CLERMONT-FERRAND, France — Group Michelin reported a slight drop in operating income for the six months ended June 30 as higher raw materials costs offset gains in the price-mix constellation and other operating parameters.
Operating income slipped 0.9 percent to $1.51 billion on 7.5-percent higher sales of nearly $12 billion, buoyed by a 16-percent jump in specialty tire (earthmover and agricultural) volumes and 3-percent growth in passenger tires. Truck tire volumes were stable.
As a result of the higher sales and lower operating income, the operating ratio fell a full point to 12.6 percent. Net income rose 12.2 percent to $935 million.
"Michelin's good performance, compared with a strong first half 2016, is in line with our 2020 roadmap," said Jean-Dominique Senard, chief executive officer presenting Michelin results.
"The main drivers of the period," Mr. Senard said, "include an increase in volumes, tight pricing policy management, further improvements in competitiveness and the commitment of employees to serving customers."
Mr. Senard said Michelin expects to be able to overcome the negative impact of higher raw materials prices sufficiently enough to show an improvement for the full year in operating income and structural free cash flow.
Michelin said the negative full-year impact from raw materials costs could be as much as $860 million, but it expects to be able to offset this through "agilely" managing prices and holding unit margins firm in businesses not subject to indexation clauses and applying those clauses in business that are.
Michelin attributed its first-half sales growth to additional volume from the first-time consolidation of Brazilian two-wheel tire maker Levorin ($400 million), a favorable price-mix effect ($157 million) and a favorable currency effect ($215 million).
By business unit:
Michelin's passenger/light truck tire business reported 5.9-percent higher sales of $6.79 billion, driven primarily by 23-percent growth in sales of larger rim diameter (18-inch and higher) tires and the success of several new additions to the Michelin-brand lineup. Operating income slipped 1.7 percent.
Truck tire unit sales were up 4.6 percent to $3.29 billion despite a second-quarter slowdown in volume sales. Operating income fell 20.5 percent.
Specialty businesses unit sales jumped 19.5 percent to $1.9 billion on 16-percent volume growth, especially for mining tires and OE earthmover and agricultural tires. Operating income jumped 20.1 percent.