Michelin Expects Double-Digit Declines for Tires to Continue
Michelin Group recorded a 22.4% drop in tire volumes in the first half of 2020, and the company is forecasting a tough road for the global tire industry for the remainder of the year, with double-digit declines in the passenger, truck and specialty tire markets. Michelin expects business to return to 2019 levels in the second half of 2022.
In its report on its first-half financials, Michelin said “global tire demand is expected to be impacted in the second half of the year by the economic recession ensuing from the pandemic. Passenger car and light truck tire markets are expected to decline by 15 to 20% over the year and truck tire markets by between 13% and 17%. Given the relative resilience of certain segments, the specialty markets are expected to contract by 13% to 17%.”
As for what happened in the first six months of 2020, Michelin’s sales dropped 20.6% compared to the prior year, 9.3 billion euros down from almost 11.8 billion euros in 2019. The company recorded a loss of 137 million euros in the first half of 2020, compared to net income of 844 million euros a year ago.
Despite the 22.4% decrease in tire volumes, Michelin did benefit from its “firm price discipline in the more competitive business environment created by plunging markets.” Price-mix remained positive - 2% in the first quarter and 1.7% in the second quarter - for a combined 1.9% for the first six months. It amounted to a benefit of 187 million euros, which Michelin attributed to four factors:
- Michelin’s continued premium brand strategy, especially in 18-inch and larger tires;
- The resilience of the specialty tire businesses, including mining tires and replacement farm tires;
- 0.5% negative currency effect; and
- 0.4% positive impact from changes due to the consolidation of Masternaut and Multistrada in 2019 and the disposal of Bookatable.
Here’s a look at Michelin’s sales for the first half according to its three business segments:
- Automotive (includes passenger tires) Sales were down 22.3%, 4.4 billion euros compared to 5.6 billion euros;
- Road transportation (includes truck tires) Sales fell 23.3%, 2.4 billion euros compared to 3.1 billion euros;
- Specialty businesses (includes mining, farm tires) Sales dropped 20.6%, 9.4 billion euros compared to 11.8 billion euros.
Notably, Michelin says its specialty markets “as a whole weathered the crisis better than the automotive and road transportation businesses.” Overall, volumes fell 15%. The strongest segments were surface mining tires, replacement farm tires and conveyor belts.
Preserving cash on hand
In a step to conserve cash, Michelin said it reduced its capital expenditure budget by around 30%, or 500 million euros. The company also lowered its 2019 dividend payout by 330 million euros. Corporate overhead was reduced by 192 million euros with cost-saving measures.
Michelin said while its plants were closed due to COVID-19, the company received “financial support from governments to help fund employee furlough programs.” Those grants totaled 140 million euros through the first half of the year. “The Group has not requested any other form of public support to get through the crisis, such as government-backed loans or longer payment deadlines.”