Feb. 10 (Bloomberg) -- Michelin & Cie., the world’s second-largest tiremaker, raised its earnings target for 2015, saying that new plants in Brazil and China will add to profit starting this year.
Operating profit in 2015 will amount to 2.5 billion euros ($3.3 billion), compared with an earlier target of 2 billion euros, the Clermont-Ferrand, France-based manufacturer said today in a statement. Michelin also said it plans 1 billion euros of cost savings in its industry and services segments over five years.
“Growth in operating income and, given capital expenditure of around 1.9 billion euros for the year, the generation of free cash flow should both be in line with the group’s 2015 objectives,” Michelin said.
The company agreed in September to invest in a tiremaking venture in China, adding to its four plants in the world’s biggest car market. China’s industrywide vehicle sales, including cars, trucks and buses, increased 2.5 percent last year, and U.S. light-vehicle deliveries jumped 10 percent, in contrast to a drop in Europe’s car market of 1.4 percent.
The cost-reduction program will focus on effecting savings without any reorganization of operations, Co-Managing Partner Jean-Dominique Senard said in a conference with analysts today. Improvement of the truck-tire unit’s profitability is among the goals, he said.
Michelin fell 2.3 percent to 54.47 euros in Paris trading as of 1:26 p.m. after European stocks declined as finance ministers held back a rescue package for Greece. The tiremaker’s shares rose as much as 4 percent earlier in the day.
Operating profit gained 15 percent in 2011 to 1.95 billion euros, Michelin said. Net income jumped 39 percent to 1.46 billion euros, and sales rose 16 percent to 20.7 billion euros.
Profit last year was helped by price increases that outpaced a 1.75 billion-euro jump in raw-material costs, Michelin said. The raw-material cost effect this year will be 300 million euros to 350 million euros, Senard said today at an earlier press conference in Paris.
The average price of natural rubber is likely to decline to $4.05 from $4.60 last year, Michelin said in an online statement.
The tiremaker, which ranks second behind Bridgestone Corp. in global production, sold its 9.98 percent stake in Hankook Tire Co. in November, raising as much as $610 million to fund expansion in emerging markets.
Michelin said it plans to hold volume “steady” in 2012 as growth is “favorable” in emerging markets against a “less buoyant” Europe. The company reiterated targets of 25 percent volume growth in the 2011-2015 period and an annual return on capital employed of at least 9 percent.
The tire market this year “will probably be negative in the first half due to the high figures from the previous year,” Senard said. “In the second half, we see a general rebound, meaning that the year as a whole will be stable if there are no surprises.”
The company has adequate funds to cover pension commitments and has moved in the last three to four years to reduce pension risks, lessening its exposure to stock market fluctuations, Senard said. Michelin may have to add some cash to the fund in the future, he said.
Senard will become Michelin’s sole chairman in May when Co-Managing Partner Michel Rollier steps down, the tire manufacturer also said today.
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