In the first quarter of 2020, Michelin saw an 8.3% decline in sales year-over-year, according to the company’s first-quarter statement. Michelin says the decline is due to the “systematic crisis” caused by the COVID-19 pandemic.
Michelin reported first-quarter sales declines at current exchange rates, reflecting:
- An 11.7% contraction in volumes, which accelerated in March (down 21%);
- A 2.0% gain from the price-mix; and
- A 1.0% increase from changes in the scope of consolidation.
Michelin says global tire demand dropped in the first quarter, as lockdown policies gradually spread around the world, impacting every business segment. Passenger car and light truck tire markets dropped 15% after carmakers suspended production and consumers went into isolation, and truck tire markets fell by 17% year-over-year, the company reports.
In the specialty businesses, certain mining markets and the replacement agricultural tire markets showed some signs of resilience, Michelin says.
To mitigate the financial impact of the impending deep recession, in mid-March Michelin says it implemented the following measures:
- Tracking supply and demand on a weekly basis to keep inventory under control;
- Reducing capital expenditure by €500 million;
- Reducing the dividend submitted to shareholder approval by €330 million;
- Suspending the share buyback program, except for the firm commitments outstanding for 2020; and
- Reducing overhead costs.
Michelin says it is reaffirming that it has “the sources of financing in place to deal with the uncertainty surrounding the crisis.” The company says that stress tests, based on volumes declining by between 20% and 35% over the full year, have shown that Michelin has sufficient cash and cash equivalents, without drawing down its confirmed back-up lines of credit.
Michelin says so far the direction of the pandemic and its economic impacts remain too uncertain to issue any reliable market forecasts and a related profit scenario. Michelin adds at a time of steeply declining raw material prices, the company expects to see a more positive net price-mix/raw materials effect, which should slightly attenuate the much more pronounced impact of lower volumes.