However, upon releasing its figures the company also warned that a drop in European and North American demand makes it unlikely that previously set targets will be reached. In July, Michelin based its estimated result of around 8.6% for the full year on the assumption that "second half markets do not worsen beyond estimated levels" forecasted at the time.
It now reports the different trends recorded since early October point to a sharper deterioration of demand in most European and North American countries. If this trend is confirmed in November and December, Michelin should post 7% to 7.5% operating margin before non-recurring items for fiscal 2008. The company’s 2007 operating margin stood at 9.8%.
Sales for the quarter increased 0.7% to 4.212 billion euros (at constant exchange rates, an increase of 5.1%). Over the nine months of the current financial year sales have dipped 1.1% compared with the corresponding 2007 period, to 12.451 billion euros. “Michelin posted a rather satisfactory commercial performance for the first nine months of 2008,” the company reports. “This was especially true for the truck tyre operations, that often posted significant sales volume growth worldwide (except for Europe) and for the earthmover and aircraft operations, where demand has remained fairly strong and where the Group’s product offering is highly appreciated by its customers.”
During the quarter sales of passenger and light truck tyres decreased 2.7% to 2.194 billion euros, while truck tyre sales dropped 2.4%, to 1.464 billion euros. A robust market for off road tyres permitted far more favourable results the company’s specialty business sector; sales increased 11.2% in this quarter, to 554 million euros. For the nine months of this current year, passenger car and light truck tyre sales have dipped 2.9% on last year, to 6.551 billion euros; truck tyre sales are 0.4% lower, at 4.160 million euros; growth in the specialty business sector was 4.4%, to 1.740 billion euros.
In Europe the passenger car and light truck tyre replacement markets posted a decline of 4.2% in the three-month period and a 3.4% drop since the start of the year. The winter tyre segment has posted a 13% slump since the beginning of the year. Excluding winter products, European sales for this segment decreased 0.7% during the nine-month period.
Sharp differences observed between Western Europe and Eastern Europe remain: overall, since the beginning of the year, Western European demand declined more than 6%, while in Eastern Europe, markets grew almost 6 per cent, with Romania and Bulgaria growing more than 20%. Except for the winter segment, the market mix was further enriched, comment Michelin.
Truck replacement markets were down more than 3% over the nine-month period, but were stable in the third quarter year-on-year. The regional trends were maintained, with strong declines in Western Europe (-7.5% for the nine months) and in Eastern Europe (-9.6%), while demand remained impressive in Russia (+25% to 30%). Large fleets did better than the smaller ones, as the latter had little flexibility to pass on massive fuel price increases to their customers. The ‘construction’ segment was the most affected while the ‘local/regional’ and ‘long haul’ segments behaved differently from country to country.
Passenger car and light truck OE tyre markets were stable in the first nine months of the year as the growth recorded in the first half was wiped out by the -3.4% decline of the third quarter. This trend reflects the problems faced since the beginning of the year by the OEMs present in Europe. Truck original equipment power unit tyre market demand fell in the third quarter, mainly as a result of recent economic slowdown and uncertainties concerning future prospects; a situation aggravated by tightening credit conditions. The trailer market, slightly up over the nine-month period, posted a sharp year-on-year decline in the third quarter.
In releasing its revised, more modest full year estimated margins, Michelin comments that it expects demand in developed countries to remain depressed while growth trends in emerging countries present a healthier outlook. The company also confirmed its assumptions of an additional cost impact of raw materials on its P&L of some 750 million euros, excluding currency effect, for the full year 2008.
However, during the last few weeks, it adds, a spectacular and sweeping fall in raw material prices was recorded. Michelin believes it will begin to benefit from this change in the second quarter 2009. (Tyres & Accessories/Staffordshire, U.K.)
