Michelin Tightens Cost Controls as Currency Burdens Sales
Michelin & Cie. (ML), Europe’s largest tiremaker, said currency shifts in the U.S., Japan and South America more than offset global delivery gains causing it to review spending plans after third-quarter revenue dropped.
Sales fell to 5.12 billion euros ($7.06 billion) from 5.44 billion euros a year earlier, even as delivery volumes rose 2 percent, the Clermont-Ferrand, France-based company said late yesterday in a statement. That missed the 5.33 billion-euro average of five analyst estimates compiled by Bloomberg. The stock fell the most in three months.
The tiremaker forecast that operating profit will rise by about 150 million euros before one-time items and currency effects, which will be “more deeply negative” than anticipated at the beginning of the year.
The depreciation of the dollar and yen has undone the French manufacturer’s efforts to boost volumes by growing outside Europe, where demand has been hit by recession. The company is investing in additional capacity in new markets and by selling tires for mining equipment and other large vehicles. Europe’s contraction has already prompted the tiremaker to look at ways to trim costs in the region, where about 59 percent of its 107,000 workers are employed.
The stock fell as much as 4.6 percent, the biggest drop since July 25, and was down 3.9 percent at 76.68 euros as of 9:11 a.m. in Paris trading. The shares have gained 7 percent this year, valuing the company at 14.4 billion euros.
Michelin expects foreign-exchange fluctuations to burden full-year operating profit by about 250 million euros, Chief Financial Officer Marc Henry said on a conference call. The company previously forecast a negative currency impact of as much as 150 million euros for 2013. Nine-month revenue declined 5.3 percent to 15.3 billion euros.
To offset foreign-exchange headwinds, the company will further tighten control over costs. Michelin still sees global volumes steady as Europe recovers from the effects of the sovereign-debt crisis. Car, truck and specialty tires global markets all advanced over the first nine months of the year.
“In light of the outlook for volume growth in the fourth quarter, Michelin confidently maintains its full-year objective of stable volumes,” the company said in the statement.
Michelin laid out a strategy on Sept. 18 to deliver 1 billion euros in structural free cash flow a year by 2020, as well as at least a 15 percent return on capital employed.
The company expects its expansion outside Europe to ease foreign-exchange risks over time, as costs and revenues in various currencies are more balanced.
“What is clear to us is that Michelin provides a natural hedging through a balanced geographic portfolio,” said CFO Henry on the call. “The geographical portfolio and the portfolio of activities of Michelin is bringing us a natural hedge that is quite impressive.”
To contact the reporter on this story: Mathieu Rosemain in Paris at email@example.com