Michelin Reports Growth amid Reorganization, High Materials Costs

Michelin reported a slight rise in operating income on 5 percent higher sales, amid currency and raw materials headwinds as well as the launch of a major reorganization.

Operating income from recurring activities rose 1.9 percent to $3.09 billion on 5 percent higher sales of $24.8 billion, reducing the operating ratio nearly a half-point to 12.5 percent.

Michelin attributed the sales growth to a number of factors, including a 2.6 percent increase in unit volumes, which generated $612 million in revenue, and more than $750 million in additional revenue from a "favorable price-mix effect," which nearly balanced out the negative effects of higher raw materials prices.

Non-recurring activities, mainly costs related to the group's reorganization, had a $125 million negative impact on income, reducing operating income to $2.97 billion. These negatives were partially off-set by gains on changes to the health coverage plan in the U.S. and to the pension plan in the United Kingdom.

Net income came in at a "historically high" $1.91 billion.

In his comments on the firm's performance, Michelin CEO Jean-Dominique Senard pointed out the company is pursuing the "acquisitions that will support its ambitions for growth and value creation."

He did not elaborate, but separately Michelin has disclosed in recent weeks two significant deals in the tire distribution/logistics area in the U.S. with TBC Corp. and in Europe with Mobivia P.L.C.

Michelin said it expects "modest growth" for passenger/light truck and truck tire markets during 2018, while the mining tire and agricultural and earthmover OE markets should remain "buoyant."

Michelin also projects raw materials costs to rise as much as $113 million in 2018 but said it would be able to offset such an increase through price/mix management.

The company also cautioned that the currency-exchange effect likely will reduce full-year operating income from recurring activities by nearly $340 million.

In terms of segment performance, sales in the passenger car/light truck tires unit rose 3.1 percent to $14.1 billion, while operating income fell 2.1 percent to $1.75 billion for an operating ratio of 12.4 percent.

Michelin attributed the decline to "unfavorable" currency effects but said it sustained market-share gains in 18-inch and larger tires, with 19-percent growth.

The truck tires segment suffered a 14.3-percent drop in operating income to $56.3 million on 2.6-percent higher revenue of $6.9 billion. The margin fell a point and a half to 8.1 percent.

Revenue in Michelin's specialty businesses unit—including earthmover, farm, two-wheel and aircraft tires—grew 18.4 percent to $3.79 billion on the strength of 16 percent volume growth, led the "sustained rebound" in demand for the mining tires and a sharp upturn in earthmover and agricultural OE sales.

Segment operating income jumped 31.5 percent to $781.3 million, for a 20.6 percent operating margin.