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Michelin Sales Fall as Strong Euro Offsets Tire Gains

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A Michelin Pilot Sport Cup 2 Automobile Tire
Michelin & Cie. said yesterday sales fell to 4.76 billion euros ($6.58 billion) from 4.88 billion euros a year earlier. Photographer: Jason Alden/Bloomberg

April 24 (Bloomberg) -- Michelin & Cie., Europe’s largest tiremaker, reported a 2.4 percent decline in first-quarter revenue on the strong euro and weaker demand in Eastern Europe because of tensions between Russia and Ukraine.

Sales fell to 4.76 billion euros ($6.58 billion) from 4.88 billion euros a year earlier, the Clermont-Ferrand, France-based company said in a statement yesterday. A 3.4 percent increase in sales volumes was more than offset by a 232 million-euro charge from the euro’s rise against the dollar and other currencies. Michelin shares fell the most in nine months.

Gains in global deliveries were held back as demand for replacement car tires tumbled 8 percent in Eastern Europe due to “the Ukrainian crisis and the weakening Russian economy,” Chief Financial Officer Marc Henry said on a conference call. Even with weaker markets in the region, Michelin maintained its goal to boost tire sales worldwide by about 3 percent.

The manufacturer is adding factories in emerging markets such as Brazil, China and India, as well as in the U.S., where demand for cars is forecast to rise. At the same time, it’s cutting jobs in France as European auto sales struggle to recover from a six-year contraction. The tiremaker, which plans to cut costs by 1 billion euros by 2016, has said it aims to raise operating profit to 2.9 billion euros next year.

Shares Drop

After the company took a 55 million-euro hit related to what it charges for tires, “there’s uncertainty around the pricing power of Michelin,” said Jose Asumendi, an analyst at JP Morgan Securities Plc in London.

Michelin dropped as much as 4.6 percent, the biggest intraday decline since July 25, and was down 3.3 percent to 89.67 euros as of 10:45 a.m. in Paris trading. The stock has gained 16 percent this year, valuing the French manufacturer at 16.7 billion euros.

In addition to boosting tire sales this year, Michelin targets a return on capital employed of more than 11 percent and structural free cash flow higher than 500 million euros, aided by lower spending on raw materials in the first half and cost cutting in Europe.

About 59 percent of Michelin’s workers are employed in Europe. The manufacturer said last June that it would end production of heavy-truck tires at a factory in Joue-les-Tours, about 250 kilometers (155 miles) southwest of Paris, by the end of 2015. About 730 of the plant’s 930 employees will lose their jobs in the move. The company’s full-time workforce amounted to 105,700 people at the end of 2013.

Currency Headwinds

The recent appreciation of the euro against currencies, including the dollar, Brazilian real, Russian ruble and Argentine peso dragged down Michelin’s sales in the first quarter. The company expects currency effects to be about 230 million euros for the full year, steady with the impact booked in 2013.

Valeo SA was also burdened by foreign-exchange headwinds. France’s second-biggest auto-parts maker yesterday reported a 6.3 percent rise in first-quarter revenue to 3.11 billion euros. Excluding currency effects and corporate reorganization, the gain would have been 11 percent. Valeo shares today traded 1.6 percent lower.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net Chris Reiter

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