Michelin Quarterly Sales Jump 8.7% on Tire Volume, Euro Drop

  • Company sticks to 2015 revenue-growth, free cash flow targets
  • Margins to narrow at divisions supplying builders, miners

Michelin & Cie., Europe’s biggest tiremaker, said third-quarter revenue rose 8.7 percent as car-manufacturing customers expanded in North America and the company’s home market, and the euro weakened against the dollar.

Revenue advanced to 5.31 billion euros ($5.92 billion) from 4.89 billion euros a year earlier, the Clermont-Ferrand, France-based company said Thursday in a statement. Sales beat the 5.22 billion-euro average of four analyst estimates compiled by Bloomberg. Michelin reiterated full-year targets for revenue to rise, excluding currency effects, and for structural free cash flow to exceed 700 million euros.

Europe’s car market has grown for more than two years, while auto sales in the U.S. on an annualized basis accelerated to the fastest pace in more than a decade last month. Those gains have more than made up for slowdowns or outright contractions in auto demand in developing economies such as China, Russia and Brazil. Michelin’s global car and light-truck tire deliveries rose 5 percent in the quarter, while currency effects added 285 million euros to revenue, the company said.

“These are very good figures, with strong volume growth,” Thomas Besson, Paris-based auto analyst at Kepler Cheuvreux, who recommends buying the shares, said by phone. “They have a good geographical exposure and they’re gaining market share.”

Michelin plans to boost combined annual production capacity of three new plants in China, Brazil and India to 400,000 tons in 2020 from 134,000 in 2015, according to a company presentation to investors in London this month. It’s part of a strategy set out in 2013 to generate 1 billion euros in annual structural free cash flow by 2020 and at least a 15 percent return on capital employed. Expansion outside Europe is intended to ease foreign-exchange risks over time, as costs and revenues in various currencies are more balanced.

“Thanks to its evenly balanced geographic footprint, Michelin is maintaining its objective of outperforming its markets in full-year volume growth,” the company said.

Earnings as a proportion of sales will probably rise this year at the car and light-truck tire unit, and “increase significantly” at the business that supplies makers of heavy trucks, Michelin said. There will be a “limited decline” in the margin at the specialty-product division, which provides extra-large tires to the construction and mining industries, that will continue in 2016, Chief Financial Officer Marc Henry told analysts on a conference call.

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