Michelin posts 10.2% increase in 1Q sales

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Groupe Michelin recorded consoldiated net sales of 3.98 billion euros for the first quarter ended March 31, 2006. That compares to sales of 3.6 billion euros for the same period a year ago.

Based on the current exchange rate, Michelin's 1Q sales totaled $4.9 billion.

Worldwide volume sales were up 2%. Michelin attributes the increase mainly to passenger and light truck tire sales in Europe and Asia and truck tire sales in Europe and North America.

In its press release announcing its 1Q results, Michelin said the following:

"Against a background of tire markets that experienced rather favorable trends, Michelin recorded volume sales up 2% at constant scope. Combined with a further 3.8% price mix improvement and the strong positive impact of exchange rates (+4.7%), this growth enabled the Group to post a substantial increase of net sales versus the same period of 2005.

"Original equipment markets were generally supportive. As Michelin had expected it to, the European truck replacement market returned to growth, although this remains to be confirmed in the months to come, while in North America, the truck replacement market is contracting, accentuating the trends observed at the end of 2005. The North American passenger car and light truck replacement market was down significantly but posted satisfactory growth in Europe. Emerging countries' markets remained buoyant."

Michelin says raw material costs, particularly for natural rubber, increased considerably in the first few months of 2006. This prompted the company to revise its projected 2006 raw material price increases from 11% to 15%, which will adversely impact its costs by 540 million euros.

"In these circumstances, Michelin reiterates its determination to offset this impact as much as possible, through its policy of passing external cost increases on to the market."

Results in North America

Michelin's replacement consumer tire sales were below market trends overall. The change reflected "a significant contraction of private and associate brand sales brought about by Michelin's sales mix enrichment strategy."

Unit sale prices rose significantly on the back of price increases effective Feb. 1, combined with favorable segment and brand mixes.

In the original equipment segment, the company's passenger and light truck tire sales performance was satisfactory. The company says market share gains were achieved in particular thanks to its active presence with Asian OEMs.

In spite of contracting replacement markets, Michelin says it gained market share in truck tire sales in the first quarter. Michelin X One tire sales continued to do well. Price increases, effective Feb. 1, are sticking, adds the company.

Retread sales posted double-digit growth.

Michelin's OE truck tire sales were stable.

Outlook for 2006

"Overall, original equipment markets should be more dynamic than the Group had expected at the beginning of the year, owing in particular to the truck market, which should remain strong in Europe and even more so in North America, ahead of the introduction of new emission standards," says the company.

"On the other hand, Europe's truck tire replacement market recovery has yet to be confirmed, while in North America this market will obviously be mechanically impacted by strong original equipment market growth.

"Emerging countries' markets should remain buoyant."

Michelin says it is targeting an increase in its operating income for the year. It also is projecting an operating margin (before non recurring items) on par with 2005 levels.

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