Michelin First-Half Profit Beats Estimates as Demand Recovers
A visitor passes a Michelin & Cie. airplane tire on display on the fourth day of the Farnborough International Airshow. Photographer: Chris Ratcliffe/Bloomberg
Michelin & Cie. Managing Partner Jean-Dominique Senard
Fabrice Dimier/Bloomberg
Michelin & Cie. Managing Partner Jean-Dominique Senard speaks during a news conference in Paris.
Michelin & Cie. Managing Partner Jean-Dominique Senard speaks during a news conference in Paris. Photographer: Fabrice Dimier/Bloomberg
Michelin & Cie., the world’s second- largest tiremaker, posted a first-half profit and gave a full- year operating-margin target that were higher than analysts’ estimated because of less pressure from raw-materials costs.
Net income was 504 million euros ($658 million), compared with a 122 million-euro loss a year earlier, the French company said in a statement today. Analysts had expected profit of 369.4 million euros, based on the average of estimates compiled by Bloomberg. Sales rose 17 percent to 8.35 billion euros.
“The recovery in the tire market should continue,” Managing Partner Jean-Dominique Senard said at a news conference, adding that Michelin plans to invest 1 billion euros this year as it expands in Brazil, India and China. “We’re pretty optimistic for the near future.”
Michelin’s earnings improvement follows a rebound by German competitor Continental AG, which said yesterday it returned to second-quarter profit as earnings from its tire division surged 60 percent. Italian rival Pirelli SpA yesterday raised its full- year sales target even as it posted a first-half loss on the cost of separating its real-estate division.
Michelin’s full-year margin goal of 9 percent was a “positive surprise, versus street expectations which look for a 7.6 percent margin,” said David Arnold, an London-based analyst with Credit Suisse Group AG with an “underperform” rating on the shares.
The company’s shares fell 0.9 percent to 58.82 euros at 11:02 a.m. in Paris, while the benchmark CAC Index dropped 0.5 percent.
Raw Materials
A lower “headwind” from rising raw-material costs offers further encouragement, Arnold said in an e-mailed comment. Michelin, based in the town of Clermont-Ferrand in central France, said it expects commodity costs to reduce full-year earnings by between 600 million euros and 650 million euros, rather than the 750 million euros previously forecast.
The tiremaker has pledged to defend profitability by passing the rising costs on to consumers through price hikes. Natural rubber prices have risen by half in the past 12 months, while crude oil, used to make its synthetic alternative, has advanced 24 percent. Earnings in the remainder of the year will “benefit from the price increases introduced in the first half,” Michelin said today.
First-half operating profit before one-time items nearly tripled to 822 million euros from 282 million euros a year earlier. The company also reiterated its goal of achieving 10 percent growth in full-year sales volumes and positive free cash flow.
Michelin ranks behind Bridgestone Corp. of Japan in global tire production.
To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Laurence Frost in Paris at lfrost4@bloomberg.net
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