Michelin Forecasts No Growth in 2013 After Europe Hurts Earnings

Feb. 12 (Bloomberg) -- Michelin & Cie., Europe’s largest tiremaker, forecast no growth in sales volume and earnings in 2013 as a recession that hurt the region’s car and truck industries held back profit gains last year.

Operating profit excluding one-time items rose 25 percent to 2.42 billion euros ($3.24 billion) from 1.95 billion euros a year earlier, Clermont-Ferrand, France-based Michelin said in a statement today. Earnings missed the 2.52 billion-euro average of 12 analyst estimates compiled by Bloomberg. Sales rose 3.6 percent to 21.5 billion euros. Free cash flow was 1.08 billion euros compared with a negative 19 million euros a year in 2011.

Michelin is seeking more sales outside Europe amid a regional automotive market contraction that French carmaker PSA Peugeot Citroen expects at as much as 5 percent this year. Faurecia, Peugeot’s components division, scrapped its dividend to conserve following a drop in profit last year. Michelin today forecast “steady” tire sales and “stable” earnings in 2013.

“Free cash flow generation has always been a key focus, and this is where full-year results have surprised on the upside,” at as much as double consensus estimates, Philip Watkins, an analyst at Citigroup Inc. in London, said in a report to clients. Operating profit last year and the forecast for 2013 were “a little disappointing.”

2015 Strategy

Michelin said in September that it plans to invest 1.6 billion euros to 2.2 billion euros a year through 2015 to fuel the expansion and to reach an operating income of about 2.5 billion euros that year, with positive annual free cash flow through the period. Michelin said today that it’s sticking to the strategy, and announced plans to raise the dividend 14 percent to 2.40 euros a share.

Faurecia, Europe’s largest maker of car interiors, reported second-half operating profit plunged 32 percent to 211 million euros. Sales increased 7 percent to 8.6 billion euros as growth in North America and Asia offset a decline in its home region, the Nanterre, France-based manufacturer said today.

Europe’s car market may contract to 12.3 million vehicles this year, 23 percent below the pre-2008 global recession peak, according to estimates by IHS Automotive research group. Carmakers are responding by scaling back production, with Peugeot, the region’s second-biggest carmaker, planning to shut a factory on the outskirts of Paris and General Motors Co. and Ford Motor Co. closing a combined four plants across Europe.

Tire Sales

Group volume at Michelin fell 6.4 percent last year because of “weak demand, particularly in European markets,” the company said. The number of car and light-truck tires sold declined 5.5 percent, and the operating margin at the business, excluding one-time gains or costs, declined 0.1 percentage point to 9.3 percent.

The volume of tires for heavier vehicles dropped 11 percent “as the group focused on turning the truck-tire business around and restoring its margins.” Profitability almost doubled to 6.6 percent from 3.5 percent a year earlier. Specialty-tire sales numbers rose 1.7 percent, and the margin at that division, which supplies the aerospace and mining industries, increased to 26 percent from 21.5 percent.

--Editors: Tom Lavell, Chad Thomas