Michelin Profit Rises 19% as Cost-Cutting Lifts Tire Marginsby
Operating profit of 2.58 billion euros exceeded estimates
Dividend raised to 2.85 euros per share from 2.50 euros
Michelin & Cie., Europe’s biggest tiremaker, posted a 19 percent increase in full-year earnings as lower raw material prices and cost-cutting helped lift profitability for car and truck tires.
Operating profit before one-time gains and charges increased in 2015 to 2.58 billion euros ($2.88 billion) from 2.17 billion euros a year earlier, the French manufacturer said Tuesday in a statement. That exceeded the 2.48 billion-euro average of 15 analyst estimates compiled by Bloomberg. The company will raise the dividend to 2.85 euros a share from 2.50 euros a year earlier. Analysts were predicting a payout of 2.70 euros a share.
“Michelin delivered more than we had anticipated,” Hans-Peter Wodniok, an analyst for AlphaValue in Paris, wrote in a note to investors, calling the passenger tire business the “star performer.”
Car-tire margins rose to 11.5 percent from 10.5 percent last year, while the return on truck-tire sales improved to 10.4 percent from 8.1 percent. The shares rose 3.2 percent to 84.30 euros at 9:20 a.m. in Paris.
Michelin is restructuring operations in Europe to become more profitable and reap more benefits from lower raw material costs. Plants for new and re-tread truck tires will be shuttered in the U.K., Germany and Italy. With mining companies hit by a drop in commodity prices, Michelin also shelved plans to make tires for earth-moving equipment in India as it seeks to center its capital investments on “high value-added production.”
The company forecast higher operating earnings this year, before currency fluctuations, and structural free cash flow of at least 800 million euros. For the period through 2020, Michelin is aiming for a return on sales of between 11 percent and 15 percent for car tires and between 9 percent and 13 percent for truck tires.
“With our strengthened fundamentals, the group is on the right track,” Chief Executive Officer Jean-Dominique Senard said in the statement.
Costs related to restructuring moves including the European factory shutdowns and the Indian project suspension reduced profit by 370 million euros last year. That was partially offset by gains of 261 million euros from the restructuring, the company said.