Groupe Michelin reports profit of 329 million euros for the first half
Groupe Michelin reported net income of 328.9 million euros on net sales of 7.821 billion euros for the first half of 2004. Compared to the same period last year, income was up 98.8%, while sales were up 6.4% (excluding the impact of currency fluctuations, net sales are up 10.4%, according to the company).
Based on the most recent exchange rate, Michelin´s net income and net sales translate into $395.7 million and $9.4 billion, respectively.
Michelin´s operating income for the first half, 694.8 million euros, was 20.1% higher than it was during the first half of 2003.
In a press release announcing the results, Michelin summed up its performance as follows:
"In the first half 2004, Michelin further improved its market position in supportive tire markets. Its continuous efforts to improve efficiency and successful price increases enabled the Group to more than offset continually rising raw material costs.
"All businesses posted significant operating margin improvement."
Here are the company´s results by tire business segment, as reported by Groupe Michelin.
1. Replacement passenger/light truck. In Europe, the replacement market is up 6.1% vs. the first six months of last year. After an exceptional first quarter partly driven by specific price increases passed in
France by most tire manufacturers on March 1 to cover End-of-Life Tires (ELT) disposal costs, demand remained robust and continued to grow in the second quarter. Eastern & Central Europe registered further growth as well.
The Group’s category and product mixes further improved with a strong progression of V/Z and 4x4 sales. Supported by an improved order fill rate, Michelin flag brands (Michelin, BFGoodrich and Kleber) significantly outperformed the market.
In North America, the market is up 5.3%. However, this should be viewed in light of a difficult first-half 2003, dogged by low consumer confidence, fuel price increases and a lagging SUV tire
By tire segment, market dynamics enjoy the continued growth of the
performance segment (+17%) and the rebound of the SUV segment (+21%) that has now more than absorbed the consequences of the Firestone recalls. The price increases announced throughout the reporting period by various tire makers, including Michelin, also had a positive impact on the ´sell-in´ market.
Compared to the first half of 2003 (in North America), the Group gained market shares despite some capacity shortages in the SUV segment. Its brand mix improved significantly through a strong progression of flag brands sales volumes (Michelin, BFGoodrich and Uniroyal). Price increases, passed in February (up to 5%) and July (average 3.5%) are sticking. This is also the case in Europe.
In Asia, Michelin is growing its sales volumes and improving its product mix in line with its selective growth strategy. In China, demand remains robust, especially for Michelin branded products. Group’s sales volumes continued to post a double-digit growth.
In South America and the Middle-East/Africa, sales are up in growing markets.
2. Original equipment passenger/light truck. In Europe, the (consumer) market rose 3.3% in the first half. Group sales volumes slightly underperformed the market.
In North America, the market declined slightly. Capacity constraints in some segments, which led to focusing production capacity on priority segments and markets, were a drag on volumes.
3. Replacement truck. The replacement market (new tires) was up 2.8% year-on-year in Western Europe. The market growth is mostly due to ´sell-in´ sales, while the underlying ´sell-out´ was more subdued.
Dealers built up inventories ahead of price increases announced by various tire makers, including Michelin. The Group implemented price increases during the first quarter in France (ELT disposal
legislation) and during the second quarter across the whole of Europe (average 3.5% to 4.5%). Group new tire sales posted strong growth throughout the half-year, in line with the market.
In North America, the Group enjoyed a strong first half 2004 in the context of a recovering truck tire market. Michelin continues to increase its market share in the retread market. The Group plans to add some 10 new workshops to its existing North American Michelin Retread Technologies (MRT) franchise network and announced the expansion of its Covington, Ga., manufacturing facility.
The price increases passed during the first four months of the year (new tires as well as retreads) are sticking; an additional price increase will come into force on August 1.
In South America, demand is robust. The original equipment truck market reached an all-time high. Michelin sales volumes are up despite price increases passed across the various countries of the region.
In Asia, Michelin’s growth was partly hampered by measures introduced by the Chinese government to prevent economic overheating. This resulted in a decline in road traffic, thus affecting sales of
replacement tires in the second quarter.
In the Middle East & Africa region, sales are up in Algeria and the Middle East while Africa remains plagued with economic and social issues.
4. OE truck. In Europe, sales are up in robust markets. Trailers recovered from a depressed year 2003 while the 11% growth registered in the power unit segment is partly fueled by
exports towards Eastern Europe, the Middle East, Africa and Asia.
In North America, the truck original equipment market posted 33% growth vs. the first half 2003. This strong demand is, first of all, due to a need for the renewal of power units and trailers
after the collapse of the market in the second half of 2000 and the dull market that ensued for three years.
Also, introduction of a new legislation concerning driver working time leads truck operators to increase the number of their trailers in order to offset the higher cost of loading and unloading time.
That cost is now being paid at the same rate as driving time.
Finally, freight companies take advantage of the present low financing cost. As a consequence of its strategy to rebalance its operations between the original and replacement markets, Michelin’s original equipment market share is being driven down compared to the first half of 2003. Note that Michelin sales of X-One Tires have increased significantly during the period.
Michelin´s passenger and light truck segment posted net sales of 3.7372 million euros in the first half. Its truck segment recorded net sales of 2.0773 million euros.
Groupe Michelin´s outlook for the second half of the year is as follows:
"Michelin expects second half-year replacement markets to progressively return to their annual long-term 2% to 3% growth trend. Also, it expects raw material consumption costs to continue to rise to
the tune of 6% to +7% through the second half.
"Against this operating background, Michelin confirms that it is poised to post a visible improvement in its operational performance for the full year 2004."