Michelin’s Cost-Cut Plan Helps Push First-Half Profit Up 11%

  • Chinese market will probably remain "buoyant," Michelin says
  • Faurecia boosts operating margin forecast to at least 5%

Michelin & Cie.’s first-half operating profit rose 11 percent as gains from a cost-cutting plan kicked in and car sales growth accelerated in China.

Operating profit before one-time gains or costs increased to 1.41 billion euros ($1.55 billion) from 1.26 billion euros a year earlier, the company said in a statement Tuesday. The figure compared to the 1.3 billion-euro average of four analyst estimates compiled by Bloomberg.

Michelin, Europe’s biggest tiremaker, has been pushing to make operations in its home market more profitable in order to compete with low-cost competitors amid mixed prospects for tire markets around the world. The new goal is to save 1.2 billion euros in costs from next year through 2020, once the current savings plan is complete this year. The measures include plans to cut 500 jobs at its headquarters in Clermont-Ferrand, France.

“The results are very good,” said Michael Foundoukidis, a Paris-based analyst with Natixis. Michelin has been able to boost prices as well as competitiveness, he said.

The shares rose as much as 2.5 percent, the most since July 12, and traded up 0.6 percent to 89.29 euros at 9:26 a.m. in Paris.

Fellow French automotive supplier Faurecia was even more upbeat. The parts-maker raised its forecast for the year, saying that growth in Europe and profitability in Asia and North America will help it achieve an operating margin of at least 5 percent of sales. The shares rose the most since July 1 and traded up 4.4 percent to 34.305 euros.

Cost-Cutting Plan

Michelin’s cost-cutting plan saved about 155 million euros in the first half, offsetting the rising price of production and overhead. The company is on track to save about 1.2 billion euros from 2012 through the end of this year, Chief Executive Officer Jean-Dominique Senard said at a press conference in Paris. Selling more expensive tires and spending less on raw materials, which include rubber, also boosted operating income by 115 million euros, Michelin said.

The tiremaker stuck to 2016 financial targets, including higher operating earnings, before currency fluctuations, and structural free cash flow of at least 800 million euros. Michelin said it expects the market for passenger-car and light-truck tires to remain “buoyant” in China even as North America and Europe lose some momentum in the remainder of the year.

First-half revenue fell 2 percent to 10.3 billion euros. Michelin’s sales growth has been held back by vehicle-delivery slowdowns in Brazil and Russia. Car sales in China started accelerating more quickly again in the first half, a boon for the tiremaker, as demand for sport utility vehicles rose among affluent Chinese buyers. 

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