was the financial results for the third quarter of fiscal 2026 explained by Mr. Hishinuma. We would now like to move on to the Q&A session. So from Mizuho Securities, Sakaguchi-san, please go ahead. This is Sakaguchi from MISO Securities. Thank you very much for this opportunity. I have two questions. The first question is for the North American market and near sales trend. If you can elaborate your third quarter results. The market as a whole, I think there was a slight change in trend. Your sales seem to be a bit weaker. So until the second quarter, it was quite strong. But of course, you were saying that with your share, you'll be attacked by the other competitors. So do you see any change in the market trend and your sales trend, if you can elaborate? May I ask the second question? Now my second question. The fourth quarter, you said that there is potential upside. But the $70 billion is the adjusted operating profit level, which my understanding is that the level is quite down. Of course, there's going to be a whole impact of the higher material cost. But with this as a starting point, then next fiscal year, assuming that the current soaring raw material cost continues, then we may think that it's going to be quite challenging, and you're going to be making investment towards the growth. So, for next year. So, especially with external environment, how you're impacted by the raw material cost and how you're going to react to that, if you can elaborate, those are the two questions. So, the first question, if you can take it. Thank you very much for your question. As for your first question, if I may respond. As you mentioned correctly, when it comes to the demand for the North American market, the passenger, as you pointed out correctly, between non-member and members, there is a slight change compared to the traditional trend. But last year, because of the tariff, that is actually one factor. So rather than looking at the third quarter alone, I think we should see the year to date to understand the trend correctly in that sense. Non-members and members against that. The member demand reversal compared to the recovery compared to the non-member is quite weak. So that remains unchanged from the first half, and throughout the four years, we anticipate the same trend to continue. So that remains unchanged from before. That's a high-level market-wide trend. Now, on the other hand, for ourselves. For the third quarter, standalone, our sales seems to be weak against the demand. That may be in depression. There is one special factor for that, actually. The multi-brand strategy, Bridgestone and Firestone brand, to promote those, we've been strengthening the sales of those brand and Firestone part of that. In terms of the products, the switch from the old products to the new products has taken place in the third quarter. So our core product, so to speak, with a large volume, there was a switch of the product. So there is a temporary impact for the third quarter because of the switch. That sort of drove the sales down, but the switch is already done. So looking at the latest October sales, we are making a steady sale. So that's just a one-off factor, we believe. So as we've been saying, there's a multi-brand strategy with that, promote both Bridgestone and Firestone to expand a share for the four-year. That's what we'd like to continue to promote. So that's my question to the first question. As for your second question, as you pointed out correctly, the fourth quarter, given the Middle East situation, the higher material cost, from the third quarter, it's been more pronounced, and we believe the impact might be even bigger for the fourth quarter, and because of that, the business environment is very challenging, and because of that. For the four-year guidance, we decided not to change the four-year guidance. Now, for the third quarter, The sales mix is a factor. From the second quarter, we are maintaining a strong momentum. So this momentum shall continue. We would like to maintain the momentum going forward, and despite the challenging environment, the fact that we've been able to maintain makes us think that we should be able to maintain going forward as well. Whereas on the call side, there is a negative impact, and also there are different factors as well. I talked about the incident in the plant as well. So because of those factors, we decided not to change the four-year guidance. But in that sense, it's not that there's any concern, but to continue to improve both the sales and the pricing mix, so that's what we would like to continue to work on. Thank you.

In terms of the direction toward next year, there is a cost increases, so what will be your counteractions? Can you please comment on your policy? Yes, regarding raw materials, prices have been trending relatively at a high level toward next year. And RMI, in the form of RMI, there will be some impact carried forward, and that will be converted into a positive impact in the next year. And the raw material prices tend to be high, and partly it is due to adverse weather and also foreign exchange. So... In terms of TSR 170 cents, it will take some time to go back to such level, but we are anticipating a gradual improving trend. Thank you. Thank you, Sakaguchi-san. Next question is from Sakamaki-san of B of A Securities. This is Sakamaki speaking. Can you hear me all right? Yes, we can. Thank you very much for this opportunity. I have a question regarding the performance of Q3. I believe the numbers were better than the initial expectations, so how much better were they, and what were the factors? I believe domestic replacement. Would have been strong, and HRG tires have high margins. So were there any one-off factors? Can you please comment on the overall situation? In that sense, in terms of changes from the second quarter, raw materials served as a negative profit factor compared to the second quarter. And when it comes to sales volume, as you rightly said, in Japan and in Europe, in these regions, we were able to overachieve the plan. Additionally, there was timing difference of OPEX. Of course, exchange rate was a positive against the plan. In terms of other factors, It is included in the other section in the various factors, but in the U.S. retail service revenue, this was already trending positively in the first half, and this is still contributing to the performance. And also there has been a refund of a 10 billion yen of U.S. tariff, which is included in the third quarter performance. Because of such factors against the plan, We were able to overachieve our expectations, but to your question as to how much, for the third quarter, we said at the level of tens of billions of yen, and that is similar to what we're seeing today. Thank you very much. This is a good segue to my second question. You had better market gains in the domestic business than expected in the U.S. I believe you maintain the ability to maintain your shares. So what are the measures you have been implementing to retain these shares, and how sustainable do you think they would be? And I am imagining there will be differences between regions. When Ishibashi-san was the head, I believe there were some declines in the volume. So as you're pivoting to the new policy, how much growth do you think you can achieve toward the next fiscal year? In Japan and in the U.S., as you said, for example, in Japan, fitness new products have been launched. In the U.S., ultra weather new product has been launched. Such new products have been driving the performance in terms of volume. So these new products have been serving as the volume driver, and in terms of its sustainability toward the next fiscal year, in addition to the new products, for example, having a wider lineup of sizes would help us satisfy the demand of broad customer base we have planned for such SKUs. These will continue to be a growth driver from next fiscal year onward. So, in terms of the production tonnage per month, would it exceed 400,000? We are unable to give you specific numbers as we are still planning for the next fiscal year, but steadily we would like to achieve growth above the demand level.

Thank you.

Thank you very much, Sakamaki-san. Next, from SMBC NICO Securities, Amaki-san, please go ahead. I'm Maki from SMBC Nico Securities. Thank you very much. So two questions from me. The first question, it might be a repetition, but in the second quarter, the sales turned around positively, and the third quarter, again, the sales is sustaining. During the second quarter, Morita-san mentioned that maybe it was too much, it was too good, and in the second half, in that sense, Because of the competitors being more aggressive, there could be some impact on the cells, but now the fact that it's sustaining, it's sustainable. Do you think you can continue to sustain these sales from the sustainability perspective? Do you think the sales growth can be sustained towards the next year? What is your feeling at this point in time? That's my first question. And the second question, towards the next fiscal year, mainly, Q4. With this expected decline in profit, about $70 billion and $80 billion, I think, for the raw material cost, I think that's how it's included, if that's the case. Then from the time-lapse perspective, the first half of next year, I think it's going to be a large cost increase exceeding $100 billion. So the impact of raw material costs for next year, what is your expectation and anticipation now? And for the pricing, there may be some slow progress. So including the pricing, what are the possible actions that you can take against those higher raw material costs? Those are the two questions. Thank you. Right. So, when we announced the first half results, Morita-san said that the right channel, right products, and those were executed as was planned. That was the background for the good results. I remember him talking like that, but in that sense, this time as well, and as I mentioned earlier, Japan and Americas. The sales volume was quite steady and strong, and as I mentioned earlier, with new products driving the growth, new products driving the sales volume growth, in that sense, the momentum has been sustained from the second quarter and onward. So, in that sense, for the next fiscal year, on top of the new products, as I mentioned earlier, we'd like to expand the SKUs that's being planned for next year. So that we can deliver products to a wider range of customers. So that would also continue to be the growth driver for the sales volume growth. Did that answer your question? And here's the second question. Right. In terms of the impact of the raw material cost, as you pointed out correctly, Q4 against the plan, it's going to be quite negative against the plan. Next year, no word. What's the degree of the negative impact? We are now in the midst of formulating the business plan for next fiscal year, so it's difficult for us to give you any specific answer. But again, basically, in line with the raw material prices, not just the pricing, but The cost, business cost, to be, say, reduced through those efforts to reduce our cost as well, and for whatever we can still not offset, then, as has been the case before, looking at the balance between the volume and the price, we would deal with it meticulously. Therefore, the raw material and data inflation The sales price and mix to offset that, that remains unchanged in terms of the action that we're going to take. So, America's market from the beginning of the year towards the end, it's starting to look better. So, with that, I think you're increasing the prices, and the fourth quarter, maybe you can do that more and move on to the next fiscal year. So, what's the trend in the pricing for America's? The consumer's sentiment is rather relatively weak. But having said that, fortunately, the crude oil price is starting to settle down a little bit. So with that, the inflation and the gasoline price hike, if those can be solved, then the consumer sentiment may... Start to improve and recover. At least that's what we hope for. Yes, and if it would improve, then for the price increase, I think it will be easier for us to increase the pricing. So we would like to keep an eye on the future trend. Thank you.

Thank you. Our next question is from Yoshida-san of CD Group. Thank you. I have questions regarding rub materials. So regarding natural rubber, you mentioned that prices are high now, but it is due to one of the factors, and you are anticipating gradual improvement trend. This may be an unnecessary question, but what about other raw materials and still carbon black or steel regarding these raw materials that are less visible from outside? What is the cost situation and what is your outlook that you're using as assumptions for your management plan? And my second question is, based on... The response to that question, in terms of the spread is negative by around 200, but profit margin is improving. Basically, toward next year, despite the raw material cost, it's important that this is to be continued and profit to be increased. Do you have an impression that you'll be able to plan for such profit growth? What is your outlook for the next fiscal year? Yes, thank you for your question. First, regarding the current raw material cost, natural rubber price is maintained at a relatively high level, and the crude oils... So these are the raw material for petrochemicals, and WTEI was above 100 at one time, but now it is below 90. So for synthetic rubber and also for carbon black, this is going to have some impact. It is difficult to foresee the future development, but such volatility has been continuing. That is our understanding. And as for raw materials, some are going up, some are going down, but on a year-on-year basis, if you just look at third quarter, these are... I'm creating negative profit factors by 23 billion yen. And when we look at the next fiscal year, for example, the current high prices of natural rubber in the first quarter of next fiscal year. Raw materials would create an impact on the P&L in the first quarter, so raw materials' negative impact would materialize in the first quarter, and that's how far we can foresee. There were fluctuations of raw material costs in the past, and when it goes up, we have offset that with mixing selling prices. That has been our historical actions. So, as Hishinuma explained earlier, we will... And try to offset the raw materials' negative impact with selling price and mixed balance. However, some are linked to indicators, indices, which cannot be recovered in a short period of time. So they may have an opposite impact in the following year. And in each region, a byproduct. By size, by brand, we will be looking at the balance of prices and mix. And we have been taking action. So, in Q4 and in next fiscal year, these are going to create tangible impacts. And those linked to indices will be having impact in the next fiscal year. So, regarding the spread between prices and raw materials, these are to be offset through next year, and we will be taking various actions so that we can offset the impact. That's the answer to your first question. Thank you. Another question is your policy for the fourth quarter. Due to the deterioration of the Middle East situation, there are 70 or 80 billion yen impact on the raw material cost. Initially, on a foliar basis, it was anticipated to be 34 billion yen. So that's minus 36 billion. So I believe 40 billion yen is going to be the negative impact in Q4. Q3 was minus 20 billion, so the Q1Q decline is approximately 20 billion yen. Other than that, there would be various risks, but... So the operating profit of $160 billion turning to $140 billion seems to be likely, but is my calculation wrong? What kind of risks are you factoring in? Yes, thank you. In that regard, as for the raw materials cost trend, The numbers you just described, Yoshida-san, are not too far from what we are looking at. From Q3 to Q4, on year-on-year basis, there will be more deterioration impact from raw material cost, partly due to the Middle East situation. On the other hand, from Q3 to Q4, when we think about the Q1Q impact, one negative factor will be the OPEX. At the beginning of the year, strategically, looking at the profitability, we decided to spend a cost for future growth, and we still maintain that policy. In Q3, there are some timing differences into Q4, so in Q4, OPEX is likely to... The increased from Q3, and we are also looking at possibilities for upside, but we continue to face volatile business and economic environments, so considering such risks. We believe, we recognize that there is a possibility for certain upside, but there are risks and uncertainties we must not forget, and that is why we decided to maintain our forecast this time. Thank you very much.

Thank you very much, Yoshida-san. From now, we would like to entertain questions from the members of the press. If you have a question, please let us know by clicking the raise hand button at the bottom of the screen. Now, due to time constraint, we would like to limit to one question per person. I'd like to ask for your understanding. When your name is called upon, please unmute yourself. And turn on the camera, if possible, before you speak up. And members of the press, if you have any questions, please let us know by clicking the raise hand button at the bottom of the screen. Again, due to time constraint, we'd like to limit to one question per person. I'd like to ask for your understanding. Now, Nikkei, Takai-san from Nikkei, please go ahead. Thank you for the explanation. I am Takashi from Manike. Can you hear my voice? Yes, we can hear you. Thank you. So, overlapping the previous question, for next fiscal year, the higher raw material cost situation continues. So, in Japan, you increase prices, but for next year… Are you planning additional price increase? Would that be necessary? If you can share with us dialogue for that, please. Yes, basically, the basic way of thinking is that, as I mentioned earlier, for the inflation, including the raw material cost, of course, we'll make efforts to reduce the business cost and to improve the mix. With that, we'd like to offset. That's the first thing we'd like to work on, and on top of that. By leveraging the global supply chain, we'd like to optimize the cost, so we'll make those efforts. And yet, for the part that we cannot offset, then we will have to take actions, including increasing the price. But it's not going to be a consistent price increase, but it will take place by region, by product, by brand, by size. And we have to also see a balance between the price and the volume. We would like to analyze them in details to take meticulous action. That's a basic policy. So for anything specific for the sales price, I'm sorry, we cannot make any specific comment on the pricing. Thank you very much.

Thank you, Takahashi-san. The next question is from Uchida-san of Nikon Jidou Shoshinbun. I'm Uchida of Nikkan Jodosha Shimbun. Can you hear me okay? Yes, we can. Thank you. So I have a question about the breakdown of regional strategies. Recently in the U.S. there has been the midterm election, so from next year onward, I believe that will be reflected on your midterm plan. So the company will be going after sales in volume, but... I assume strategies will be different by region, so can you give us some more color on what you are seeing at the moment? Yes. Our basic policy is our aim is to become number one again in 2031, and our pillar will be product, manufacturing, and global portfolio, namely brands. These three are going to be the pillars. And, of course, to more customers, we would like to deliver our product. That is our corporate creed, and that is going to be the key in regaining the number one position. Regarding our specific regional strategies, when we announced the mid-term plan, we would also like to explain our regional strategies together. But as I said earlier, delivering our products to as many customers as possible is our objective. So we will be pursuing scale. That is going to be our basic policy we would have for any region. Also, as for the details, when we announce our midterm business plan, we would like to report and explain the details. I see. Thank you.

Thank you very much, Uchida-san. Since there seems to be no further questions, with this, we'd like to end the Q&A session. So with this, we would like to conclude Bridgestone Corporation briefing on financial results for third quarter of fiscal 2026. There is going to be a questionnaire. So I would like to ask for your cooperation to respond to the questionnaire. And thank you very much for being with us.