Michelin Sales 14.2% Down in First Quarter

To call what we have experienced in the first quarter of 2009 a bear market would be something of an understatement. And while in such ursine conditions the 14.2 per cent drop in net sales reported by Michelin is by no means any worse a performance than that experienced throughout the tyre industry, it is safe to say the French manufacturer is eagerly awaiting the next hibernation season.

Group net sales for the three months to March 31 totalled 3.512 billion euros, of which the greatest chunk – 1.946 billion euros – came from the sale of passenger and light truck tyres. Truck tyres accounted for a further 1.006 billion euros, and the company’s specialty tyre business the remaining 561 million euros. All of these segments experienced a year-on-year decline in sales during the quarter; sales of truck tyres, in terms of income, declined 24.2 per cent.

These reduced sales occurred within the context of shrinking global markets – a slump within the automotive industry caused OE passenger car tyre sales in North America to plummet 52.0 per cent, while Europe suffered a 38.6 per cent drop. Michelin reports that former growth markets also experienced far fewer sales in the first quarter; 26.4 per cent fewer in Asia, 26.2 per cent in South America and 25.0 per cent in Africa and the Middle East. Replacement market sales were affected to a lesser extend, but nevertheless lower in all markets: North America experienced 11.8 per cent fewer sales, Europe and South America both witnessed a drop of 10.6 per cent, Asian sales reduced by 9.2 per cent while Africa and the Middle East, with a 7.3 per cent sales decline, was the least affected region.

Upon releasing these figures, Michelin commented that, except for China, tyre markets around the world fell sharply during the first quarter, as vehicle manufacturers slashed production and drastically drew down inventories over the period. In March, however, the European market showed glimmers of recovery in countries that had introduced automobile stimulus packages, with a more favorable impact on small car tyres. The contraction in the passenger car replacement tyre market during late 2008 gained momentum in the first quarter, as motorists continued to cut back on miles driven, retailers continued to focus on reducing inventories and the economic slowdown gradually spread to emerging markets. The decline of 10.6 per cent recorded in Europe occurred largely due to the collapse in the Russian market, notes Michelin. Excluding the CIS, the decline was 4.9%. The company believes the retail sell-out market is reviving, indicating that distributor inventories could be close to bottoming out, especially in Europe and North America.

The picture in the truck tyre segment was painted using even darker hues. European OE sales sank 62.4 per cent year-on-year, while in North America they fell 45.1 per cent. Asia, South America and Africa/Middle east OE truck tyre sales fell 22.2 per cent, 33.5 per cent and 25.1 per cent respectively. Again the replacement tyre segment faired better – European sales declined 34.7 per cent in the reported period, North American 25.3 per cent and South American 23.4 per cent. Sales in Asia declined 12.6 per cent, and once again the Africa/Middle East region was the least affected, with only 7.7 per cent fewer sales.

The drop in OE truck tyre demand experienced in Europe and North America last autumn spread to other markets in the first quarter, states Michelin, as most truck manufacturers sharply scaled back production to preserve their finances and bring inventories back to a more manageable level. The company notes, however, that the Chinese market remains more on an upward trend, with demand lifted by sustained new truck sales. Replacement truck tyre markets around the world were adversely affected by the decline in freight tonnage caused by the global economic slowdown and ensuing contraction in international trade. Other negative factors included inventory drawdowns as retailers sought to optimise working capital and a drop in fleet orders as carriers used up their tyre stocks or recycled tyres from idled trucks. Michelin does however point out that freight is down by just 10 per cent in the United States and 20 per cent in Europe, compared with respective 25 per cent and 35 per cent declines in replacement tyre demand.

Net sales from Michelin’s Specialty Businesses amounted to 561 million euros for the first three months of the year, a 7.6 per cent decline from first-quarter 2008. Demand for high quality tyres in the mining and quarry industry is rising, says Michelin, enabling the company to demonstrate “firm resistance” in the sector. Original equipment sales, however, were sharply down in the quarter. Net sales of agricultural tyres also declines in the quarter, led by a steep slowdown in OE demand. Motorcycle and other two-wheel vehicle tyre sales “fell of significantly” during the quarter, reports Michelin, due to easing demand following strong sales performance in Europe and the United States in late 2008. The company’s aircraft tyre business continued to benefit from the market’s steady shift to radial tyres in spite of the depressed business environment.

Michelin states that its priority focus for 2009 will be on managing cash through optimising the management of manufacturing operations and sharply reducing capital expenditure at a time when markets are expected to only gradually recover. The company adds that, in such an environment, it is well on track to meet its objective of generating positive free cash flow in 2009.