July 25, 2019 / 5:06 PM / 4 months ago

Michelin margins hit by auto slump despite price hikes

PARIS (Reuters) - Michelin’s (MICP.PA) firm pricing and cost-cutting lifted first-half revenue and operating earnings, the French tyre maker said on Thursday, but profitability suffered from shrinking vehicle production.

Net income fell 8% to 844 million euros (£753.4 million) on revenue of 1.438 billion euros, up 11.1 percent. The tyre business operating margin fell to 12.2% from 12.5% as earnings growth trailed behind revenue. Sales declined 0.9% by volume.

A contraction in major auto markets has rattled the sector and prompted profit warnings from carmakers and suppliers including German rival Continental (CONG.DE).

Michelin is cutting costs as it defends its premium pricing from intensifying competition. Price hikes added 93 million euros to January-June revenue, it said, while increased sales of upscale and mining tyres contributed an 83 million-euro gain.

“In this persistently uncertain business environment, the group is pursuing its competitiveness initiatives,” Chief Executive Florent Menegaux said in the company statement.

Earnings from the car and light-truck tyre business nonetheless fell 7.9% to 585 million euros from 635 million, paring its operating margin by a percentage point, to 10.3%.

Michelin blamed the profit slide on declining car production and higher prices for butadiene, used to produce synthetic rubber.

Analysts had expected higher operating profit of 659 million euros from the division and 1.5 billion across the tyre business, according to the company’s own consensus polling.

But earnings rose 12.5% to 279 million euros at the truck tyre division and 29.3% to 574 million euros at the specialty business, which includes outsize tyres for mining equipment commanding profit margins almost double those of car tyres.

Michelin maintained its 2019 guidance despite a worsening market outlook for car tyres, now expected to fall by 1%, and a 2% contraction in truck tyres, while mining tyre demand should continue to expand.

The reiterated goals include an increase in full-year tyre business operating income before currency effects and structural free cash flow above 1.45 billion euros.

Reporting by Laurence Frost; Editing by Kirsten Donovan/Michel Rose

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