PARIS (July 25, 2013) --- Group Michelin's operating income dropped 12.7 percent in the six months ended June 30 on 1.5-percent lower sales, but the company is expecting "modest growth" in market demand in the second half along with more benefits from lower raw materials costs.
Michelin's operating income fell to $1.52 billion on revenue of $13.4 billion, for an earnings ratio of 11.3 percent or one full percentage point lower. Net income plunged 44.5 percent to $654 million.
Michelin attributed the sales drop to lower volumes (1.5 percentage points of the decline), a less advantageous price/mix (2.3 percent) and currency effects (1.4 percent). The primary cause of the lower volumes was Europe, Michelin said, where replacement OE and consumer tire demand was off 3 and 4 percent, respectively.
The tire maker went on to say, however, that demand picked up in the second quarter, although not enough to offset weak results from the first quarter.
"Michelin's first-half performance was in line with the 2013 objectives and attests to the group's continuous improvement as it moves forward in its 'New Phase of Dynamic Growth,'" said CEO Jean Dominique Senard, who added the group expects to achieve its previously stated 2013 objectives of stable operating income, return on capital employed of 10-plus percent and positive free cash flow.
Michelin said it expects to see mature markets improve vs. low prior year volumes and emerging markets to continue to expand.
On the earnings front, Michelin said it expects lower materials costs to yield roughly $460 million in benefits, which should offset the price-mix effect.
Michelin also continues to expand its production capacities, with $2.6 billion budgeted for capital improvements.
Regarding market conditions, Michelin said consumer replacement demand in North America ended the first half unchanged from the first half of 2012, with improved second quarter shipments offsetting a 2-percent drop in the first quarter. North American OE demand was up 4 percent in the half, bouyed by the launch of new models and continued strong new car sales.
Truck tire demand in North America was off 2 percent for the period, with the first quarter malaise overwhelming a 2-percent upturn in the second quarter, led by an improving freight market.