CLERMONT-FERRAND, France — Group Michelin has seen its first half results significantly impacted by the COVID-19 pandemic and the ensuing slow demand.
The French tire maker posted 78% year-on-year lower operating income at $387 million or 3.3% of sales in the first six months of the year, compared to $1.68 billion registered the year before.
Sales for the period fell 20.6% to $10.97 billion, due mainly to a 22.4% decrease in volumes, caused by "worldwide collapse in tire demand," Michelin announced July 27.
Overall, the group reported a net loss of $160.7 million for the period, down from a gain of $990 million reported in the first half of 2019.
The French group linked the substantial decrease in operating income to a $1.76 billion decline in sales caused by a sharp drop in volumes.
Sales volumes, it said, fell "due to the health crisis, a deep fixed cost shortfall and a loss of industrial productivity," which were partly offset by government-backed furlough grants.
Other factors negatively impacting operating income included a $90 million decrease from COVID-19-related expenditure, including the cost of purchasing and producing masks and hand sanitizer.
Price-mix effect still delivered a positive combined total of $255 million during the period, while lower cost of raw materials contributed $52 million to the income.
Michelin also posted a $3.5 million increase in operating income from the consolidation of Indonesian tire maker Masternaut and Multistrada and the removal of BookaTable, it said.
In addition, the tire and rubber company said it saved $225 million through a reduction in SG&A expense as part of its cost-cutting measures during COVID.
Despite the weak results, Michelin said it is in a good financial position to weather the "intense and unprecedented" crisis, supported by its diversified offering.
"The group has undertaken all the measures needed to secure the sustainability of its operations and attenuate the financial impact of the economic slowdown," said Florent Menegaux, chief executive officer.
As for the 2020 outlook, Michelin said it expected global tire demand to be "impacted in the second half of the year by the economic recession ensuing from the pandemic."
Passenger car and light truck tire markets are expected to decline by 15% to 20% over the year and truck tire markets by between 13% and 17%, Michelin said.
Michelin also anticipates its specialty segment—including aircraft, off-the-road and two-wheel tires—to contract by 13% to 17% despite the segment's "relative resilience."
Barring any new systemic impact from COVID-19, Michelin aims to deliver full-year operating income in excess of $1.4 billion and structural free cash flow of more than $585 million.
Michelin, however, noted that it is "still a highly uncertain market scenario."
Based on the trends observed to date, the group said it expected business to return to 2019 levels in the second half of 2022.