Michelin Issues ‘Reassuring’ Profit Warning

Michelin has reassured market watchers that it will be able to achieve an operating margin of around 8 per cent for the full year, following the successful achievement of the same figure (equivalent to 644.7 million euros) in the first half of 2006. The company had previously predicted that it would achieve an operating margin of 8.8 per cent. Michelin achieved first half net sales of 8,023 million euros, up 7.1 per cent compared with the same period last year.

Deustche Bank analysts responded positively to the announcement. “…a quasi stable operating profit (-4 per cent) underlines that the group has been able to almost fully offset a huge 23 per cent raw material price increase (800 million euros of which 500 million was natural rubber alone).” The analysts maintained their “buy” rating on Michelin stock.

In response to the first half results, Michelin managing partner Michel Rollier said: “Over the past two and a half years the repeated increases in raw material prices have deteriorated Michelin’s costs by more than one billion euros. As the group is finding it difficult to fully compensate for this evolution, it is becoming essential to accelerate the productivity improvement and cost reduction programmes that are already in place. Michelin’s teams are aware of the challenges and of the measures that need to be taken to rise to it. I am fully confident that they will succeed.”