The Yokohama Rubber Co., Ltd., posted an 11.0% increase in net sales, to 106.8 billion yen, in the three months ended June 30—the first quarter of fiscal 2007, April 1, 2006, to March 31, 2007. That increase is over the first quarter of the previous year, and it resulted primarily from robust growth in overseas tire business. Supplementing the sales gains in tires was sales growth in Yokohama's Multiple Business Group (diversified products), notably in high-pressure hoses and in aircraft products. Net income declined 16.2%, to 1.2 billion yen, on a 34.2% decline in operating income, to 1.8 billion yen. High and rising prices for raw materials and an increase in selling, general and administrative expenses were the chief reasons for the decline in profitability.

By business segment, sales increased 11.8% over the same period of the previous year in Yokohama's Tire Group, to 78.2 billion yen, and increased 8.9% in the Multiple Business Group (diversified products), to 28.6 billion yen. Leading the sales growth in tires were strong gains in North America, in Southeast Asia, and in China. Tire sales also benefited from increased shipments to automakers in Japan. The rising prices for raw materials offset the sales growth in the Tire Group, and operating income in the group declined 64.6%, to 1.0 billion yen. In the Multiple Business Group, sales gains in high-pressure hoses, marine hoses, and aircraft products more than offset a sales decline in golf products. Sales growth, cost-cutting measures, and progress in improving the product mix restored the Multiple Business Group to profitability. The group converted a 32 million yen operating loss in the same period of the previous year into operating income of 1.0 billion yen.

The increases in raw material prices have been larger than management at Yokohama expected, and that has prompted management to lower the full-year earnings projections it announced on May 11. Management now expects operating income to decline 27.1% in fiscal 2007, to 16.0 billion yen, compared with the earlier projection of a 23.8% decline, to 21.0 billion yen. Net income benefited in fiscal 2006 from a tax benefit associated with earlier write-downs of equity in a U.S. subsidiary. Absent that benefit, management expects net income to decline 67.4%, to 7.0 billion yen, compared with the earlier projection of a 33.3% decline, to 10.5 billion yen. Management abides by its earlier projection of a 7.3% increase in net sales, to 485.0 billion yen.