PARIS (Feb. 24, 2004) — Group Michelin suffered a 6.7-percent drop in operating income last year to $1.29 billion, the result primarily of a 21-percent surge in raw materials costs.
For 2004, Michelin cautioned that external inflationary factors, such as raw materials prices and the fluctuating euro-dollar exchange rate, will continue to exert negative pressure on earnings.
Net income plunged 46.5 percent to $371.8 million as the company took a $382 million charge against earnings to cover the amortization of goodwill relating to its acquisition in the first quarter of 2003 of the Danish tire distribution chain Viborg Group.
In addition to the higher raw materials costs — of about $282 million — Michelin said higher health care and transportation costs and currency factors added another $305 million in extra costs. As reported earlier, sales were down 1.8 percent to $17.4 billion.
The performance equated to an operating margin of 7.4 percent, down from 7.8 percent a year ago. Excluding the impact of the Viborg consolidation, the margin was 7.7 percent, Michelin noted.
Michelin highlighted gains on a number of fronts during 2003, including further improvements in product mix, a 3.7-percent rise in sales volumes expressed in tonnes and lower finished goods inventories.
Passenger car and light truck tires, which represented almost 49 percent of Michelin's net sales total, posted an operating margin of 8.9 percent, compared with 9.6 percent in 2002. Michelin linked the lower profitability to its North American operations, which faced 20-percent higher raw materials costs, extra medical costs and sluggishness in the 4X4 vehicle market, combined with a strong euro.
The group truck tire business represented around 26 percent of group sales and posted an operating margin of 13.1 percent, compared with 12.3 percent the previous year. The improvement was based on higher sales volume, cost controls and success in implementing price increases.