Pirelli (MIL:PIRC, Financial), a consumer tire manufacturer based in Italy, was a top contributor to the Fund’s performance for the quarter. Pirelli focuses on the premium tire segment of the passenger car and light truck auto market, where it targets 18-inch-and-above specialty tires. This premium market positioning helped drive a strong set of third-quarter results in November, which demonstrated solid pricing power and good volume recovery versus 2020. In addition, results indicated Pirelli’s cost-savings program was progressing on schedule and should deliver additional net benefits to margins through 2022. Management also reiterated the company is capturing 50% more market share in the emerging electric vehicle segment. This is another premium market in which Pirelli can gain distinction since electric vehicles require tires that can handle faster acceleration and greater vehicle weight while also delivering lower rolling resistance and quieter locomotion. Finally, the company managed its working capital effectively during the third quarter and generated significant free cash flow, which can be used for debt reduction and opportunistic shareholder distributions in the future.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund's fourth-quarter 2021 letter.
