Michelin reduces growth outlook, posts lower Q3 sales

In response to slowing emerging markets (excepting China) as well as economic and geopolitical uncertainties, Michelin has lowered its full-year volume growth outlook from three per cent to between one and two per cent. The French tyre maker says the market slowdown observed since the second quarter of this year continued into the third. In addition to contracting original equipment demand from emerging markets apart from China, demand also weakened in Europe, particularly for truck tyres. Overall sales volumes rose by one per cent during the third quarter, with price-mix effect a negative two per cent.

Michelin’s net sales fell 4.6 per cent year-on-year in the third quarter to €4.86 billion; passenger car and light commercial vehicle tyres accounted for €2.59 billion of this total, with net sales within this segment down 4.1 per cent on a year earlier. Truck tyre sales declined 5.1 per cent to €1.58 billion and net sales within the company’s specialty business decreased 5.8 per cent to €717 million.

Net sales for the first nine months of the year amounted to €14.58 billion, 4.7 per cent less than during the corresponding period of 2013. Passenger car and light truck tyre sales have declined 3.3 per cent to €7.76 billion, truck tyre net sales are down 5.8 per cent to €4.50 billion and specialty business sales reduced 7.3 per cent to €2.30 billion.

In the final quarter, Michelin expects to adjust its cost management process in response to changing market conditions, while enjoying a more favourable currency environment. The company confirms its objective of reporting higher operating income before non-recurring items and at constant exchange rates. Michelin also confirms its objective of delivering a more than 11 per cent return on capital employed and generating structural free cash flow of more than €500 million. The tyre maker intends to maintain its capital expenditure programme at around €2 billion for this year but reduce it in 2015 and 2016.

European market conditions
Growth in the European market for original equipment passenger tyre and light truck tyres slowed to a halt in the third quarter of this year, reflecting tighter inventory management and production cutbacks at volume car manufacturers. In Eastern Europe, the difficult geopolitical situation caused demand to decline by eight per cent over the first nine months of 2014 and by 13 per cent in the third quarter. The replacement passenger car and light truck tyre market ended the first nine months up three per cent overall. Demand edged up one per cent in Western Europe, led by the brisk eight per cent growth in winter tyre sales, and was flat in Eastern Europe compared with the steep decline observed in third-quarter 2013.

In a lacklustre economic environment, the original equipment truck tyre market in Europe contracted by eight per cent over the first nine months, with a one per cent decline in Western Europe and a 35 per cent drop in Eastern Europe. The region’s replacement truck tyre market ended the first nine months up three per cent but remained far below its 2007 levels. Although sales of Asian tyre imports grew at a faster rate in Central Europe, demand in Western Europe retreated five per cent overall in the third quarter after sharply trending downwards in July and August. Eastern European demand was virtually stable over the first nine months, despite a six per cent contraction in the third quarter.

European sales of aftermarket agricultural sales declined in the third quarter, after rising in the first half of 2014.

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