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Michelin Posts Loss on Sales Slump, Restructuring Costs

(Bloomberg) Groupe Michelin reported a loss in the first half on a slump in sales to vehicle manufacturers and trucking companies hit by the global recession.


The net loss was 119 million euros ($168.1 million) compared with net income of 430 million euros a year earlier, the Clermont-Ferrand, France-based company said in a statement today. Sales fell 13% to 7.13 billion euros. Analysts had expected a 320 million-euro loss on sales of 7.09 billion euros, according to the median of estimates compiled by Bloomberg.

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“Inventories have now returned to more normal levels, but not to the extent that we can talk about a real upturn,” CEO Michel Rollier said in the statement. Declining raw-material prices “should support second-half margins.”

Tiremakers are being squeezed by a slowdown in vehicle production and weakening sales of replacement truck tires, as the recession hits freight carriers and construction companies. While government-backed sales incentives halted Europe’s auto- market slump last month, demand was 11% lower for the first half overall.

Michelin rose 2.01 euros, or 4.4%, in Paris yesterday, extending the stock’s gain this year to 26% and valuing the company at 7 billion euros.

The company gave no earnings forecast for the full year. Rollier said in February the 10% operating margin originally targeted for 2010 may be achieved “a little later” as the sales slide forces the postponement of some investments.

Earnings Details
Michelin recorded a first-half operating profit of 282 million euros, excluding one-time gains and losses, for an operating margin of 4%. That compared with a 708 million-euro profit a year earlier, or 8.6% of sales.

Raw-material costs wiped 117 million euros off first-half profit, Michelin said. Rollier had cautioned in February that the decline in rubber and oil prices since last year would not trickle through to Michelin’s earnings until the second half.


Michelin said its truck-tire operations recorded a 163 million-euro operating loss, after a profit of 139 million euros a year earlier, as sales plunged 23% to 2.07 billion euros.

The operating margin on car tires fell to 6.3% from 7.6% a year earlier on a 9.4% decline in sales, the company said. The profitability of specialty tires for airplanes and construction equipment fell two points to 18%, as sales fell 6.1% to 1.11 billion euros.

Michelin pledged in April to cut investment by 45% this year, predicting that sales would begin to recover after declining throughout the first half. The company announced the closure of a BFGoodrich plant in Alabama the same month, with the loss of about 1,000 jobs. Globally, it plans to continue reducing the workforce at a rate of 3%-4% per year. (Tire Review/Akron)

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