Third quarter sales were slightly under 4.2 billion euros, a 2.5% increase at constant exchange rates that Deutsche Bank analysts report is “in line” with its estimate of 4.3 billion euros. The German bank’s Equity Research division further commented that the key positive factors driving earnings in the third quarter, a period it has described as “uneventful”, were Michelin’s price/mix, up 3.7% or 153 million euros, and volume, which showed a 1.4% or 59 million euro rise.
Over this same quarterly period the company’s sales volumes posted a year-on-year growth of almost 3.0 per cent. During the first six months of the year this increase was at a rate of 3.6%, but during the third quarter growth slowed to 1.4%; Michelin’s replacement passenger and light truck tyre business was impacted by what the company has called “less supportive European and North American markets” during the quarter, while in the US Michelin’s sales of truck tyres dropped by 39.2% as a result of a sharp decline in truck OE activity.
During the third quarter original equipment truck tyre markets in Europe, Asia and South America maintained their existing dynamics; similarly, passenger car and light truck tyre markets provided positive results in the mature markets but even more so in Asia and South America, reflecting a continuous rise of living standards and strong economic growth in these two regions. Sales in the two markets increased by 22.4% and 19.1% respectively. Passenger car, light truck and truck replacement markets in Europe and North America experienced growth that Michelin describes as being “weak” at best: Europe’s winter segments of passenger car and light truck replacement markets were not as dynamic as in 2006 and truck tyre operations were affected by a bearish US economy and slower growth in Western Europe.
Michelin confirms that its estimated raw material cost burden for 2007 contains a 60 million euro increase over 2006, but added that the latest round of price increases for a number of raw materials, including natural rubber and oil, will not impact the Group’s 2007 results. Against this background, the company confirms that the 2007 fiscal year should post a substantial improvement relative to the previous financial year. Full-year operating margin before non-recurring items is therefore expected to approach the first year-half level of 10.2%, a figure that is also in line with Deutsche Bank’s estimate of 10%.
In Europe sales of replacement passenger car and light truck tyres were stable in the first nine months of the year and differed somewhat between the traditional and emerging markets. Sales in Western Europe were down 1.4% during the period, with German and Scandinavian markets impacted by winter market performance below the strong growth of 2006, while Eastern Europe sales were up 5.2%. A shift towards higher performance tyres occurred, with a strong growth of 7.0% taking place in the V & Z speed rated segments at the expense of the mass-market S & T segments, which slipped by 6.0%. Sales of SUV tyres increased by 12.5%.
The truck tyre replacement market in Europe posted growth of 4.0% during the nine-month period, a level the company considers “satisfactory.” This growth took place despite lower demand in Western Europe and flat growth in the third quarter. The buoyancy of the power unit market was confirmed by 11% growth of original equipment truck tyre sales in the first nine months of the year, with the third quarter experiencing growth of 15%. This positive result was mainly driven by sustained Eastern European OE business performance and by exports. Growth in the trailer market also remained “impressive”, with a 20% year-on-year rise recorded in the third quarter.
Passenger car and light truck original equipment markets expanded by 3.7 per cent in the first nine months of 2007, stimulated in particular by the OEMs operating in Eastern Europe.
Michelin reports that the trends observed at the end of September 2007 should not change significantly by the end of the year, while Deutsche Bank comments that it expects volume in the fourth quarter to be much stronger as a result of a low base effect in the final quarter of 2006. In replacement passenger car and light truck markets Michelin anticipates moderate growth worldwide, with sales in Asia affected by weak demand in Japan. On the original equipment side growth is expected to be “satisfactory”, driven by rising living standards in emerging regions and recovery in Europe. North American markets, however, are expected to remain down. Replacement truck tyre sales are tipped to be strong in emerging countries, satisfactory in Europe, and still depressed in North America. In the original equipment market strong growth in Europe will most likely contrast sharply with a significant decline in North America.
