Michelin 1Q results – Volumes rise as European and US markets grow

Michelin’s first quarter results show that the group’s net sales totalled 3.799 billion Euro; up 3.9 per cent on the 1Q 2003 figure of 3.654 billion Euro. If currency fluctuations are factored out, the increase would be nearer 9.5 per cent. In tonnage terms, volumes rose 7.6 per cent over 1Q 2003.

Encouraging though these figures are, Michelin warns against extrapolating
them for the remainder of the year, as the first quarter growth was driven
by a number of one-off factors, both in Europe and North America. An example of this was in France, where the tyre industry has been made responsible for the collection and disposal of end-of-life tyres, under the umbrella of a joint company, Aliapur. This is financed by the tyre manufacturers and, as a result, most tyre manufacturers increased their French sell-in prices from March 1st to cover the cost. This resulted in considerable advance sales (a 10 per cent increase) as retailers increased inventories to avoid the higher prices and will lead to slower sales later in the year.

Looking at the performance of the market in North America, it should be remembered that 1Q 2003 was a particularly fraught period, with the Iraq conflict having a depressing effect, as well as the aftermath of the Firestone recall. Here too, 1Q 2004 sales were affected by warnings of tyre price increases, which brought forward sales to some extent.

European sales

The European replacement market for passenger car and light truck tyres was up 5.3 per cent in 1Q 04. We have already mentioned the effect of legislation in France, but there was a 17 per cent growth in the markets in Eastern and Central Europe; an area which accounts for 10 per cent of the European market. As well as these factors, demand generally continues to grow.

When it comes to European passenger and light truck OE sales, the story is very different, with a slight (0.4 per cent) rise. The trend in favour of upper range and better equipped vehicles continues, says Michelin. Replacement truck tyre sales in Western Europe rose 6.9 per cent in 1Q 04. Again, the impact of the French legislation was considerable, with sales pulled forward, leading to a French market increase of 24 per cent. Excluding France, Western Europe replacement sales rose 4.5 per cent, with strong growth in Spain and Italy and minimal growth in Germany.

The OE truck tyre market showed growth, with the power unit segment up 7.1 per cent and the trailer segment – which was depressed in 2003 – up 8 per cent.

North American sales

Sales in 1Q 2003 were particularly bad in the North American replacement market for passenger and light truck sales; down 5.4 per cent. For the first quarter of this year, the market is up 5.8 per cent, with impressive growth in the performance sector (+15 per cent) and with the SUV tyre sector putting the recall-associated worries behind it with growth of 22 per cent. There were also two extra working days in March this year, which had a significant effect on sales volumes.

Car and light truck OE sales were down 1 per cent, but 1Q 03 was particularly buoyant, with vehicle manufacturers offering huge incentives to encourage sales. Michelin believes it unlikely that there will be any growth in the market for the year as a whole.

The truck tyre replacement market saw an increase of 5.9 per cent as the NAFTA economy continued to develop. However, to put things in perspective, it should be realised that the North American market is still 11 per cent lower than its level in the year 2000.

OE truck tyre sales leapt by 32.9 per cent, but again this was largely a consequence of one-off events. One such was a change in how working hours are regarded in the USA, which led many companies to increase the numbers of trailers in order to optimise the drivers’ working time. Also, truck sales in 1999 and 2000 were at record levels, but very low in the following years. These units are now coming up for replacement, thus boosting sales.

Other markets and products

The economic climate in South America is showing signs of improvement and recent tyre price increases seem to be sticking. Michelin noticed “strong increases” of sales of its truck tyres in Brazil, Argentina and Chile.

One area where Michelin is enjoying growth is that of Asia. China is the third largest Asian market (behind Japan and South Korea) and the car and light truck replacement market continues to grow strongly. Sales volumes of Michelin and Warrior branded tyres here rose by more than 30 per cent, while in Japan and Thailand too, Michelin outperformed the market, with double-digit sales growth. OE tyre markets in China and Thailand continue to expand, while the Chinese radial truck tyre market is growing strongly and Michelin was well placed to take advantage of this growth.

When it comes to other products, global sales volumes of earthmover tyres (replacement and OE) were up 12 per cent year-on-year, which is the best historical performance ever. Agricultural tyre sales rose in volume by 6 per cent, with OE sales performing well. Equally important was the fact that price increases meant that sales in the sector rose by 6 per cent in value terms too. Aircraft tyre sales rose in volume, but in money terms could not overcome the negative effect of the sharp depreciation of the Dollar versus the Euro. Finally, two-wheeler tyre sales in the quarter were up by 9 per cent, due largely to the successful launch of the Pilot Power motorcycle radial range of products.

So, what are the prospects for the year? Michelin assumes that raw material prices will remain high, with natural rubber prices increasing and high prices too for steel and oil-derived products.

The group is particularly pleased with its performance in North America, where it outperformed the industry in what was a buoyant market. Michelin was delighted too that the gains in market share were in the Michelin brand, with a slight decline in the share of private and associate brands – these now account for less than 20 per cent of sales volumes.

Bearing in mind the caveat at the beginning of this article about 1Q 04 performance owing much to a number of non-recurring factors, Michelin seems generally up beat about the full-year prospects. The growth in Asian markets looks set to continue with the joint venture with Apollo tyres contributing significantly to expansion in the months to come.