Michelin pursuing fiscal 2021 recovery amid ‘uncertain environment'

PARIS — Michelin Group suffered a 37.6% drop in operating income during fiscal 2020 on 15.2% lower sales, with business interruptions in many of the company's major markets related to the COVID-19 pandemic accounting for most of the impact.

Despite the double-digit declines, the company is optimistic about 2021, forecasting its operating income will rebound by a third over 2020 and revenue will perform in line with market expectations, which it put at 6% to 10% for passenger car/light trucks, 4% to 8% for trucks/buses and 8% to 12% for the specialty markets (OTR, farm, aircraft, two-wheeler).

Operating income fell to $2.13 billion on sales of $23.3 billion, Michelin said, dropping the operating ratio three-plus points from fiscal 2019. Net income fell 43.4% to $710 million.

Michelin attributed the sales decline to lower volumes (down 14%) and negative currency exchange rate changes, offset slightly by a 1.2% positive price-mix effect. Michelin said the volume decline would have been worse had it not been for a stronger-than-expected recovery in the second half of the year.

By segment, Michelin reported sales in the auto/light truck business fell 14.7% to $11.5 billion; commercial transportation (truck/bus tires and associated businesses) dropped 16.7% to $6.11 billion; and other businesses were off 14.4% to $5.67 billion.

Managing Chairman Florent Menegaux noted: "In this uncertain environment, the group is pursuing competitiveness programs and continuing to shift its production toward premium and specialty tires, while also stepping up its expansion in high-tech materials and services and solutions."

Looking ahead, Michelin said newly acquired companies generated $63 million in additional "synergies," and that it continues to explore new areas of growth, with investments in metal 3D printing, hydrogen mobility and recycling technologies as examples.

Michelin's sales in North America slid 20.2% last year to $8.07 billion, with the second half of the year accounting for 55% of the total.

In North America, for example, Michelin noted the second half of the year was a time of "economic recovery and speculative buying ahead of possible new U.S. duties on tires imported from South Korea, Thailand, Vietnam and Taiwan."

As a result, replacement market demand for passenger and light truck tires rose 4% in the U.S., helping to ease the market decline to 9% for the year.

Michelin noted that the premium segment suffered more in North America than the intermediate and entry-level segments, where the firm's Uniroyal brand remained in strong demand throughout the year, led by a product-line refresh in 2019.

Given that each segment's weighting has been relatively stable over the long term, market dynamics are expected to be more favorable to the premium segment once the crisis recedes, Michelin said.