BRIDGESTONE CORPORATION Q1 FY2026 earnings call

Strategic Positioning

• Fiscal 2025 was positioned as a year of emergency crisis management focused on business rebuilding, cost reduction, and strengthening core fundamentals under the 2024 Medium-Term Business Plan (MBP) roadmap; this rebuilding phase was completed largely as planned.
• Fiscal 2026 is a crucial transition year to quality-focused growth, with intensified offensive investment and execution to evolve into a unified group-oriented organization. The long-term target is to reclaim the position of world's #1 tire manufacturer by the 100th anniversary in 2031.

Completed Operational Achievements

• Cost reduction initiatives delivered 72 billion yen in benefits in Fiscal 2025, offsetting most of the 25 billion yen profit impact from U.S. tariffs.
• Lean inventory management reduced finished goods inventory year-over-year, improving the cash conversion cycle and lifting ROIC to 8.3% (up 0.2 percentage points year-on-year).
• Full year free cash flow was 435.5 billion yen, a 141.7 billion yen increase in annual cash inflow driven by tighter working capital management. The planned share buyback was completed and acquired shares fully canceled as scheduled.

2026 Key Growth Priorities (3 Core Pillars)

• Attractive, Competitive Products and Manufacturing Excellence: This is the central foundation of growth strategy. Over 25 new PS tire products (double the recent annual average) and over 10 new TB tire products are planned for global launch in Fiscal 2026. A new executive structure effective March 24 will add 4 technology-focused chief officers (Chief Innovation Officer, Chief Product Officer, Chief Manufacturing Officer, and West CTO) that all report directly to the Global CEO to strengthen the global technology foundation and speed cross-functional collaboration. R&D and capital expenditure (CapEx) will both exceed levels of the past two years, with disciplined incremental allocation.
• Portfolio Strengthening: Continues the direction set in the 2024 MBP, with progress shifting from single-product sales to solution-based business, strengthening the core TB business, improving European profitability, and driving solid growth from Asia and India to build a quality-backed growth structure.
• Global Brand Power Enhancement: Focused on motor sports. Will continue exclusive Firestone supply for INDYCAR in the U.S. and participation in Super GT in Japan, and will return to FIA World Championship as the sole tire supplier for Formula E in the second half of 2026 (first return in 15 years), to develop low-environmental-impact tires and enhance brand value.

Organizational Restructuring

• A new, flatter global executive structure will take effect March 24 to enable faster decision-making: functional responsibilities are split into clear chief officer roles, with 4 technology roles aligned directly under the Global CEO to unify material development, product development, and manufacturing. The dual East/West regional CEO structure for business operations is retained, with all 7 global executives uniting to lead the group.

By Geographic Segment

• Japan: Revenue increased driven by expanded domestic replacement tire sales and steady performance of ultra-large off-road (OR) tires; profit grew and profitability improved by 0.4 percentage points year-on-year.
• Americas: Overall profit grew year-on-year on improved margins. North America saw profit growth from expanded replacement truck and bus (TB) tire sales and business rebuilding quality improvements. Latin America finished the full year in the black overall, though Brazil's business environment remains tough despite second-half improvement.
• EMEA: Performance continued to improve, driven by expanded premium tire sales (especially high rim diameter (HRD) passenger tire (PS) replacement) and steady progress in business rebuilding; adjusted operating profit margin improved by over 2 percentage points year-on-year to 5.5%.
• APAC (ex-Japan): Revenue decreased 2% due to regional currency effects and profitability-focused sales strategies, but adjusted operating profit margin remained robust at 11.5% following Thai operations rebuilding and steady growth of the Indian business.

By Product Segment

• PS and Light Truck (LT) Tires: Premium tire expansion and product mix improvement continued, but profit declined year-on-year due to a North American cyber incident and weak performance in Latin America.
• TB Tires: North American replacement tire sales remained steady, and production base reorganization effects in North America and Europe materialized, delivering year-on-year profit growth and large margin improvements.
• Specialties: Ultra-large OR tire sales stayed steady and B2B solutions expanded, but profit declined due to lower agricultural tire sales and raw material index price adjustment timing impacts. Maintained high profitability exceeding 20%, supporting overall consolidated performance.
• Diversified Products: Profit grew year-on-year even excluding a one-time asset sale gain, with continued steady operational improvements.

By Business Portfolio

• Tire Business: Secured an adjusted operating profit margin of just under 13% in a tough operating environment.
• Solution Business (growth segment): Delivered increases in revenue, profit and profitability, with Commercial B2B Solutions achieving a profit margin exceeding 11%.

Overall Consolidated

Total consolidated revenue for Fiscal 2025: 4,429.5 billion yen, up 2% year-on-year. Adjusted operating profit: 493.7 billion yen, up 2% year-on-year. Profit attributable to owners of the parent: 327.3 billion yen, up 15% year-on-year.

• Consolidated Fiscal 2026 guidance projects 4.5 trillion yen in revenue (up 2% year-on-year), 515 billion yen in adjusted operating profit (up 4% year-on-year), and 340 billion yen in net profit. Adjusted operating profit margin is expected to improve 0.3 percentage points to 11.4%. • All segments are targeted to deliver higher revenue, profit, and profitability: APAC expects growth from Thailand, Indonesia, and India; the Americas targets a 0.6 percentage point margin improvement to the 10% range; EMEA targets a 2 percentage point margin improvement on continued rebuilding gains and expanded premium PS replacement sales. • The U.S. tariff impact is projected to reduce full-year 2026 profit by 55 billion yen (a full-year impact versus partial-year impact in 2025). Management expects to offset most of this impact through global supply chain optimization and group-wide cost reduction to meet the profit and revenue growth target. • The annual dividend for Fiscal 2026 will be 250 yen per share pre-stock split (125 yen post-stock split), a 20 yen pre-split increase year-on-year, meeting the 2024 MBP target. The dividend payout ratio target of ~50% and policy of stable, continuous dividend increases are retained. • A 150 billion yen share buyback is planned for Fiscal 2026, with a total of 450 billion yen in buybacks over the three-year 2024-2026 MBP period. Additional buybacks may be implemented if excess cash remains after growth investment allocation. • Total planned growth investment over the 2024-2026 MBP period remains disciplined, with surplus cash from lower-than-planned investment allocated to shareholder returns, consistent with existing capital policy. The mid-term target equity ratio of ~55% and target cash reserve of 1.5 months of monthly sales are unchanged. • CapEx for Fiscal 2026 is set at 410 billion yen, focused on: capacity for high-margin MasterCore large mining tires, premium HRD tire production conversion, U.S. retail store network enhancement, and IT investment for productivity improvement, with roughly half allocated to the Americas (the company's largest profit contributor) and mining investment concentrated in Japan.

• U.S. tariffs have a growing negative profit impact: the impact increased from 25 billion yen in Fiscal 2025 to a projected 55 billion yen in Fiscal 2026, as the full-year impact is now reflected in guidance. While most of the impact has been offset to date, not all of the increased 2026 impact can be directly offset. • Sluggish demand in North America and expansion of low-end imports in South America have created near-term profitability pressure; South America only achieved breakeven in Fiscal 2025 and remains in a tough operating environment. • Currency appreciation headwinds for the yen, raw material price volatility, and broad inflation-driven cost increases create ongoing margin pressure that requires offsetting through cost reduction and price/mix improvements. • The company missed its original 2024 MBP targets of 13% adjusted operating profit margin and 10% ROIC due to a combination of external factors (U.S. tariffs, inflation, reduced overall demand) and internal underperformance (Latin America results, diversified product business profitability). • Hasty or unrealistic growth could undermine the strengthened business foundation built during the rebuilding phase, requiring careful pacing of the transition to growth.

Q: The core of Bridgestone's strategy to regain the #1 global position focuses on increased new product launches in 2026. What are the priorities for Firestone revitalization, Indian market expansion, and the shift in capital allocation from reduced share buybacks to growth investment? / A: Management states that product and manufacturing excellence are the core of their growth strategy, focused on delivering high-quality products with top-tier cost competitiveness. A new executive structure placing technology, product development, and manufacturing leaders directly under the CEO was created to speed cross-functional collaboration and improve cost efficiency. Mid-term growth will center on North America, with gradual expansion into India and other Global South markets, and a full 2031 roadmap identifying priority markets and segments is currently in development. Firestone revitalization in North America, launched in the second half of 2025, has already delivered visible profitable growth, which management expects to continue into Fiscal 2026.

Q: Why does 2026 guidance include a 71 billion yen increase in operating expenses, and what is the breakdown of this increase? Is this guidance different from prior plans due to the leadership change? / A: The largest driver of 2026 profit growth is planned volume growth (35 billion yen benefit), followed by 36 billion yen in benefit from price and mix improvements, reflecting management's commitment to quality growth. Most of the operating expense increase comes from strategic investments for future growth: brand enhancement, IT and productivity improvement, and variable cost increases from planned volume growth, plus inflationary cost increases and the absence of one-time asset disposal gains recorded in Fiscal 2025. There are no material changes to the core plan due to leadership change; the basic plan was developed with the prior CEO, and the expense allocation reflects a deliberate choice to invest in volume growth and brand enhancement now to enable longer-term growth.

Q: U.S. tariff impact is projected to jump to 55 billion yen in 2026 from 25 billion yen in 2025. Is this due to a full-year impact versus a partial impact last year, and how much of this increased impact cannot be offset via cost reduction? / A: The increase in projected impact is almost entirely due to the tariff being in place for the full 2026 fiscal year, versus a partial impact in 2025. Management declined to break down offset impact by individual initiative, but noted that an additional 25 billion yen in cost reduction benefits from productivity improvement, digital efficiency gains, and ongoing business rebuilding is expected in 2026, which will offset much of the increased tariff impact through company-wide efforts.

Q: CapEx is increasing to 410 billion yen in 2026. What are the key areas of investment, and is this the start of a sustained higher CapEx level to improve competitiveness? / A: The increased CapEx is not focused on expanding total production capacity, but rather on upgrading facilities to produce more premium, high-performance products. Key priorities are: capacity expansion for high-margin MasterCore large mining tires (primarily in Japan), production conversion to support more high rim diameter premium passenger tires, enhancement of the U.S. retail store network (the U.S. generates half of group profit, so receives proportionally more investment), and IT investment for productivity. This aligns with the strategy of improving competitiveness to support quality growth.