Michelin H1 results up amid dampened sales in second quarter

Clermont-Ferrand, France – Groupe Michelin’s passenger car tire sales in the second quarter of 2017 has been dampened by heavy buying in the first quarter ahead of planned price increases.

The French tire-maker announced 25 July that over the half-year period, however, volumes were up 4.1% compared to the first six months of 2016.

In the six months to 30 June, Michelin registered a stable operating income at €1.4 billion, on net income of €863 million, up 12% compared to the same period in 2016.

While PCR volumes grew 3% over the first half, truck tire volumes remained stable.

In speciality tires, volumes were up 16%, driven by the continued rebound in mining tire business and OE earthmover and agricultural tire sales.

The French company reported a positive price mix effect of 1.4% for the first half, accelerating to 2.8% in the second quater reflecting the impact of price hikes at the beginning of the second quarter.

Over the period, Michelin sustained a negative €331 million impact of raw materials costs with the figure for the second half estimated at around €450 million. The tire maker expects a headwind of around €800m in raw materials costs for the year.

Over the course of 2017, Michelin aims to save €300 million in targeted average annual cost savings, as part of its competitiveness plan which will see the tire maker save €1.2 billion by 2020.

“Michelin’s good performance, compared with a strong first-half 2016, is in line with our 2020 roadmap,” said Jean-Dominique Senard, chief executive officer presenting Michelin results.

The main drivers of the period, according to Senard, will include an increase in volumes, tight pricing policy management, further improvements in competitiveness and the commitment of employees to serving customers.

According to Senard, Michelin expects its margins to improve in the second half as a result of price increases introduced earlier in second quarter.

In Europe, OE demand for passenger car and light vehicle tires fell sharply in the second quarter, losing 4%, following a 6% hike in the first quarter. A decline in vehicle sales in the UK and Germany was a key contributor to the drop.

However, recovery in Eastern Europe is gaining momentum quarter after quarter, according to Michelin.

Demand continued to show signs of slowing in North America, with a 1% decline in the second quarter following on from a 2% increase in the first.

In Asia, excluding India, demand was up 3% overall, while the Chinese market “held firm”, gaining a further 3%.

The PCR replacement demand in western Europe contracted by 2% in the second quarter after gaining 5% in the first due to early buying ahead of price increases.

Michelin also said it expected replacement markets to recover from their decline in the second half of the year, regardless of prevailing winter weather conditions.

Additionally, the company expects demand for original equipment tires should remain on an upward trend in the truck, earthmover and agricultural segments, with growth slowing in the passenger car and light truck segment.

Sales of mining tires are expected to remain buoyant.

Given the full-year impact of higher raw materials costs, which are currently estimated at €800 million, Michelin said it will continue “to agilely manage prices”.

As a result, changes in the price mix and raw materials costs are expected to have a net positive impact in the second half of the year.