Michelin Q1 sales down 8.1%

Summing up its first quarter 2013 experience in a single sentence, Michelin states that in the three months to 31 March the “market environment was weak in Europe in passenger car and light truck tyres, disappointing in North America and expanding in the new markets.”

Total net sales for the quarter came to 4.877 billion euros, 8.1 per cent lower than in the first quarter of 2012. Net sales from passenger and light truck tyres (and their related distribution) were 2.582 billion, down 6.5 per cent year-on-year, while sales volumes retreated by 2.8 per cent as gains in the new markets failed to fully offset the fall-off in mature markets. The price-mix effect reflected the carefully managed price repositionings and the favorable mix effect, led by the 17-omcj and larger segment. Truck tyre (and related distribution) net sales amounted to 1.477 billion euros, 7.9 per cent less than a year earlier, while sales volumes, which were down 5.6 per cent year-on-year but showed a slight upturn quarter-on-quarter, reflected the focus on turning around the truck tyre business and restoring it to profit. Specialty business net sales, at 818 million euros, were 13.0 per cent down year-on-year, this decline primarily reflected the 6.9 per cent fall-off in volumes caused by weaker demand in the infrastructure and the OE Earthmover and agricultural segments, as well as the early-year contractual price adjustments in the mining segment and the OE business.

Michelin observes that its volume performance reflected two fewer business days in the quarter, a difference in market trends between the mature and growth regions, and a decline in original equipment demand, notably in the earthmover segment. Volume performance also reflected a negative price-mix, due to the impact of indexation clauses as raw materials costs decline and carefully managed price repositioning, targeted on certain tyre sizes.

Demand for original equipment passenger car and light truck tyre contracted by 11 per cent in Europe, with a contrast seen between the decline at broadline carmakers who are drawing down inventory and a better performance by the specialty and export-driven brands. Demand rose six per cent in Eastern Europe during the three-month period. 

PCR/LTR – original equipment

The North American market grew by one per cent, in line with new car production, while in South America, the strong growth trend observed since autumn 2012 remained in effect, with demand rising by seven per cent over the period. Demand in Asia (excluding India) rose by five per cent overall, with strong gains in China (up 15 per cent) and Southeast Asia (up 29 per cent). On the other hand, the Japanese market dropped 18 per cent following the late 2012 termination of government car buying incentives.

PCR/LTR – replacement

Replacement markets in Europe fell back nine per cent overall. A prolonged winter, which delayed the changeover to summer tyres from March to April, had a particularly adverse impact on late first-quarter sales, without however prompting a significant drawdown in still high dealer winter tyre inventories. In March, for example, the market retreated 23 per cent in Germany and 11 per cent in the Nordic countries. Demand in North America eased back for the third year in a row, by a slight two per cent; dealers are carefully managing their inventory in an environment shaped by an uncertain tax outlook and declining raw materials prices. The US market has seen a steep increase in Asian imports since customs duties were lifted last autumn. The South American market increased by six per cent, led by Brazil and Colombia in a more favourable economic environment. In Asia (excluding India), demand rose by seven per cent overall, with very fast momentum in China (up 11 per cent) and the rest of the region moving back in line with long-term, export-driven growth trends (Japan up three per cent, South Korea up nine per cent and ASEAN up four per cent).

Truck – original equipment

The OE truck tyre market remained weak in Europe, retreating by three per cent under the combined impact of declining truck registrations in the Western Europe and more buoyant demand in Eastern Europe. The North American market pursued its sharp slowdown, losing 12 per cent over the period as economic and tax uncertainties weighed on new truck orders, particularly in the Class 8 segment. The South American OE market rebounded by a brisk 23 per cent compared with first-quarter 2012, when demand was dampened by the introduction of Euro V emissions standards in Brazil. In Asia (excluding India), demand rose by five per cent, with an eight per cent gain in China, a 14 per cent decline in Japan and sustained strong growth of 29 per cent in Southeast Asia.

Truck – replacement

In Europe, replacement demand rose by five per cent overall. In Western Europe, where transportation activity is still weak, it stabilised at a low level (up one per cent) but it continued to surge ahead, by 24 per cent, in Eastern Europe. The North American market edged back one per cent, primarily due to demand in the United States, where the freight business nevertheless continues to trend slightly upwards, with fewer casings available for retreading. In a more favorable economy, the South American market increased by five per cent overall, with demand lifted by rising sell-out and the easing of customs barriers across the region. Markets in Asia (excluding India) contracted by five per cent overall. Demand in China slowed during the New Year period, then improved in March to end the quarter down six per cent. Markets retreated two per cent in Japan, as dealers tightened inventory, and four per cent in South Korea, impacted by the slowdown in transportation activity.

Specialty

Earthmover tyres: The mining sector is continuing to expand, with sustained demand for large radial tyres. The OE market in Europe and North America is falling sharply, while demand for tires used in infrastructure and quarries is shrinking in mature markets, dragged down by economic uncertainty and dealer hesitation.

Agricultural tyres: The global original equipment market eased back somewhat in the first quarter, but still remains robust. Demand for technical tyres is rising, but replacement demand is down slightly in mature markets.

Two-wheel tyres: Motorcycle markets are down in the mature regions for the second year in a row. In Europe, economic uncertainties and weather conditions are weighing on dealer buying decisions.

Aircraft tyres: Civil aviation markets rose slightly over the period, while defense markets are being dampened by government budget restrictions.

Outlook for 2013

“In a market environment that is weak in mature regions and expanding in the new markets, Michelin confirms its objective of stable volumes in 2013, taking advantage of its global footprint,” stated the company upon reporting its first quarter results.

The decline in raw materials prices should have around a 550 million euro favorable impact on Michelin’s full-year operating income. If so, this would amply exceed the 300 million euro or so price-mix impact.

As Michelin indicated in February, its capital expenditure program, totalling some 2 billion euros, will support the company’s growth objectives by adding new production capacity in the new markets. It is also designed to improve competitiveness in mature markets and drive technological innovation.

In this environment, Michelin confirms its objectives for 2013, when it expects to report stable operating income before non-recurring items, a more than ten per cent return on capital employed and positive free cash flow.