Michelin posts 7.1% increase in sales, 28.2% decrease in net income

July 28, 2006

Groupe Michelin posted a 7.1% increase in net sales and a nearly 1% increase in sales volume for the first half ended June 30, 2006. In contrast, net income was down 28.2%.

Net income totaled 277 million euros for the first half, compared to 386 million euros for 1H 2005. Michelin says the decrease was primarily because of the restructuring charges for the closing of the BFGoodrich tire plant in Kitchener, Ontario. Net sales passed 8 billion euros.

Based on the exchange rate as of June 30, 2006, Michelin posted net income of $354.3 million on consolidated net sales of $10.2 billion.

Michelin also generated an operating margin before non-recurring items of 8%, "in spite of unprecedented inflation (a 21% increase) in raw material costs."

Given the current environment and "the likeliness of a further hike in raw material and energy costs," Michelin forecasts its operating margin before non-recurring items should be close to 8% in fiscal 2006.

The truck tire business, in particular, was affected by higher natural rubber prices, according to the company. The Groupe maintained its policy of trying to offset these rising expenses by further increasing its selling prices. However, these increases were not sufficient to completely cancel out the highly negative impact of surging costs.

"Over the past two and a half years, the repeated increases in raw material prices have deteriorated Michelin's costs by more than one billion euros," says Michel Rollier, managing partner. "As the Groupe is finding it difficult to fully compensate for this evolution, it is becoming essential to accelerate the productivity improvement and cost reduction programs that are already in place.

"Michelin's teams are aware of the challenge and of the measures that need to be taken to rise to it. I am fully confident that they will succeed."

Worldwide sales volume was up 0.9% thanks in part to steady growth in emerging countries, such as China. However, unit sales were negatively impacted by the weakness of the North American markets.

Michelin says it expects the North American replacement markets to remain depressed in the second part of the year.