Michelin Profit Softens, But Tyremaker Firm on 2017 Goals

Michelin's operating profit fell in the first half, with the French tyre maker saying on Tuesday it had missed forecasts because analysts had overestimated foreign exchange gains.

Recurring operating profit was 0.9 percent lower at 1.39 billion euros (1.24 billion pounds) in January-June on a 7.4 percent increase in revenue to 11.06 billion, the company said, despite a surge in mining demand for its high-margin earthmover tyres.

The numbers fell short of the 11.1 billion euros in sales and 1.43 billion-euro operating profit expected by analysts, based on the median of seven estimates polled for Reuters.

Michelin (MICP.PA), whose net income rose 12 percent to 863 million euros, is under growing competitive pressure and is pursuing cost cuts to defend itself against low-cost rivals.

The company's savings plan generated 146 million euros in the first half towards a 300 million-euro full-year goal, countering inflation that wiped 142 million euros off earnings.

Price increases now taking effect will lift margins later in the year, Michelin said as it reaffirmed 2017 targets including increased sales and operating profit.

"We have been able to increase our prices in response to raw-material costs," Chief Financial Officer Marc Henry said.

The first-half performance missed expectations because analysts had "overestimated currency gains" that in the end contributed 37 million euros to earnings, Henry added.

The speciality tyre division, Michelin's most profitable with a 20.8 percent operating margin, saw revenue jump almost 20 percent to 1.76 billion euros on resurgent mining demand.

But margins fell by a percentage point in car tyres and more than two points in trucks - reducing overall group profitability to a 12.6 percent margin from 13.7 percent a year earlier.

Raw-material prices are now falling sharply again from an early 2017 spike, testing tyre makers' ability to raise prices to reflect input costs that remain above year-earlier levels.

Barclays had warned in April that "dealers might push back looking at input costs, while some reactive competitors might adjust their prices downward".

Michelin's promised price increases raised first-half earnings by a modest 60 million euros, it said.

The combined effect of pricing efforts and higher raw-material costs had a negative 186 million earnings impact, although this was within a 100-200 million euro predicted range.

Michelin said it still expects the net impact to turn neutral for the full year in its replacement tyre business - while remaining negative in sales to vehicle manufacturers, where price moves are dictated by contract.