Analysts Expect “Very Bad” 4Q Figures from Michelin

Financial analysts have cut their 2008 operating income estimate for Michelin from 1.15 billion to 1.05 billion (-37 per cent compared with 2007). Deutsche Bank’s reduced estimate comes off the back of sharp falls in tyre demand in mature markets.

According to the analysts, mature markets (such as Europe and North America) represent 70 per cent of Michelin’s volumes. “We estimate tyre demand fell sharply in the fourth quarter (-15 per cent) both in OE and in replacement – in passenger as well as truck markets. We believe this weak demand, coupled with a destocking effect, led to a high 25 per cent production cut in the fourth quarter,” the analysts commented, explaining that the magnitude of this volume drop is not sustainable:

“We believe, as the current negative volumes (estimated at being down 9 per cent in second half of 2008) in mature markets have never been seen before. During the past 30 years, the sharpest declines in volume for the group were -3.5 per cent in 1991; -2.5 per cent in 1993 and -2.6 per cent in 2001.”

Deutsche Bank’s generally bleak assessment concludes on a slightly more positive note: “Even if volumes remain negative -5 per cent, of which -7 per cent will come from mature markets (-15 per cent in OE, -4 per cent in replacement), and zero in emerging markets, they should be more than offset by the tailwinds the group should get from; i) raw material price declines (800 million euros), ii) energy and transportation cost declines (200 million euros) and iii) the full effect of 2008 price increases (300 million euros).” However, the bulk of this recovery is not expected until the second half of 2009.

Meanwhile Michelin’s share price increased 3.1 per cent following a report showing the American economy lost fewer jobs last month than some economists forecast. Michelin makes more than 20 per cent of sales in North America, according to Bloomberg.