Europe: Michelin forecasts second-half profit reduction on material expenses image

Michelin & Cie., Europe’s largest tire manufacturer, announced recently it was forecasting a slower second-half profit growth because of previous deals that disallowed the company from passing raw-material price hikes to consumers.

Operating profit following the first six months of the year and excluding one-time gains or costs soared 8.9 percent from the same period last year to 1.26 billion euros ($1.4 billion), falling behind analyst estimates that called for an average of 1.29 billion euros. The first half earnings were impacted by product pricing, incurring a setback of 426 million euros, said the Clermont-Ferrand, France-based company in a statement released Tuesday. “Earnings are a bit of disappointment” because of lower priced products across the volume growth board, commented Hans-Peter Wodniok, an analyst at Fairesearch. The company’s stock recessed the most in at least three and a half years.

The European recovery has triggered growth in terms of local tire demand and the euro has been trading close to a 12-year low against the dollar, triggering a lift in the value of sales converted into the company’s core currency. Additionally, prices for industrial commodities including oil have fallen to the lowest level in 13 years, allowing for reduced production costs, but rubber has been more prone to fluctuations, currently falling from a 16-month high seen in June. Michelin kept its initial target of rising full-year operating profit, excluding the currency effects, and kept its forecast of returning on capital employed around eleven percent while spending 1.8 billion euros. Chief Executive Officer Jean-Dominique Senard added the company now expects tire sales to gain a faster pace than initially envisioned, with deliveries advancing faster than the overall industry segment.

Via Bloomberg