PARIS (Feb. 14, 2006) — Despite 15-percent higher raw materials costs last year, Group Michelin managed to increase its operating profit 5 percent over 2004 on the effects of higher selling prices and tight control over operating costs.
For the year, Michelin reported operating earnings before non-recurring items of $1.7 billion on 3.6-percent better sales of $19.4 billion, for an operating margin of 8.8 percent, a 0.1-percentage-point improvement over 2004.
Operating income after non-recurring items—principally a gain of $317 million related to changes in the U.S. Medicare program´s prescription drug plan—surged 27 percent to $1.95 billion, or 10.1 percent of sales. Net income advanced 35.9 percent to $1.14 billion for the same reasons.
The increase in sales came almost entirely from higher prices and a better product mix; production volume worldwide was down 1.8 percent, although this factor was tied heavily to the lackluster European truck tire market.
Commenting on the results, Michelin Chairman Edouard Michelin said, “Our operating income is showing progress, yet it does not reflect the group's growth potential. That is why, in 2006, we will strengthen our focused growth strategy and strengthen our cost-reduction efforts.”
In North America, Michelin reported improvements in the Michelin brand's performance in the replacement passenger/light truck market as well as good performances in new and retreaded truck tires. The firm's passenger/light truck volumes at the original equipment (OE) level were impacted by lower production volumes at certain customers, while positions with truck OE customers strengthened in a “robust” market.
Elsewhere, Michelin noted above-average growth in Asia and South America and singled out its specialty activities business unit—specialty tires and other businesses—which saw its operating margin quadruple to 7.1 percent.
Regarding costs, Michelin noted that the price of raw materials has grown 62 percent since January 2001, which translated into additional outlays of nearly $570 million in 2005 alone.