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Growth in Volumes Helps Michelin Increase Net Sales and Income in 2017

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Net sales increased 5% and net income hit a historic high for Michelin Group in 2017.

Michelin recorded net sales of 21,960 million euro, up from 20,907 million euro in 2016. The company reported a 543 million euro increase in net sales attributed to a 2.6% growth in volumes.

Net income was 1,693 million euro, up 1.6% from 1,667 million euro in the previous year.

Michelin’s income-to-sales ratio was 7.7%.

The tire company did report a drop in operating income of 5.7% in 2017, 2,631 million euro compared to 2,791 million euro in 2016. On the plus side in operating income were growth in volumes and savings from “the ongoing competitiveness plan” which absorbed increases in production costs and overhead. But on the down side were higher raw material prices with an impact of 738 million euro. Most of that was absorbed by the company’s “effective management of the price mix," but there was a residual impact of a loss of 70 million euro. Unfavorable moves in exchange rates contributed 95 million euro to the overall drop.

Michelin reported a loss of 111 million euro in 2017 from non-recurring activities — which the company said corresponded “primarily to costs related to the reorganization and alignment of Group operations, which were partially offset by gains on changes to the health coverage plan in the United States and to the pension plan in the United Kingdom.”

Here's a look at how Michelin's tire segments performed in 2017.

Passenger and light truck tires

Net sales were up 3.1%, 12,479 million euro compared to 12,105 million euro in 2016.

Operating income dropped to 1,552 million euro compared to 1,585 million euro a year prior.

The operating margin fell in 2017 to 12.4%, down from 13.1% in 2016.

“In addition to the unfavorable currency effect, the change in operating margin on recurring activities was primarily attributable to the 2% growth in volumes and the impact of higher prices and the positive product mix, which offset the increase in raw materials costs. Part of the margin contraction was also caused by the dilutive impact of the price increases and unfavorable exchange rate movements.”

Truck tires

Net sales increased 2.6% to 6,123 million euro, up from 5,966 million euro in 2016.

Operating income dropped 14.3%, 497 million euro compared to 580 million euro the year prior.

The operating margin on truck tires decreased in 2017 to 8.1%, down from 9.7% in 2016.

“In addition to the adverse currency effect, the margin erosion reflects the priority focus on preserving unit margins and the 2% decrease in volumes over the year, with the increase in raw materials costs being offset by the favorable impact of higher prices and the improved product mix. Part of the margin contraction was also caused by the dilutive impact of the price increases and unfavorable exchange rate movements.”

Specialty tires

Net sales jumped 18.4% in 2017 to 3,358 million euro, up from 2,836 million euro in 2016.

Operating income increased to 693 million euro from 527 million euro the year prior.

The operating margin on specialty tires, which includes farming and mining and other off-the-road tires, was up to 20.6% in 2017, compared to 18.6% in 2016.

“The improvement corresponded to the robust 16% growth in volumes, led by the sustained rebound in demand for the Group’s mining tires and the sharp upturn in earthmover and agricultural original equipment sales. This factor and the price increases introduced in both the indexed and non-indexed businesses amply outweighed the impact of higher raw materials costs and the negative currency effect.”

From the CEO

Jean-Dominique Senard, Michelin’s CEO, said: “In 2017, the Michelin Group performed in line with its 2020 roadmap. The strength of its brand and its technological leadership helped to drive 2.6% growth and deliver historically high net income of 1,693 million euro, demonstrating the Group’s agility in a more challenging business environment.

“Michelin is pursuing the acquisitions that will support its ambitions for growth and value creation. The introduction of the new organization in early 2018 will deepen employee engagement to enhance customer service, while enabling us to meet our competitiveness objectives. In this way, the Group is confidently moving into another year of progress in 2018 while pursuing its strategy in tires, services, experiences and materials.”

Company outlook

“In 2018, the passenger car/light truck and truck tire markets are expected to experience modest growth over the year, while the mining tire, agricultural original equipment and earthmover original equipment markets should remain buoyant.

“Given the market conditions, price management will make it possible to generate a net positive effect from changes in the price mix and raw materials costs, assuming an estimated 50-100 million euro increase in raw materials prices. Based on January 2018 exchange rates, the currency effect would reduce full-year operating income from recurring activities by around 300 million euro.

“In this environment, Michelin's objectives for 2018 are volume growth in line with global market trends, operating income from recurring activities exceeding the 2017 figure at constant exchange rates, and structural free cash flow of more than 1.1 billion euro.”

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