Bloomberg News

Michelin Quarterly Sales Drop as Europe Recession Widens

April 23, 2013

Michelin & Cie. (ML), Europe’s largest tiremaker, said first-quarter revenue fell 8.1 percent as a recession reducing car sales in its home region widened to hurt demand at bulldozer and military-plane manufacturers.

Sales dropped to 4.88 billion euros ($6.36 billion) from 5.3 billion euros a year earlier, Clermont-Ferrand, France-based Michelin said yesterday in a statement. Revenue missed the 4.97 billion-euro average of four analyst estimates compiled by Bloomberg. The tiremaker, reiterating forecasts of “steady” volume and “stable” earnings for 2013, said it may look at reorganizing in the absence of a market recovery.

Demand for earthmovers is “falling sharply” in Europe and North America, and sales of farm tractors and defense aircraft are also declining, Michelin said. The manufacturer is seeking more growth outside Europe and marketing more so-called specialty tires used on large vehicles amid a car-market contraction that French auto producer PSA Peugeot Citroen (UG) expects at as much as 5 percent this year.

“If volumes stay at the levels at which they are today, that would imply some European restructuring,” Chief Financial Officer Marc Henry said on a conference call with analysts. “This is under scrutiny of course, but nothing is said yet.”

The shares dropped as much as 2.77 euros, or 4.6 percent, to 57.23 euros and were down 2.3 percent as of 9:22 a.m. in Paris trading. The French manufacturer has declined 18 percent this year, valuing the company at 10.8 billion euros.

Shrinking Market

The European car market is at the smallest in two decades after a decline of 10 percent in March that dragged down first- quarter registrations 9.7 percent to a record-low 3.1 million vehicles. The region accounted for about 40 percent of Michelin’s sales last year.

First-quarter revenue from car and light-truck tires fell 6.5 percent to 2.58 billion euros, while heavy-truck tire sales declined 7.9 percent to 1.48 billion euros. Revenue from specialty tires, Michelin’s most profitable product line, tumbled 13 percent to 818 million euros.

Caterpillar Inc. (CAT:US), the world’s biggest maker of mining equipment, cut its 2013 forecast yesterday and lowered its outlook for demand from commodities producers “significantly.” Boeing Co. (BA:US), the world’s largest plane manufacturer, said on April 19 that it’s scaling back the production rate of the 747-8 jumbo jet amid a slowdown in the global air-cargo market.

Cash Flow

Michelin is still predicting an increase in replacement sales of giant tires for mining vehicles, Henry said on the call yesterday. Other earthmover markets are “difficult,” with declines in sales to producers of the vehicles, and industrywide farm-tractor tire sales are “almost flat,” the manufacturer said in an online presentation.

The company also reiterated a forecast that the return on capital employed will exceed 10 percent and that it will post positive free cash flow.

Rubber prices are trading near a five-month low, which may reduce the burden of spending on raw materials at auto-parts makers such as Michelin. The price for September delivery declined yesterday.

Falling raw-material costs may help full-year operating profit by 550 million euros, offsetting a possible 330 million- euro earnings reduction resulting from product-price cuts, Michelin said.

“The decrease in input costs should generate incremental gross profit for global tire manufacturers, given relatively strong volume in the U.S. and Asia offsetting weakness in Europe,” Kevin Tynan, a Bloomberg Industries analyst, said in a report dated April 17. “Declining rubber prices have correlated with narrower gross margins, as a reflection on weaker consumer demand for higher-margin replacement tires.”

Exchange-rate effects may hurt full-year earnings by less than 100 million euros, Henry said. Currency shifts reduced sales by 61 million euros in the first quarter, Michelin said.

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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