Michelin Q3 Figures Show Improvement

Michelin reports its decline in unit sales during the third quarter of 2009 and over the first nine months of the year is “in line with the decline in global tyre markets.” During the most recent quarter the manufacturer recorded a 14.0 per cent drop in unit sales, a figure that shows a lift in sales compared to the preceding months: in the first nine months of the year unit sales were 20.1 per cent down. The French tyre major generated net sales of 3.754 billion euros in the July to September quarter, a 10.9 per cent decrease on the corresponding three months in 2008. During the nine months to September 30, 2009 net sales amounted to 10.888 billion euros, a year-on-year decline of 12.5 per cent. Deutsche Bank analysts comment that third quarter sales were “slightly better than expected”; sales also beat the expected average of 3.727 billion euros gleaned from and a Reuters survey of six analysts. While volumes were as bad as Deutsche Bank’s analysts anticipated, Michelin’s four per cent price-mix for the quarter was a pleasant surprise. Price mix during the nine months was 7.6 per cent.

Sales of passenger car and light truck tyres netted the company 2.093 billion euros during the third quarter, 4.6 per cent less than a year earlier. For the nine months to September, sales decreased 7.8 percent to 6.551 billion euros. Original equipment sales continued to be largely depressed during the recent quarter, with the 0.6 per cent rise in Asia the only increase Michelin recorded. European (including CIS) sales dropped by 18.2 per cent. During the first nine months OE sales were well down on the previous year, with sales in Europe (including CIS) 28.8 per cent lower. As Michelin notes, while tyre markets “remained weak over the first nine months of the year, the trend line showed some sequential improvement in the third quarter compared with the first two. The Chinese market continued to expand, gaining 34.9 per cent, while demand in Europe, North America and other mature markets was buoyed by automotive industry support programmes.” The replacement market was less affected by global business conditions, and in the third quarter Michelin reported the market seeing a “technical rebound as dealers stopped drawing down inventory, while demand firmed somewhat with the upturn in kilometres driven.” Over the quarter the European market contracted by 5.8 per cent year-on-year, after falling 10.6 per cent in the first quarter and 13.7 per cent in the second. As winter approaches, dealers are rebuilding their winter tyre inventories, Michelin notes. Excluding the CIS, which is still being impacted by the collapse in Russian demand, the European market declined only 0.1 per cent in the third quarter.

The truck tyre segment gave little cause for cheer in the third quarter, or during the whole of 2009, for that matter. Michelin comments that “tyre demand remains very weak” in the original equipment truck tyre market, particularly in Europe, North America and South America. This weakness is, the company adds, “in line with the truckmakers’ low production output.” Original equipment truck tyre sales in Europe remained very depressed during the third quarter, with sales 65.3 per cent lower than the same time in 2008. This result showed only a marginal improvement over the first two quarters; during the first nine months of the year European OE truck tyre sales were 66.8 per cent lower. The most positive results were recorded in Asia. According to Michelin, “the Asian OE market did not decline as fast as in the first half, while the Chinese market was stable over the first nine months of the year.” Replacement truck tyre markets, says Michelin, are in general no longer declining in the mature economies. “Both dealers and fleets have stopped destocking, as demonstrated by the slight upturn in retreading demand.” The company remains cautious, however: “Markets will truly recover only when there is renewed demand for freight and international trucking services.” Replacement truck tyre sales in Europe (including CIS) dropped 16.4 per cent in the third quarter, a noticeable improvement on the first nine months’ results. During this period replacement market sales declined 25.9 per cent in Europe, the strongest regional decline recorded by Michelin.

In the specialty tyre market, only demand for mining tyres swam against the downward tide. Original equipment earthmover tyre sales remained very weak outside of China and India in the third quarter, while all agricultural tyre markets were “down for the first nine months, with the decline worsening in the third quarter.” Michelin notes that “without any visibility of where farm markets are going, original equipment and replacement customers are hesitant to invest.” In the two-wheel tyre segment, the manufacturer comments that sales were down over the first nine months, with a steeper decline in North America. Signs of revival were seen in the third quarter, however, with a slight improvement in Europe.

Michelin anticipates profitability improving in the second half of 2009 compared with the first half, thanks to the raw materials tailwind. The company also expects the positive impact of scrappage schemes to help the passenger car and light truck tyre market, along with a technical rebound as dealer destocking reduces and demand for winter tyres increases. As for the truck tyre market, Michelin notes that “original equipment has bottomed out at very low levels,” while in the replacement segment a “hesitant” trucking market is somewhat counterbalanced by the fact that dealers and fleets are no longer drawing down inventory. Deutsche Bank analysts have left their estimated full year operating profit income of 820 million euros (a figure they notes is six per cent above consensus) unchanged, on the back of a 538 million euro figure in the second half of the year. The analysts also retain their 2010 operation profit income of 1.5 billion euros; this decision to stick to their predictive guns is mainly based on a six per cent volume effect on a very low base and a positive raw material tailwind of 300 million euros, entirely achieved in the first half of the year. The analysts add, however, that their volume assumptions “could be conservative,” as it still 11 per cent below 2007 levels.