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Michelin Forecasts No Growth in 2013 on Europe Recession

February 12, 2013

Michelin 2012 Earnings Rise 25% on Growth in Specialty Tires

A visitor passes an automobile tire displayed on the Michelin & Cie. stand at the Paris Motor Show. Photographer: Jason Alden/Bloomberg

Michelin & Cie., Europe’s largest tiremaker, said sales volume and earnings probably won’t grow this year as a recession that hurt the region’s car and truck industries held back profit increases in 2012.

Michelin fell the most in three weeks in Paris trading after reporting operating profit excluding one-time items of 2.42 billion euros ($3.24 billion) for last year. Earnings missed the 2.52 billion-euro average of 12 analyst estimates compiled by Bloomberg.

The tire manufacturer is seeking more sales outside Europe amid a regional automotive market contraction that French carmaker PSA Peugeot Citroen expects at as much as 5 percent this year. Faurecia, the car-parts producer controlled by Peugeot, scrapped its dividend to conserve cash following a drop in profit last year. Michelin today forecast “steady” tire sales and “stable” earnings in 2013.

The tiremaker’s operating profit and the forecast for 2013 were “a little disappointing,” Philip Watkins, an analyst at Citigroup Inc. in London, said in a report to clients.

Michelin fell as much as 4 percent to 69.80 euros, the biggest intraday drop since Jan. 22, and was trading down 3.6 percent at 9:30 a.m. The stock has fallen 2 percent this year, valuing the tiremaker at 12.8 billion euros.

Margin Widens

Sales last year rose 3.6 percent to 21.5 billion euros, Clermont-Ferrand, France-based Michelin said in a statement today. Free cash flow was 1.08 billion euros compared with a negative 19 million euros in 2011. Operating profit excluding one-time gains or costs increased 25 percent, and earnings as a proportion of sales rose to 11.3 percent from a 9.4 percent margin a year earlier.

The company said in September that it plans to invest 1.6 billion euros to 2.2 billion euros a year through 2015 to fuel the expansion and to reach an operating income of about 2.5 billion euros that year, with positive annual free cash flow through the period. Michelin said today that it’s sticking to the strategy, and announced plans to raise the dividend 14 percent to 2.40 euros a share.

Faurecia, Europe’s largest maker of car interiors, reported second-half operating profit plunged 32 percent to 211 million euros. Sales increased 7 percent to 8.6 billion euros as growth in North America and Asia offset a decline in its home region, the Nanterre, France-based manufacturer said today. Faurecia, which is 57 percent-owned by Peugeot, fell 2 percent to 13.55 euros in Paris.

Plant Shutdowns

Europe’s car market may contract to 12.3 million vehicles this year, 23 percent below the pre-2008 global recession peak, according to estimates by IHS Automotive research group. Carmakers are responding by scaling back production, with Peugeot, the region’s second-biggest carmaker, planning to shut a factory on the outskirts of Paris and General Motors Co. (GM:US) and Ford Motor Co. (F:US) closing a combined four plants across Europe.

Group volume at Michelin fell 6.4 percent last year because of “weak demand, particularly in European markets,” the company said. The number of car and light-truck tires sold declined 5.5 percent, and the operating margin at the business, excluding one-time gains or costs, declined 0.1 percentage point to 9.3 percent.

The volume of tires for heavier vehicles dropped 11 percent “as the group focused on turning the truck-tire business around and restoring its margins.” Profitability almost doubled to 6.6 percent from 3.5 percent a year earlier. Specialty-tire sales numbers rose 1.7 percent, and the margin at that division, which supplies the aerospace and mining industries, increased to 26 percent from 21.5 percent.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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