Michelin eyes extra cost cuts as profit falls
PARIS: French tyre maker Michelin & Cie will look for an extra €200 million ($227 million) in cost savings after cut-price competition hit profit more than expected last year.
Michelin is already in the midst of a costcutting drive as it struggles with weaker demand and stiffer competition from cheaper rivals in the North American truck tyres sector and other key markets.
It has bigger exposure than rivals Pirelli & C. SpA and Continental AG to mass-market car tyres — where the pricing pressure is fiercest — and lags behind in some fastergrowing emerging markets.
Michelin said net income fell 8.5% to €1.03 billion last year, missing the average forecast of €1.29 billion, according to the SmartEstimate in Thomson Reuters data.
Sales volumes rose 0.7%, less than the 1-2% gain pledged in October, when the company cut its goal from 3% and said it would rein in investment.
Michelin said the benefit of earlier cost cutting had been offset by production cost inflation that sucked an additional €256 million from earnings last year.
“The competitiveness plan will also be accelerated,” chief executive JeanDominique Senard said, promising €1.2 billon of savings in the 2012-2016 period, an increase of €200 million.
Operating income fell 2.9% to €2.17 billion before one-time gains and charges, for a little-changed operating margin of 11.1% of sales.
Declining prices accounted for €596 million of the earnings slide, Michelin said, exceeding the windfall from falling raw-material costs by 5%.
“Further pressure on the pricing and sales mix will have a negative impact of about €350 million on 2015 earnings,’’ chief financial officer Marc Henry said.
Michelin blamed weakening demand in key markets, particularly European truck and winter tyres. Demand from European truckmakers fell 9%, with the slide accelerating in the fourth quarter.
Car- and truck-tyre markets should grow in 2015, albeit modestly in Europe, Michelin said, with the lucrative mining and agricultural tyre businesses contracting further.
The company renewed its annual goal of increasing operating income before currency effects, with a return on capital above 11% and positive structural free cash flow of about €700 million.