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Michelin’s Net Income Rises 43% in 2016

Posted on February 14, 2017

Margins on consumer tires helped boost Groupe Michelin’s net income 43% in 2016. Michelin posted net income of 1.7 billion euros on net sales of 20.9 billion euros for its fiscal year ended Dec. 31, 2016. That compares to income of 1.2 billion euros on sales of nearly 21.2 billion euros for fiscal 2015.

Based on the exchange rate on Dec. 30, 2016, Michelin recorded net income of $1.8 billion on net sales of $22.1 billion. The company’s income-to-sales ratio was 8.1%.

Margins on passenger cars and light trucks were 13.1% in 2016 compared to 11.5% in 2015. Margins on truck tires fell to 9.7% in 2016 down from 10.4% the prior year. Margins on specialty tires were flat at 18.6%.

Michelin’s operating income for fiscal 2016 was 2.7 billion euros, up 4.5% compared to 2015. Tire volumes also were up, finishing 2.1% higher than 2015. Despite the gains in income and volumes, net sales were down 1%.

Michelin said the global original equipment and replacement passenger car and light truck tire market grew by 3% in number of tires sold in 2016. Truck tire volumes were up 1% and specialty tire volumes were down 1%.

Consumer tires in North America

The company said the North American OE passenger car and light truck market “stabilized at a high level, with a 1% increase, in line with registrations.” In the replacement market in North America, demand rose by 2% overall and was “fueled by strong growth in the small tire segment in the fourth quarter and the solid 8% gain in Mexico. The U.S. market edged up by 1%, reflecting buyer hesitation in an election year, but firm growth was reported in the 18-inch and larger segment (up 15%) and in SUV tires.”

Truck tires in North America

In 2016, global demand for new original equipment and replacement truck tires retreated by 1% in number of tires sold. Retread markets were also in decline, with an especially steep fall-off in Europe, according to Michelin. The company said the North American market “fell 19% in 2016, as expected, given the renewal of the local truck fleet observed in recent years.” Demand for replacement radial and bias truck tires in North America “ended the year flat, reflecting a first-half buying spree ahead of the new tariffs announced on Chinese tire imports, dampened by the subsequent fall-off in sales in the second half, as well as by pre-election buyer hesitation and the slowdown in the region's economic indicators.”

Specialty tires worldwide

Michelin’s specialty tires businesses include earthmover, agricultural, two-wheel and aircraft tires. The company did not break out its specialty businesses by region.

For earthmover tires, Michelin said the mining tire market “retreated for the third year in a row, dragged down by the steep reduction in mine inventory. The trend turned upward in the fourth quarter, however, as mining companies resumed purchases, in line with their level of tire use. Original equipment markets declined sharply in the mature geographies at a time of weak demand. The Chinese market also continued to cool in 2016 after dropping precipitously in 2015. Dealer hesitation is weighing on demand for infrastructure and quarry tires, which declined over the year.”

The company said demand for its agricultural tires continued to drop after falling off sharply in 2015. “OE demand continued to slide in the mature geographies, with the first-half rebound wiped out by a collapse in the second part of the year. Replacement markets retreated significantly in the mature regions, penalized by low farm commodity prices.”

Outlook for 2017

Michelin says volumes were up 4.2% in the fourth quarter of 2016, with gains of with gains of 5% in passenger car and light truck tires and 6% in the specialty businesses.

“In 2017, tire markets are expected to track the trends observed in late 2016, in particular with the upturn in mining tire sales. The year will also see an increase in raw materials costs, for an estimated impact of approximately 900 million euros, in response to which Michelin will agilely manage prices so as to hold unit margins firm in businesses not subject to indexation clauses.”

For more details on Michelin's 2016 results, visit the company's website.

Related Topics: Jean-Dominique Senard, Michelin financials

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