Bridgestone Corp
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Bridgestone Corp
Earnings Call Analysis
Q1-2024 Analysis
Bridgestone Corp
The earnings call began with a discussion on Bridgestone Corporation's performance in the first quarter of 2024. Shuichi Ishibashi, the Global CEO, highlighted the challenges the company faced, including lower demand for truck and bus tires in North America and a deteriorating business environment in Latin America. Despite these obstacles, Bridgestone saw an increase in revenue and profit, largely thanks to strong sales of off-the-road tires and premium tires supported by favorable foreign exchange rates .
Naoki Hishinuma, the Global CFO, presented the consolidated financial results, reporting a revenue of JPY 1.0641 trillion, an increase from the previous year. Adjusted operating profit rose to JPY 120.2 billion with an improved operating margin of 11.3%. However, the profit attributable to owners of the parent company slightly decreased to JPY 86.6 billion due to onetime gains in the previous year that were not repeated .
The performance varied across different segments and geographical regions. In Japan, sales were significantly impacted by delayed summer tire demand and pre-buy price increases from the previous year. Europe faced similar issues, with lower demand for small- and medium-sized tires offsetting steady sales of ultra-large mining tires. Meanwhile, the Asia Pacific, India, and China segments saw increased profitability, attributed to improved organizational efforts in Thailand and China .
In the passenger car and light truck category, despite a decline in sales volume, both sales and profits increased year-on-year, benefiting from the expanded sales of high-rim diameter (HRD) tires. The specialty segment, which includes highly profitable mining tires, also saw significant growth, boosting the overall profitability of the company. However, the truck and bus tire business experienced declines due to lower demand in North America and Europe .
Raw material costs were influenced by the prices of natural rubber and crude oil. While natural rubber prices remained flat, the cost of other raw materials dropped year-on-year. The depreciation of the yen against the US dollar and the euro had a mixed impact, with increased profitability in export-driven segments but added cost pressures on imports .
One of the most pressing issues discussed was the business environment in Latin America, particularly in Argentina. The unfavorable conditions include a slowdown in GDP growth, rising inflation, and declining tire demand. Bridgestone has taken emergency measures to mitigate these impacts, such as optimizing inventory, reducing conversion costs, and cutting fixed expenses. The company is also exploring long-term solutions to rebuild its business structure in the region .
Despite several headwinds, Bridgestone maintains its full-year forecast with an adjusted operating profit of JPY 530 billion. This forecast incorporates the anticipated deterioration in the Latin American business, balanced by expected gains from a weaker yen. The company plans to continue focusing on increasing the sales volume of premium tires and overall sales mix, alongside business cost reductions .
Bridgestone is actively working on enhancing its business quality through initiatives like the '24 mid-term business plan and the Deming Plan, aimed at improving quality and productivity. The company is also focusing on its Genbutsu-Genba philosophy, which emphasizes on-site problem-solving and productivity improvements. Additionally, Bridgestone is expanding its Mining Solutions business and continuing restructuring efforts in Europe and Asia .
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Hello, everyone. Thank you very much for attending the Q1 2024 financial results briefing hosted by Bridgestone Corporation. Let me introduce to you the presenters. To start with the Director of Bridgestone Corporation, Representative Executive Officer, Shuichi Ishibashi; as well as Global CFO and General Manager of Financing division, Naoki Hishinuma. We also have Yoshikazu Shida, Global CCO; as well as the Global CAO, Masahiro Higashi.
So I would like to hand it over to Mr. Shuichi Ishibashi again, our Global CEO to take you through the overview of the first quarter 2024 financial summary and full year forecast.
Hello to everyone. I am Ishibashi, Global CEO.
2024 as the first year of the '24 medium-term business plan announced on March 1, we will resolve remaining and new issues of the [ 21 ] medium-term business plan. Our top priority is to return to a strong Bridgestone capable of adapting to change. So today, I will explain our first quarter results, including the progress made to date.
In the first quarter, although there were some challenges such as lower demand for truck and bus tires in North America and the deteriorating business environment in Latin America, which we had assumed at the time of the planning in February, off-the-road tires for many vehicles and passenger car premium tires and replacement market supported the performance and with the tailwind of foreign exchange also contributed to the year-on-year increase in revenue and profit. While continuing to strengthen our focus on premium tires with promoting measures to combat in the deterioration of Latin American business, we will continue to manage our business with the aim of covering such negative impact in other areas.
Demand and sales in the first quarter. First, let us summarize the passenger car tire business. Demand for OE tires remained firm in North America as in the previous year. In Europe, demand was down from the previous year due to the economic slowdown and the slowdown in the shift to EVs and in Japan, demand was also down. Global sales were approximately 90% of the previous year level. And for the full year, we currently expect the same trend as in the first quarter to continue.
In high rim diameter tires for new cars, demand in North America and Japan increased year-on-year, while demand in Europe decreased year-on-year. Sales declined slightly year-on-year globally, reflecting the respective demand and mix of current models. We will continue to strengthen our approach to premium models and OE, prestige OE and premium EVs on a global basis.
Next is the overall demand and sales for replacement tires. In North America, both sell-in and sell-out demand was almost on par with the previous year and sales were similar.
Europe. Demand was on par with the previous year, although distribution inventories normalized except in some regions. The company reduced low end size and unprofitable products and focused on premium products. And all in all, the market share was down.
Japan. Demand fell sharply from the previous year due to a delay in the so-called spring replacement demand and the impact of temporary demand prior to the previous year's price hike, and sales were partially unbalanced between quantity and the quality. The market share was down. In addition, there was a decline in sales in Latin America. And as a result, global unit sales were approximately 90% from the previous year level. For the full year, we currently expect the same global unit sales volume as the previous year as in the February plan.
In the area of replacement high rim diameter tires, global demand continues to grow, and we are working to expand sales and increase market share while capturing this demand.
In North America, we expanded our market share based on Dan-Totsu products and new channel development. In Europe, sales increased year-on-year, but market share was down due to a weak channel base and the balance between quantity and quality based issues. Similarly, the market share resulted in a decline in Japan. So in both regions, we expect sales to increase year-on-year for the full year, and we will work to recover.
In addition, China, where we are exiting from the truck and bus tire business and focusing on premium passenger car tires, the company accomplished significant sales growth. Global total sales have also expanded. For the full year, we expect sales to continue to grow. Increasing sales of such high rim diameter HRD tires will support the entire company's business performance under the challenging environment, and we'll continue to strengthen them.
In North America and Europe, we are also focusing on ultra HRD tires or 20 inches or above to improve our sales mix. In the first quarter, nearly or in the fourth quarter, nearly 70% of OE and 45% of replacement were HRD tires. In Japan and emerging markets, we will continue to improve the sales mix. In addition, we are strengthening sales of products equipped with ENLITEN, a product design platform technology that pursues ultimate customization as a new premium product and other highly profitable premium tire brands.
Next, I would like to discuss truck and bus tires. In OE tire business, sales volume in North America remained at about 80% of the previous year's level due to a significant decrease in demand from a year before. From the second quarter onward, we are stepping up our efforts to recover to the previous year's level for the full year by, for example, promoting negotiations for new contracts.
In Europe, demand continued to decline and sales also went down. We will optimize the balance between volume and quality while continuing to focus on premium. And Japan and globally, we will continue our focus on premium.
For replacement, global sales volume was approximately 90% of the previous year's level. In particular, the situation in North America has had a significant impact on the company's overall performance.
Let me first explain about demand. Although sellout recovery is slightly lower than expected, distribution inventories normalized at the end of the first quarter as planned in the guidance in February. On the other hand, due to dealers' efforts to reduce inventories as a result of continued high interest rates, demand was slightly down year-on-year. Overall sales in North America were less than 90% of the previous year's level.
By brand, the premium and Bridgestone brands, which are strong, mainly in the Fleet business, steadily expanded sales year-on-year. On the other hand, sales for dealers where more Firestone brand products are used, declined significantly due to the impact of inventory reductions and challenges in optimizing the balance between volume and quality.
For the full year, demand is -- in North America is expected to recover and grow year-on-year from the second quarter onward, and sales are also expected to recover. However, since last year, we have been implementing PDCA cycle, thoroughly managing signals, assuming the risk of demand fluctuations, ensuring a firm balance between sales and supply and starting production, planning and inventory adjustment well in advance.
In global sales, reflecting our focus on premium products sales in Europe, Japan and others declined from the previous year. And in the first quarter, sales were less than 90% of the previous year's level. Sales of off-the-road tires for mining and construction vehicles continue to be the same level as the previous year in each category. Solid sales in highly profitable business contributed to the company's entire performance. In addition, we are promoting business expansion in Mining Solutions.
Based on the above, I will explain our business performance with a focus on adjusted operating profit. As for raw materials, although the depreciation of the yen was a negative factor in the profit of products manufactured in Japan, global profit increased year-on-year.
In order to secure our business performance, we improved sales mix by reducing or discontinuing loss-making unprofitable businesses and thoroughly implemented expense management to cope with the decrease in sales volume. In addition, various business cost reduction measures provided under '24 MBP were gradually reflected in our business performance and contributed to increased profits.
On the other hand, the depreciation of the business or deterioration of the business environment in South America, especially in Argentina, accelerated and negative impact on the company's performance expanded.
Adjusted operating profit margin improved slightly from the previous year and will continue to improve the quality of our business.
We will report on the progress of '24 MBP after the first half of the fiscal year. But since the first quarter, we have been promoting activities to improve management and working and business quality and to strengthen earning power in line with '24 MBP.
To strengthen our business quality, we have returned to origins. And since last year, we have been reaffirming and reenhancing the Bridgestone unique Deming plan, which was established in the 1960s to strengthen our quality improvement activities. As we started with strengthening activities by the top management, in March this year, we held G-EXCO, or Global Executive Committee, our highest level meeting body in Kurume City, Fukuoka Prefecture, the birth place of Bridgestone with an emphasis of Genbutsu-Genba or respect for being on site, the meeting confirmed and discussed Bridgestone's DNA activities for mining and aviation tire solutions and premium tire production improvement activities at Kurume and Tosu Plant.
In addition, we have started to distribute booklets and provide workshop type training programs to global employees so as for the entire company to work to strengthen its business quality. Furthermore, based on the new global portfolio management structure, we are closely following up monthly business performance in each of the 47 areas, quickly running the PDCA cycle and strengthening the management that is focused on execution and delivering results.
As for the second stage of restructuring, the rebuilding, we have already announced our withdrawal from the TB business in China and also promoting to rebuild our European business and REP channels in Thailand and Japan.
In addition, the business cost reduction across the value chain is gradually starting to contribute to our business performance. In promoting global procurement activities and global SCM, supply chain management, logistics transformation be direct, we opened a new distribution site in Spain that incorporates green and smart technologies to improve the efficiency of our logistics network and inventories.
We're also promoting BCMA and shift to green and smart in our factories linked to BCMA. Steady productivity improvement based on Genbutsu-Genba, respect for being on site, generated JPY 5 billion in profit increase in the first quarter.
These activities are reflected in the performance by each business portfolio. In the premium tire, our core business, secured an adjusted operating profit margin of approximately 15%. In the Solutions business, 3/4 of the retail and service of sales are provided with adjusted operating margin of a little less than 3%, and there is a need to rebuild Europe and Japanese business there. However, B&B solutions for commercial goods, including mining innovation solutions, driving force behind the expansion of solutions achieved 1/4 of the total solution business sales with an increase in sales and profit and an adjusted operating margin of about 8%. The breakdown of the diversified products businesses will be explained later by CFO, but the Japan's chemical and industrial products businesses, for example, achieved steady improvement.
Financial results by segments are as indicated on the slide. In the Japan segment, the Japanese tire business continued to face difficult environment, along with the retail business, but exports increased partly due to the impact of the yen's depreciation.
In the specialty tire business, such as in mining and aircraft tires, we achieved an adjusted operating profit margin of about 25%. In the Americas, the impact of the decline in sales of TB tires in North America was significant, and the deterioration business in Latin America, especially in Argentina, which I will explain later was a major factor in the decline in profit.
Next, I would like to discuss the full year forecast. The exchange rate assumption has been updated to JPY 140 to dollar, a weaker yen compared to the February assumption in light of the recent trends. Although this will be a factor for increased profits, the forecast for the full year remains unchanged from the February assumption with the adjusted operating profit of JPY 530 billion, reflecting deterioration in the Latin American business.
I would like to explain the outlook and countermeasures for the Latin American business. For Argentina business, which is considered the management risk at the time of the February guidance, we envisioned 3 scenario plans: optimistic, neutral and worst based on the volatile business environment. The neutral scenario was reflected in the guidance in February. In the latest environment, there is further slowdown in GDP growth rate and inflation is proceeding more rapidly than assumed with rapidly declining tire demand.
There is accelerating changes to an environment approaching the worst scenario. The first quarter, the decrease in profit was a factor of JPY 8 billion versus the previous year. Due to the conversion of inflation, the market structure is changing at an accelerated pace, along with the decline in demand as more imported goods enter the market. We have already launched a counter measures at the end of last year to better monitor and manage the signals of change.
In response to the worsening business environment, we are first taking emergency and short-term measures. We will implement sales strategies that optimize the balance between quantity and quality, adjust supply and production plans to cope with a sharp decline in sales volume, streamline inventory, reduce conversion costs and cut fixed costs and operating expenses.
In the Latin American business, we recognize the risk of further deterioration of the environment, particularly in Argentina, and we'll continue to take measures to minimize the impact while quickly assessing the impact on our 2024 performance. In addition, as a medium- to long-term action for 2025 and beyond, we have begun to consider business rebuilding, including structure of production and sales in Latin America.
This is an explanation of first quarter results and full year forecast. As for the progress of the '24 midterm business plan, because we have only just announced it, and started full-scale activities in March, I had explained the first quarter results and key points related to the business management only at this time. We would like to provide a more comprehensive progress report at the time of the next Q2 results in August.
Thank you for your continued understanding and support, and thank you very much for your attention.
Thank you very much. That was the presentation by Global CEO, Shuichi Ishibashi on the first quarter 2024 financial summary and full year forecast. Now turning to Naoki Hishinuma, who is the Global CFO and General Manager of Finance Division to take you through the Q1 2024 financial results.
I'm Hishinuma and I'm in charge of Finance. I would like to explain our consolidated financial results for the first quarter FY 2024 as well as the guidance for fiscal 2024. Here's today's agenda.
So let me start with the first quarter business and financial performance. The consolidated results for the first quarter of '24 are as shown here. Revenue was JPY 1.0641 trillion, up from the previous year, and adjusted operating profit was JPY 120.2 billion again from the previous year.
Negative factors such as lower demand in sales of trucking bus tires and deteriorating business in Latin America were partially absorbed by mix improvements. So the expanded sales of premium tires and business cost reductions. We can also help to boost profits and the adjusted operating profit margin improved by 0.1 percentage points to 11.3%. Profit attributable to owners of the parent, JPY 86.6 billion, a slight decrease from the previous year because gain on sales of fixed assets was booked as adjusted items in the prior year as onetime significant gains.
As an executive summary, we present the highlights of our business performance. As explained earlier, in the first quarter 2024, we have accomplished an increase in both sales and profit and have landed on the improved adjusted operating margin. We will continue to accelerate our efforts to reinforce the earning power through the enhancement of business quality.
Continuing on, here is the business environment for the first quarter of 2024. In terms of exchange rates, the yen depreciated against both the U.S. dollar and euro compared to the previous year. As for raw material prices, the feedstock prices of natural rubber were on the upward trend compared to the previous year, where feedstock prices of crude oil was on par with the previous year. As for the impact of raw materials on first quarter are taking time lag from raw material purchase to actualization in COGS account, natural rubber prices were flat year-on-year, where unit prices for other raw materials such as crude oil and butadiene fell year-on-year.
Tire demand. Demand for new vehicles have softened the gains in the backdrop of declining vehicle production by automobile manufacturers, although there were regional differences. Replacement tires, the demand level for PSR remained the same before as previous year. Well, that for TBR was lower than previous year due to a relatively slow recovery in demand.
Japan. Demand was significantly lower than previous year, due to a delay in summer tire demand and rush demand before the previous year's price increases. On the other hand, demand for HRD tires above 18 inches continue to grow steadily year-on-year.
This page shows the sales volume PSR dealer tires. Global sales of PSR dealer tires were -- grew below the previous year's level at 90%. Sales of OE tires also decreased due to a decline in vehicle production, except in some regions. Sales of replacement tires in Asia and North America generally stayed flat year-on-year, while sales in Japan were affected by the delay in summer tire demand and pre-buy a price increase in previous year. And in Europe, sales declined significantly year-on-year due to the impact of selective reductions in unprofitable businesses. Sales of 18-inch and above HRD tires continue to grow steady year-on-year on the back of the increased replacement demand.
Next. And the sales of TBR and ORR tires. In volume, global sales of TBR tires were short of the previous year at 89%. As with PSR, sales of tire for OE decreased due to the decline in vehicle production, except in some regions. As for replacement tires, the recovery of demand was slower than that of PSR and sales in all regions were below the previous year's level. In Japan, in particular, sales were significantly lower than the previous year due to the delay in summer tire demand, the impact of pre-buy price increase in previous year and selective reduction in unprofitable businesses.
As for ORRs, while sales of ultra large mining tires remained flat year-on-year due to stable demand for minerals, sales of tires for construction vehicles continued to decline due to the significant impact of lower demand in Europe for small- and medium-sized REP tires.
I'll now explain the analysis of the adjusted operating profit forecast. In addition to softening raw material prices, thorough efforts to improve the sales mix partially absorbed the decline in volume, worsening conversion costs, including production adjustments and decrease in profit for the Argentina subsidiary. The favorable foreign exchange rate also contributed to the year-on-year increase in profits.
I will now explain the results by segment. As explained by the Global CEO earlier, the Japan, Asia Pacific, India, China and Europe, Middle East, Africa segments posted higher profits and profit margins despite lower sales year-on-year. In Asia Pacific, India, China segment, partly due to the efforts of the reorganization of tire production sites in Thailand and the withdrawal from the TB business in China, the profit margin improved to 10% level.
In the Americas segment, while sales of HRD tires were strong, the business in South America deteriorated. Sales declined mainly in the TB business, conversion costs deteriorated due to production adjustments and profitability of diversified products business in the Americas decline. As a result, sales increased, but profit and profit margins went down year-on-year.
I will now explain our results by product category. In passenger car and light truck tires, despite a decline in sales volume, sales and profit increased year-on-year on the back of expanded sales of HRD tires for replacement use and profit margin improved by 0.8 percentage points.
In the truck and bus tire business, although there were signs of improvement from the fourth quarter of last year, sales and profit declined by the -- from the previous year due to the impact of lower sales of replacement tires mainly in North America and Europe, and deteriorated conversion costs resulting from production adjustment and the profit margin also declined by 3.8%.
In the specialty segment, sales and profit increased year-on-year, and the profit margin improved by 3.3 percentage points to 24.7%, supported by a tailwind from the depreciation of yen in addition to the solid sales of highly profitable mining tires, which supported the overall consolidated performance.
In the chemical and industrial products business, earnings increased over last year and the profit margin improved, reflecting strong sales of hydraulic hoses and plastic pipings and the business continued to steadily improve. The sports and cycle business recorded a year-on-year decrease in profit due to a delay in the recovery of demand in the cycle business in the diversified products business in Americas, which posted an operating loss due to the sluggish demand of commercial vehicles such as heavy-duty trucks and trailers, a difficult business environment and the burden of the start-up costs for the new EV related businesses. We expect the business to return to profitability in the second quarter and thereafter.
The following is the balance sheet and cash flow. Total assets increased JPY 163.6 billion from the end of the previous year to JPY 5.5914 trillion. The main reason for the increase was the impact of foreign exchange rates due to weaker yen. The equity ratio increased 1.4 percentage points from the end of the previous year to 63.2% indicating continued improvement in financial soundness.
Free cash flow was JPY 30.9 billion and free cash flow was generally maintained at the same level as the previous year as a result of increased investment and improvement in working capital. Capital investments was made in production enhancement investment to promote focus on previous areas and IT infrastructure construction in the more severe business environment compared to assumption being selective aiming for returns in a strategic growth investment. As a result, total capital investment amounted to JPY 62.9 billion.
I will now explain the outlook for the full year 2024. As explained earlier, there is no change in the forecast for the full year of 2024 from the one that was announced in February, but I will explain the assumptions underlying the forecast. We assume that the annual depreciate against the U.S. dollar and euro from the second quarter onwards to JPY 140 and JPY 151, respectively, compared to the February assumption.
As for the feedstock, we assume that the unit price of raw materials, especially for natural rubber is increased more compared to the February projection. While we expect tire demand to be roughly in line with the February forecast, we do assume risk of demand fluctuation for trucks and bus tires in North America.
Under such environment, we expect to see increase in profit from the February assumption due to the weaker yen, and we have not changed the February forecast of JPY 530 million in adjusted operating profit, which includes the deterioration in the Latin American business. In order to achieve the February guidance, we will continue to increase premium sales volume and sales mix throughout the year, while working on business cost reductions to strengthen our earning power and business structure.
This concludes my presentation. Thank you very much for your attention.
Now we would like to turn to 3 analysts who have been designated by the company to ask questions. [Operator Instructions] Let me start with Mr. Sakaguchi from Mizuho Securities.
Sakaguchi from Mizuho Securities. Thank you very much, and hello to you. Two questions. Question number one. The first quarter results vis-a-vis the annual under the forecast and outlook, what is your relative valuation, yen depreciation on one hand, however, Argentina business deterioration and so on. And sort of for the first quarter, regionally, I suppose you had anticipated the first quarter to be relatively severe. How do you consider the actual lending, particularly in the European business is rather the challenging and also the TB business as well. Are those all within your range of anticipation or there is some surprise to you? So all in all, your own assessment of the actual results in the first quarter.
So the second question, should I...
Hold on. Let me respond to the first question. Thank you very much. So progress as we close for 3 months. The -- according to the internal plan, the first -- and the quarter and plan this year. And relative to that, at constant currency, it was within the scope of expectations and that was in line well, maybe the upside was enjoyed because of the FX movements. By factor, raw materials, the sales prices makes all positive on one hand. On the other hand, sales and volume was a little bit smaller than what we had anticipated. We are on top of that Argentina business, which was again slightly more severe than what we had internally anticipated.
So there is mix of factors, but looking at the OpEx, operating expenses and the conversion cost, we're able to offset those conditions. They are relatively positively. And so FX again or within the range of anticipation, JPY 135 was our anticipation, and [ 1.9 ] was the actual FX. So between the 2, the gap between the 2 was the upside that the company was able to enjoy, and that's all for myself as the CFO.
North American truck and tire business and Europe, what's your assessment so far?
The volume was a little bit lower than the initial expectation as I explained that had to do with the negative effect coming from the trucking bus tire business in North America and Europe.
North America. We have 2 brands of Bridgestone and Firestone, but there are stark differences between the 2 brands. On one hand, for the Bridgestone brand, the Bridgestone branded tires and they deliver directly mid to the large fleets. So this is the top of the premium mid-range, and customers are quite knowledgeable and supportive from the solutions business and cost management discipline this year. To those customers, we were able to sell successfully to during the first 3 months with the Bridgestone branded products.
However, Firestone was quite down with lower than our initial anticipation. I did say that the dealer inventory has been sold out, more or less speaking. However, in North America, the government policy was such that the tariff be -- [ will be leave it ] in about June or July. Therefore, the imports coming from Thailand. We saw all the related parties are trying to act in anticipation of that. So that, they're having been engaged in cannibalization between the other brands. So I think know the business, and the targets between Firestone and the key customer target and the immediately beneath that.
So if tariffs are going to be raised in June or July, we would suppose that the situation would be more or less normalized in the aftermath of that. But so far, I mean they are nowhere in the movements on within the Firestone branded products, which were beyond our expectation.
So my question number two. Looking at the set of numbers. You said that the raw material selling prices and mix were positive and the price that was negative by about JPY 80, even excluding one of factors. And I can see that, therefore the selling prices and minus JPY 90 was a little bit bigger. And of course, the passenger tires were sold successfully. So I had expected that as you pointed out, that the price would benefit your performance. So what do you see in the second quarter and beyond? And will there be any adjustments to your strategy going forward in reference to the prices?
Yes, as you point out, looking back over the first 3 months, the price was a negative factor. However, looking at that and the raw material, the import cost and payable, we were able to secure the margin necessary. We also talk about the little bit of severity in terms of the currency situation in North America. But we were able to have a maintained balance between the volumes sold. And also, the overall, the cost needing to be managed. It's just that has selling price for the first 3 months, were a little bit more severe than we had anticipated.
And your forecast and outlook for the rest of the year or on the full year basis?
On a full year basis, our outlook, so I am going to absolutely refrain from reporting any particular number. The price as an element will continue to be positive.
So I guess your key message is that you will be able to maintain the good balance and that the capacity, capability to be able to maintain the positive balance has not been distorted and you maintained it, correct?
Yes.
Thank you very much, Mr. Sakaguchi from Mizuho Securities. Let's move on to the next -- the analyst. Mr. Maki from SMBC Securities, please.
I am Maki from SMBC Securities. Let me ask 2 questions first of all. First question is related to what was discussed slightly. In first quarter, you had an upside compared to the assumption. But on a full year basis, against the assumption for the full year, what has been the progress in the first quarter? Because in the first quarter, there are various situations, you are positive. But JPY 20 billion profit is included, and this could turn into a negative territory for the full year.
So if you consider that, what will be your prospect for the full year? Would that be changed? Would it be controllable, or are there any remaining risks, especially TB fluctuations risk is from increased imports from Thailand, and you seem to have lost a lot of share in the market. So what would be the serious reduction in inventory? Or what is the serious risk in prolonged inventory reduction?
And as Mr. Hishinuma said, the TCB area share increase. What would be the positive factor from that? So can you also update me on progress, whether you are confident in achieving this target for the full year.
So in that sense, as a conclusion, there is no change from the February guidance, but ForEx impacts, a JPY 5 depreciation of the yen has been incorporated. So in terms of profit, JPY 20 billion, a positive factor is now what we see. But as I repeat myself, in Latin America, especially in Argentina, it's become difficult to foresee the future. Of course, we do see the risks on a quantitative basis, but it's very hard to foresee. So as a result, this time, we just decided to leave the guidance unchanged in our disclosure.
So what has manifested itself as a risk? Is it also leveraging the positive factors on ForEx to address that risk. As for the Latin America, the issue of Argentina is quite unique. But actually for Brazil, as you may know, the Brazilian market in the past, was once opened or then got closed. So there was a repetition of those cycles. And it had been closed for some time. But now from last year, it has become increasingly opened. So this is also a risk for us as we see it. So Latin American risks, including Argentina and also the yen's depreciation, which is a tailwind, so you need to see the balance between these 2.
But as you asked, the actual mix up, the passenger high rim diameter will increase its sales. So we have to accelerate that share increase. And there is a probability -- a high probability of that has been achieved. And for mining and for aviation, the tires business for those will remain strong. So those 2 are the driving factors. But as for the cost -- business cost reduction, global procurement has been done for that purpose and steady productivity improvement activities has been also implemented.
In the U.S., in the production side, things have stabilized and settled down now because the people who have retired has been declined, and there are more people who have been trained in the production sites. So in terms of earning power, in terms of quantity, volume and sales mix and also business cost reduction, we are going to implement these on a steady basis from second quarter onward to earn more. So just that assumption has not been changed from the February guidance.
And then there is another major factor, which is trucks in North America for replacement. So in the full year forecast, which side is it going to turn? It could turn positive from some size, but there are still risks as well. But on my part, in terms of inventories, there are more focus on risks. And so we have already started reducing inventories. So if things become positive, of course, we would start increasing production volume, but there is still a possibility of getting worse. So we are doing this well in advance. But for North America, we don't know which side we end up with.
So if the things improve, then we would see more upside, but we need to mitigate if things go wrong. So we have to consider other factors to recover that. So there are risk factors of those that I just mentioned and high rim diameter, mining and aviation and business cost reduction, all of these will have to be achieved as planned to achieve the full year plan. That's where we are.
One additional comment. The distribution network in North America is being -- going to be expanded. And there will be a positive impact from the first quarter. That's what you have been saying. What about that?
And there is a structural reform that is being done in Kaizen. So there could be some negative factor in distribution and also ATD, those -- you could also approach to those other companies. So there are positive factors and negative factors.
So if you -- on a net basis, offsetting everything, are you in a position to end up in positive factory -- territory?
So North America high rim diameter for passengers are seeing increasing share. That's where we are. So whether this would continue or we should continue with this. But as you said, the new major customers, so the share increase within the store of major customers has already been achieved. So this has become a major positive factor for us in the first quarter. But as you know, Mr. Maki, as you said, the major wholesale area. So there is major developments of various nature.
In North America, including Goodyear and others, obviously, but I'm not in a position to specifically mention that. But in what way, things will develop, we are closely watching that. So behind the scenes, there are many developments, but I cannot go any further now. So we don't know whether this would end up positive or negative for us. We don't know yet. But the tire hub is -- we always working with Goodyear. So if we depend on that, there will be major risks even if we're working with Goodyear on tire hub. So there are many approaches, the initiatives that we're considering especially for wholesale sales business.
As for retail business, the new customers or the merchandising plan, we have to secure new spots in the merchandise plan of new retailers. And so we are now in a position to increase the sales.
Okay. So there's a -- your movement will affect the entire industry. So can you keep us posted?
The second question is a solution. As you explained earlier, on the full year, you seem to be behind the plan. So can you update me again? And related to that, on the full year, the European business reorganization, restructuring, I think there will be some effects that you can benefit. So compared to the solution business that you had assumed in the beginning of the fiscal year, where are you in terms of progress?
So as I said earlier, in solutions, 3 quarters is represented in terms of sales by the retail service business and directly run stores in North America, Japan, Asia, Australia and Thailand, the directly owned stores and franchisees and directly run stores in Europe. If you add all these up, there is a big sales. But what is the problem is directly run stores in Europe, which is running huge loss. So we are now taking actions against them.
And in addition, in the first quarter, as the Japanese retailers, there was a significant delay in summer tire demand. So there was some negative factor.
And in Europe, in 2016 and '17, there are several acquisitions made and those acquired retail businesses by unit are being reviewed now. And the U.S. retail dedicated team has been to Europe to travel around the field. And I have been also traveling with them around the sites since May -- in May. And the basics for retail, for example, customer satisfaction, what about customer retention, retail management, especially those who are actually working in the field, what the incentive program for them, is it really right? So those basics are now being checked steadily and solidly to lead to the specific improvement activities.
As I said in February, those improvement activities have been executed some time so that we can see some results by the end of this fiscal 2024, that's what we promised.
So if there are areas where improvements have been making progress and make improvements, but there are other areas where we decide that the improvements may not be done. So we'll take some actions, different actions that we promised. And in June, in the Global Executive Committee meeting, we will make a decision on that. And then the next major steering direction will be decided. That's how we are in retail business.
So this year, in the first quarter, retail business improvements have not been seen in Europe specifically. But in the second -- ahead of the second half of this fiscal year, we are taking actions so that this will lead to tangible results so that we can lead this business to next year.
The one quarter is represented by B2B solutions. And when we say B2B solutions, it's about retread tires and for truck and bus and for mining vehicles and aviation. Those are B2B production material solutions. And the operating margin of 8% was achieved in first quarter in these areas.
And as I have been saying, for the next mobility tech company, this is regarded as an important area. And things are improving steadily in this area. Therefore, for the full year of this fiscal year, we would like to keep improving this. And as for retail business, we have to do some fundamental actions, as I have been saying, at what timing, at which speed can we execute that, that is a make or break for us. Does that answer your question? Thank you .
Thank you, Mr. Maki from SMBC Nikko Securities. Next, I would like to ask Mr. Sakamaki of Daiwa Securities.
I am Sakamaki of Daiwa. I don't think I can actually get myself on the screen. I am sorry about that. I would like to ask a question. The first question is related to monozukuri. The conversion cost reduction in the first quarter is not that large. There has been a reduction of about 10% in production, but the conversion cost has not deteriorated that much. BCMA impact may be too early to be shown. Maybe there are such impact or this may be an update in the midterm business. But if there is something that is different now, would you be able to tell us about what kind of changes there has been in the conversion cost in the first quarter?
First, is Hishinuma-san and then I will add to that.
As was pointed out just now in the first quarter, compared to the reduction in the production volume, the conversion cost difference is smaller. As was mentioned, there is about JPY 5 billion improvement in the on-site improvement, Kaizen. And this is a very steady energy unit price increase or better location of the employees, et cetera. In other words, steady efforts has resulted in this JPY 5 billion improvement.
And that is the reason why the reduction in the conversion cost seems to be smaller. Well, in reality, we, as was just pointed out, are very happy about this. This is very important for us. At Gemba, they have really made steady efforts to improve the productivity.
In the past, Japan and Asian nation was able to do this, but in Europe and also in the United States or Americas, it was very difficult to hire people and retain people. But now I think we have been able to do better with that. And with that, with support from Japan, we together carrying out improvement in Kaizen in Gemba , and I think that is happening now.
This is not necessarily a direct impact of BCMA yet. But I believe that people working on site are willing to carry out various actions to improve the BCMA and implement BCMA, and that contributes to the steady improvement in the conversion cost improvement at JPY 5 billion, but I think I'm very happy that we see the contribution there. Unless you can do that, you will not be able to realize BCMA or green improvement in the first quarter. I believe that we will be able to contribute to the business cost improvement. And that is something that is very much Bridgestone and we must implement that.
And I may add that in Europe, production is not that easy, but energy cost has come down more than assumed, and that contributed to the conversion cost as well. Of course, that also made a contribution, but we believe that on-site steady improvement of productivity and working on the challenges and moving on to BCMA, moving on to green and smart is going to be the major contributor, and we need to continue to do that steadily.
My second question is the forecast for the actual volume. TBR was the issue asked by Mr. Maki. If there is a tariff introduction, they may act respectively as of April, and I believe there has been a sudden increase in April. And for Bridgestone, maybe the inventory has become more optimal and appropriate. But in other places, there may be some impact by others who may carry too much inventory and might have maybe Firestone may be impacted by that. Are there some matter for concern regarding the inventory with this? Are there any factors that may have some kind of impact on the sales volume?
That distribution inventory in the United States has been followed for the major dealers ourselves. I think they have been reduced to about 2 months inventory for the U.S. distributor -- distribution dealers inventory. For the third tier and the fourth tier tires, there is a sudden increase. And impacted by that, Firestone is dropping the volume, and the tariffs is probably acting on it. And if the tariff is normalized, I believe that Firestone will be able to and must get back the volume. I think that is going to be a major challenge.
As for our inventory, as of last year, there has been a steady decline in the level. But starting this year, we are actually selling the high-cost products in the first quarter. And for the U.S. TB, starting at this point already, for the supply chain management, we need to have a conservative forecast for the sales, and that is what we have started doing. As business not to -- we will sell more. But we need to sort of tighten our position. In other words, it may not be so great, but we will do better is the kind of stance that we are taking.
And Mr. Higashi will explain about this as is indicated on this page, the demand itself as compared to last year is 76%. On April 1, we increased the price last year. So the shipments from the manufacturers in March increased significantly, and there was a repercussion from that.
Another is that when you compare this to the level of the volume from the past, this is not necessarily a very active market.
When you look at the market, the commercial tires will get a more direct impact. But for the consumer, will get more direct impact. Commercial is also getting some impact. As was explained earlier, the so-called unprofitable tires must be eliminated. We are intentionally trying to reduce those tires that are not making a lot of profit and this is intentionally done. And this has been the area of focus, especially for the dump trucks.
And for other nonprofitable segments, we are implementing actions this year. So there are some negative impacts shown on these numbers. But this is not a major deviation from the first quarter forecast, especially for the commercial products. This has already been incorporated, and this is directly related to the production plan.
In case of the Japanese production, the distance between the sale is very close. Therefore, production adjustment can be made very quickly to match the sales. So while carrying out production adjustment, we aim to -- try to aim at the most effective and efficient way and how can we actually adjust the labor, et cetera. And they are also reflected in the conversion cost that you saw earlier. So we will be looking at the sales volume, and we will not carry out operation, which would result in surplus inventory in the future. And I believe that we have the operational capability in order to show the strength of monozukuri ourselves. Thank you very much.
Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]