Volumes rebounded in the second quarter of 2018 for Groupe Michelin, but not enough to offset the drop from the beginning of the year. Net sales for the first half of the year were down 4.1%, to 10.6 billion euro, compared to 11.1 billion euro a year ago.

Net income for the first six months of 2018 is up almost 6.3%, to 917 million euro compared to 863 million euro in 2017.

Michelin says the 2.6% increase in volume for the second quarter was expected. Volumes were buoyed by four factors:

  • sustained growth in the specialty business, led by the mining, agricultural and construction tire markets;
  • 14% growth in tire sizes 18 inches and up for passenger cars in the second quarter;
  • original equipment sales for passenger and truck tires grew in line with the markets; and
  • focus on margins in the passenger and truck replacement segments, “a persistently competitive market environment.”

Outlook

Here’s Michelin’s take on what’s ahead:

“Over the second half of the year, replacement markets are expected to remain on an upward trend, regardless of prevailing winter weather conditions. Demand for original equipment tires should remain strong in the earthmover segment, but lose momentum in the passenger car and truck segments. Sales of mining tires should also continue to enjoy strong growth.”

Michelin confirms its own targets for the year, and says it expects volume growth to remain in line with global market trends.

The replacement market

Worldwide, the replacement passenger car and light truck market generally had a good second quarter. The overall replacement market was up 3% in the second quarter of 2018 compared to 2017. For the first half, the worldwide replacement market is up just 1%.

Here’s a look at how Michelin breaks it down by region, comparing second quarter and first half 2018 numbers to the same figures from 2017.

Region 1H 2018 2Q 2018
Europe, including Russia and Turkey +4% +7%
Europe, excluding Russia and Turkey +2% +5%
North America +1% +3%
Central America +1% +8%
Asia (excluding India) -1% -1%
South America +5% +3%
Africa/India/Middle East -1% +0%
Total +1% +3%

Michelin says the North American replacement market has had mixed results so far in 2018. The first quarter offered tough comparisons (because of the pre-buy ahead of tire maker price increases in 2017.) The first quarter was -1%, while the second quarter was +3%. “Import sales rose significantly over the first half, which also saw strong demand for tires with high speed ratings.”

CEO Jean-Dominique Senard says: “Thanks to the commitment of all its teams, Michelin not only rolled out a new, closer to the customer organization during the first half of 2018, but also delivered a noteworthy 152 million euro improvement in operating income at constant exchange rates. Deployment of the group’s strategy will pick up speed in 2018, with the acquisition of Fenner, the creation of a leading North American wholesaler in partnership with Sumitomo Corp., and the projected acquisition of Camso, which will create the world leader in off-the-road mobility.”

The first half

Michelin says there was a neutral impact from volumes in the first six months, and a 66 million euro decrease from changes in the scope of consolidation — mainly the deconsolidation of Tire Centers LLC (TCi) following the creation of the TBC joint venture with Sumitomo Corporation of Americas.

A “highly favorable price mix effect” led to a 331 million euro increase, (growth was 3.4% in the first quarter and 2.6% in the second.)

The company experienced a 735 million euro decrease from the unfavorable currency effect, primarily stemming from the U.S. dollar.

By the segment

On Jan. 1, 2018, Michelin introduced a new business organization, which led to a few changes in the reporting segments:

-replacement light truck tires have been moved from the automotive segment (formerly passenger and light truck tires) to the road transportation segment (formerly truck tires.)

-construction truck tires have been moved from the road transportation segment to the specialty business segment.

  Net sales (in euros) Net sales (in euros)
Segment 1H 2018 1H 2017
Automotive 5.6 billion 6.0 billion
Road transportation 2.8 billion 2.9 billion
Specialty businesses 2.2 billion 2.1 billion
Group 10.6 billion 11.1 billion
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