BRIDGESTONE CORPORATION Q1 FY2025 earnings call

1Q 2025 Core Financial & Sales Results

• Total 1Q revenue reached ~1 trillion yen, adjusted operating profit reached ~110 billion yen, with an adjusted operating margin of 10.5%. Results were in line with plan as of February 2025; excluding transitory items, the company posted a slight year-over-year profit increase.
• Sales mix improvement continued, with ongoing expansion of high-value-added products such as high-inch passenger tires, strengthening the premium tire business foundation.
• Global business cost reduction delivered 17 billion yen in benefit in 1Q, above plan, supporting results amid headwinds.
• Free cash flow reached 91.3 billion yen, up 60.4 billion yen year-over-year, with lean inventory management and progress reducing cash holdings to the target range of 1.5 months of sales.

Defensive: Phase 2 Restructuring & Reconstruction Progress

• 2025 is designated an "Emergency Crisis Response Year", with defense (restructuring) prioritized alongside offense (growth), accelerated by US tariff impacts and global business structure change.
• Global restructuring is ongoing: closed the Launcret retread plant in Belgium, initiated consultations for TB tire capacity reduction at two Spanish plants, and is simplifying organizational structures across Europe; closed the LaVern TB tire plant in North America, implemented corporate/operations headcount reduction, and cut capacity/headcount at the Des Moines agricultural tire plant; is accelerating restructuring and fixed cost reduction in South America; is speeding up organizational integration/simplification, lean reform of redundant Japanese tire organization, and chemicals/diversified business restructuring in Japan/Asia.

Offensive: Premium Focus & Cost Reduction Acceleration

• Continues strengthening focus on premium vehicle, prestige original equipment, and premium EV tires, with steady expansion of original equipment fitment for ENLITEN technology products, and growing sales share of high-inch tires and premium brands in the replacement market.
• Full-year 2025 global business cost reduction is targeting 55 billion yen in benefit, which will achieve the 2024 mid-term plan cumulative target of 100 billion yen one year ahead of schedule. The company is pursuing global modularization of shared components to expand cost savings across the entire value chain starting 2026.

US Business Strengthening & Tariff Mitigation

• Continues advancing local-for-local production to build resilience: current local production rate is ~60% for PS tires and ~70% for TB/OR large tires in the US, rising to ~90% PS and ~80% TB across the Americas. High-value-added premium tires will continue to be produced in Japan for global sale to complement the local-for-local system.
• A small-scale investment at the US Aiken plant, plus productivity improvements at Aiken and Wilson, will add 2 million units of annual PS tire production capacity by 2027, with similar productivity-driven expansion at Mexico/Canada facilities.
• Adopts a multi-brand strategy for US consumer tires: Bridgestone retains premium focus, expanding ENLITEN products and strategic channel coverage; is accelerating revitalization of the Firestone brand to capture growing demand from older vehicle parc and Tier 2/Tier 4 market segments, expanding Firestone Complete Autocare retail outlets and linking with the Firestone credit card business, and will add ENLITEN products to Firestone starting 2026.

Regional Strategic Priorities

• South America: Focuses on restructuring the Brazil business, with new top leadership and combined US-Japan support to turn around performance.
• Europe: Completes restructuring to achieve full-year profitability, with growth planned after restructuring is complete.
• High-share markets (Japan, Thailand, Indonesia): Strengthens defense of family channels and expands the full product portfolio from premium to value segments to counter expected entry of low-cost competitors.
• India: Continues advancing a premium/mass strategy for PS tires in this ongoing growth market.
• China: Focuses on domestic market completion, strengthening premium PS tire business aligned with original equipment and replacement demand.
• Mining tires: Maintains a resilient US-focused business base, continuing to expand MASTERCORE products and solutions for quality growth.

By geographic region:

1. Europe: Achieved year-over-year revenue and profit growth; adjusted operating margin reached 5%, with reduced red ink for TB tire and retail operations, on track for full-year profitability.
2. North America: Achieved year-over-year profit growth, driven by strong profitability of the commercial TB tire business, with ongoing restructuring of consumer tire operations that is already contributing to results.
3. South America: Argentina improved adjusted operating margin to 11% via damage control, while Brazil posted a larger-than-expected operating loss that is driving accelerated restructuring.
4. Japan: Posted year-over-year profit decline, driven by the absence of prior-year asset sale gains and weak performance in chemicals and diversified businesses. By product/portfolio segment:
5. Core Premium Tire: Maintained adjusted operating margin of 13%. PS/LT tires saw continued sales growth of high-inch premium products, with a slight margin decline due to raw material inflation. TB tires achieved steady sales growth and improved profitability, led by North America.
6. Specialties Premium Tire & Solutions: Maintained adjusted operating margin over 20% (21.9% for OR/aviation segments), with solid sales for mining, aviation, and two-wheel tires. The segment posted year-over-year profit decline due to raw material inflation for mining tires and a large loss/deficit from agricultural machinery tires.
7. Solution Business (growth segment): Achieved adjusted operating profit of 146% of prior year, with retail at 170% and B2B industrial solutions at 120% of prior year levels.
8. Chemicals & Diversified: Ran an operating deficit. Hydraulic hose/crawler businesses posted year-over-year revenue and profit decline on weak construction/agricultural equipment demand. Golf/cycle businesses also posted an operating deficit, with weak US golf sales and cost inflation from yen depreciation offsetting higher cycle unit sales. Only Americas diversified posted year-over-year profit growth from improved new vehicle business profitability.

• Full-year 2025 adjusted operating profit guidance is maintained at 505 billion yen, unchanged from February 2025, despite the direct impact of US tariffs. The annual dividend per share guidance is also maintained at 230 yen.
• The original capital policy (share repurchase and cancellation, optimization of equity ratio) will continue as planned.
• Management expects the direct adjusted operating profit impact of US tariffs through end-2025 to be ~45 billion yen, which will be fully offset by a combination of the mitigation strategies outlined above.
• The company maintained its full-year target of 100 billion yen in total restructuring charges for 2025, and notes that charges could increase as additional restructuring measures are finalized, with all planned charges to be utilized by year-end. Restructuring profit improvement for 2025 was originally guided at 4 billion yen, and management now expects an additional 0.5-0.6 billion yen in incremental benefit from accelerated restructuring.

• US tariffs on imported tires create a projected 45 billion yen direct hit to full-year 2025 adjusted operating profit, with uncertainty around the final scope and duration of tariff levels.
• A potential US economic recession is estimated to create an additional ~2 billion yen hit to adjusted operating profit, but this risk has not been included in the full-year guidance due to high uncertainty around the magnitude of impact.
• Global economic slowdown outside of the US also creates additional downside risk that management is monitoring closely.
• Brazil's business performance is already meaningfully worse than planned, requiring accelerated and expanded restructuring.
• Chemicals and diversified businesses are currently operating at a loss, requiring urgent accelerated restructuring.
• There is persistent raw material price inflation (notably natural rubber) that creates margin pressure across multiple product segments.

Q: What is Bridgestone's position in the changing US market environment amid new tariffs? / A: Tier 1 manufacturers like Bridgestone already have high local production rates in the US, while lower-tier competitors rely heavily on imports that will be hit harder by tariffs. Tier 3 competitors will likely be squeezed, while Tier 4 competitors will retain market share due to their very low base prices. This market shift creates an opportunity for Bridgestone to grow its Firestone brand, which targets the Tier 2 segment and is an established US-made brand. The company will expand Firestone sales by leveraging its 2,200 Firestone Complete Autocare retail locations, maximize output at existing US plants with minimal new investment, and keep focusing Bridgestone on the premium Tier 1 segment. For TB tires, Bridgestone already has a strong leading position and will keep its existing strategy, with Firestone remaining a complementary offering.

Q: How did 1Q results compare to internal plan, and what upside opportunities exist for full-year results offsetting the 45 billion yen tariff impact? / A: 1Q results were broadly in line with internal plan: cost reduction and yen depreciation (relative to plan assumptions) came in ahead of schedule, while Brazil and chemicals/diversified performance was behind plan, offsetting those gains. Key upside opportunities include: revenue growth from US business expansion, better-than-expected premium tire sales growth in Europe's replacement market, additional savings from accelerated global lean transformation, and ongoing faster-than-planned progress on global business cost reduction. Even if tariffs turn out to be lower than the conservative base assumption, the structural business improvements from these initiatives will remain in place, delivering permanent benefit.

Q: How does a potential permanent 25% US tariff change the company's global production footprint and cost comparisons between production locations? / A: The company runs detailed factory-by-factory cost simulations comparing production costs, tariffs, and shipping costs across all global locations for different tariff scenarios. Competitive positioning varies by factory and product segment: even with high US production costs, 25% tariffs make US production competitive with imported products for many consumer tire segments. For example, the high-cost, outdated LaVern TB tire plant was still closed because even with 25% tariffs, production from Brazil remains more competitive. The Warren TB tire plant has high enough productivity to compete globally despite high US labor costs. The company holds weekly meetings to optimize the global supply chain on a case-by-case basis, leveraging existing capacity rather than large new greenfield investments.

Q: Is the company accelerating restructuring to deliver additional cost savings to offset tariff impacts, and what additional benefit can be expected? / A: The 100 billion yen 2025 restructuring budget is already fully planned, and the company is adding additional restructuring measures on top of this original plan, with costs likely exceeding the original budget. As of now, the company has already identified an incremental 0.5-0.6 billion yen in additional profit improvement from accelerated restructuring, on top of the original 4 billion yen 2025 target. These improvements are focused on strengthening the company's business structure permanently, and will support quality growth starting in 2026 regardless of tariff outcomes. The company is prioritizing growth in the US and India, with European growth expected to start in the second half of 2026 after restructuring is complete.