Closing the Firestone Plant In Decatur:Analysts Say Its Good For Bridgestone - TACH Says Its Bad For Workers
A report published in Japan Today and credited to Reuters stated that Bridgestone Corp's planned closure of a Firestone plant is seen as step in the right direction for its U.S. unit, Bridgestone/Firestone Inc following its damaging tire recall scandal, analysts said on Thursday. Closing the Decatur, Illinois plant would save huge costs at the nation's biggest tyre maker, and this should help ease the pain from an added special loss of 68 billion yen ($547 million) earmarked this year to help pay for the recall saga that has sundered century-old ties with Ford Motor Co , they said. "The company's decision to close a plant is positive because it will lead to a large cost cut," said Societe Generale analyst Kunihiro Matsumoto, who kept a "hold" rating on Bridgestone. Matsumoto said the closure of the plant, which is nearly 60 years old and employs about 1,500 workers, would trim the U.S. unit's annual costs by $100 million, adding that the positive impact will begin showing up in earnings for the second half of 2002. Shares in Bridgestone on Thursday recouped early morning losses of more than 4%, ending the session up 0.77% at 1,308 yen. The firm outperformed the market's benchmark TOPIX index's 0.75% fall on the day. Seiji Sugiura, senior analyst at Nomura Securities, also gave a thumbs-up to the planned plant closure, saying it would trim excessive output capacity at a time when the outlook for the U.S. auto market was deteriorating. The Decatur factory — the oldest of the Firestone's seven North American plants — produced many of the defective Firestone tires blamed for one of the largest product recalls in U.S. history and at least 203 traffic accident deaths mostly involving Ford Explorer vehicles. Thursday's gain comes despite the firm's warning on Wednesday that its group net profit for this year would be 10 billion yen — only a fifth of its profit estimate made in February — and that the firm will fall into the red on a parent net basis for the first time since its listing in 1961. "The short-term momentum for Bridgestone's shares should improve as the company sees higher-than-expected profits in its business due to solid tire sales in Japan and the weaker yen," said Societe Generale's Matsumoto. Matsumoto raised his estimate for the stock's six-month fair value to 1,400 yen from a previous 1,100 yen, citing a recovery in the firm's core business as shown in its current profit, which is pre-tax and excludes extraordinary items. Citing benefits from a weak yen, Bridgestone on Wednesday raised its group current profit forecast for this year to 105 billion yen from its February estimate of 100 billion yen. Still, few analysts believe Bridgestone's stock price will outperform the key TOPIX index in the longer term because there are still concerns about downside risk from a battle with Ford and Firestone's full-fledged earnings recovery. Japan's credit rating agency, Rating and Investment Information, on Thursday cut the long-term rating of Bridgestone, citing worries about more huge losses from Firestone lawsuits. "With still many damage claim suits against Firestone, we have decided to take into account the risk of it facing unpredictable losses," it said. Investors agreed concerns are still there. Toshio Tahara, chief fund manager at Sumisei Global Investment Trust Management, pointed out two risk factors — potentially more costs from the recall and lawsuits, as well as the risk of the weakening competitiveness of Bridgestone in the aftermath of the recall and the row with Ford. "The first concern may go away soon or later... But time cannot put an end to the second concern. Investors want to see what's going to happen on these two fronts," he said. Tahara, who has already unloaded Bridgestone from his portfolio since last year's recall news, said he has no plan to buy them back until these concerns will be cleared.