Toyo Tire CEO Expects Profit to Beat Guidance, Plans Stock Buybacks

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(Bloomberg) — Toyo Tire Corp. Chief Executive Officer Takashi Shimizu expects the tiremaker to exceed its profit guidance this fiscal year and plans to start buying back shares, helped by resilient US demand.

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An operating profit exceeding ¥95 billion ($632 million) this year is achievable, Shimizu said in an interview on Oct. 10, confirming comments made in connection with second-quarter earnings. That means the company “may announce another upward revision.” The company raised its full-year operating profit forecast to ¥90 billion in August.

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The Japanese company’s five-year midterm plan to be unveiled next year will include details on stock buybacks and an investment of ¥100 billion to build two production facilities in Europe or Asia. Potential sites include Serbia and Malaysia, where it already has as manufacturing. 

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“The goal is to exceed ¥100 billion in operating profit in the next midterm plan, while investing in plant capex and conducting share buybacks in the first half of the period,” Shimizu said. The company hasn’t bought back shares in the past decade.

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Toyo Tire could produce an additional 5 million tires by building a plant next to its exiting facility in Serbia, Shimizu said.

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He said the company wants to make Europe its next growth engine, marking a strategic shift as it reduces reliance on the US and taps into Europe’s premium passenger tire market. 

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“We want 100% local production for Europe within the next midterm plan,” Shimizu said. Exports from Serbia could go to the Middle East and Canada if US tariffs persist.

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While new vehicle sales in US have softened, orders for pickup and SUV tires are rising, lifting margins through a stronger product mix. 

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“If new car sales decline, replacement tire demand rises,” Shimizu said. While peers expect the slowdown to weigh on earnings, Toyo Tire has seen orders for pickup-truck tires rise 10% from a year earlier, he added.

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Tech Overhaul

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Toyo Tire is stepping up automation and digital investment to cut costs and boost productivity as it faces rising labor expenses overseas and a shrinking workforce in Japan. The company aims to use technology and artificial intelligence-driven systems to streamline production and strengthen its global competitiveness.

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“We want to reduce headcount per factory to about 500 from the current 1,000 to 1,500 by leveraging tools such as AI,” Shimizu said. 

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That will include spending ¥10 billion on a digital transformation and core-system upgrades at sites including its US plant in Georgia, where labor costs are “very high,” Shimizu said. In Japan, it plans to accelerate automation and introduce labor-saving equipment. 

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Shimizu confirmed that the company has met twice with UK-based activist fund Palliser Capital, though no agreements were reached. Toyo Tire’s shares rose to the highest level since 1990 after the fund acquired a 3% stake earlier this year.

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He said the fund has been involved in discussions on its shareholder remuneration and is satisfied with how the company is run. “We engage with them the same way as we do with other shareholders.”

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Mitsubishi Corp., which holds a 20% stake in Toyo Tire, hasn’t commented on the matter. 

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Toyo Tire’s review of shareholder returns also follows suggestions from Orbis Investment Management Ltd., Shimizu said.

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