Michelin & Cie (ML), Europe’s largest tiremaker, reported a 13 percent decline in first-half profit as slumping auto markets in its home region sapped demand and sales of tires for earthmovers dropped.
Operating profit excluding one-time items declined to 1.15 billion euros ($1.52 billion) from 1.32 billion euros a year earlier, the Clermont-Ferrand, France-based company said in a statement today. The figure compared with the 1.12 billion-euro average of six analyst estimates compiled by Bloomberg. Sales decreased 5.1 percent to 10.2 billion euros.
Michelin is seeking growth outside Europe by selling tires for mining equipment and other large vehicles amid a six-year slump in car sales in its home region. Photographer: Ariana Lindquist/Bloomberg
“Michelin’s first-half performance was in line with the 2013 objectives and attests to the group’s continuous improvement as it moves forward” with expansion plans, Chief Executive Officer Jean-Dominique Senard said in the statement.
Michelin is seeking growth outside Europe by selling tires for mining equipment and other large vehicles amid a six-year slump in car sales in its home region. The company plans to spend about 2 billion euros this year to add capacity in new markets. The slowdown has prompted the tiremaker to look at ways to trim costs in Europe, where about 59 percent of its 107,000 workers are employed.
The shares dropped as much as 4.10 euros, or 5.3 percent, to 72.82 euros and were down 4.6 percent as of 10:19 a.m. in Paris trading. The stock has gained 2.6 percent this year, valuing the French tiremaker at 13.7 billion euros.
Slumping Demand
Michelin stuck to a target of keeping 2013 operating profit “stable” and holding global volumes “steady.” The company expects lower rubber prices to boost earnings in the second half as markets improve and sales volumes show “modest” growth. For the year, the company sees lower prices for raw materials adding 350 million euros to operating profit.
Demand for replacement tires for cars and light vehicles slumped 4 percent in Europe in the first half because of the “uncertain” economy, Michelin said. That led to a 5.3 percent drop in car-tire operating profit to 550 million euros.
Specialty-tire profit tumbled 25 percent to 400 million euros as demand for tires for earthmovers declined in Europe and North America. Operating earnings in the truck division slumped 2.9 percent to 203 million euros.
“These results are on the whole satisfactory,” said Thomas Besson, an analyst at Kepler Cheuvreux in Paris, who recommends buying the shares. “The only division that is disappointing is the truck division, but restructuring is planned.”
Job Cuts
Michelin said on June 10 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. Michelin is also selling its tire activities inAlgeria.
Michelin also wants to roll out flexible-work rules at all its 17 factories in France by mid-2014 to adjust the market contraction in Europe, CEO Senard said on June 3. The CFE-CGC and CFDT unions agreed in January to allow the company to assign employees to work additional days without extra pay to compensate for down time when production is slow.
The company plans to invest 1.6 billion euros to 2.2 billion euros a year through 2015 to fuel expansion outside Europe and to reach an operating income of around 2.5 billion euros in the same year.
Currency shifts and devaluations had a negative impact of 49 million euros in the first half, the company said.
“This monetary question isn’t neutral,” Senard told reporters today. “You’ve seen the impact on our results. When countries provoke competitive devaluations, there are some consequences for it.”
Source: Bloomberg
