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UPDATE 1-Michelin expects boost to profits from mining sector recovery
February 14, 2017 / 7:18 AM / 10 months ago

UPDATE 1-Michelin expects boost to profits from mining sector recovery

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By Laurence Frost

PARIS, Feb 14 (Reuters) - Michelin said an upturn in mining sector demand for its outsize earthmover tyres will help to increase earnings this year, as the French tyre maker posted a 4.5 percent gain in operating profit for 2016.

The company recorded 2.69 billion euros ($2.86 billion) in recurring operating income, lifting the full-year operating margin to 12.9 percent from 12.2 percent.

Chief Executive Jean-Dominique Senard said 2017 would be “another year of growth in line with the group’s 2020 objectives”.

Under increasing competitive pressure, Michelin is pursuing cost cuts to defend profitability without losing ground to low-cost rivals. The group said it met a 1.2 billion-euro savings goal for 2012-2016 and is on track to do the same again by 2020.

Global demand for truck and so-called specialty tyres - for mining and agriculture - will pick up in 2017, the company forecast. Car tyre markets will approach last year’s 3 percent expansion, with South American sales back in positive growth.

High-margin earthmover tyres are rebounding after a third straight year of decline, Michelin said. “The trend turned upward in the fourth quarter,” the company added.

Weaker pricing reduced last year’s earnings by 438 million euros, almost absorbing a 545 million-euro gain from lower raw material costs. Michelin is now raising prices to cover an upturn in the costs of steel and rubber, natural and synthetic.

Revenue fell 1.4 percent to 20.91 billion euros on weaker pricing, despite a 2.1 percent increase in sales volumes. Net income jumped 43.5 percent to 1.68 billion euros.

The 2016 results narrowly beat expectations of 20.83 billion euros in revenue and 2.67 billion in operating income, based on the median of 12 analyst estimates in an Inquiry Financial poll.

Earlier this month, Michelin’s rival Goodyear posted lower-than-expected quarterly sales and lowered its 2017 forecast for a key measure of its operating income.

Michelin targeted full-year sales volume growth in line with global markets, combined with an increase in recurring operating income, before currency effects expected to be positive.

Structural free cash flow came to 961 million euros in 2016 and will exceed 900 million this year, Michelin said, reiterating its 1.4 billion goal for 2020.

$1 = 0.9419 euros Additional reporting by Gilles Guillaume; Editing by Sudip Kar-Gupta

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