February 10, 2012 / 7:36 AM / 8 years ago

UPDATE 4-Michelin lifts profit goal on mining tyres boost

* Raises 2015 profit goal to 2.5 billion euros

* FY net up 39 pct to 1.46 bln euros vs f’cast 1.32 billion

* Revenue up 16 pct to 20.72 bln vs f’cast 20.65 bln

* Shares lower after sector-wide tumble

By Laurence Frost

PARIS, Feb 10 (Reuters) - Michelin SCA, the world’s No.2 tyremaker, raised its 2015 profit goal by a quarter, encouraged by demand from European and U.S. truckmakers, strong pricing and growth in outsize tyres for the mining industry.

The French company, which makes tyres for everything from bicycles to airliners, said net income rose 39 percent to 1.46 billion euros ($2 billion) in 2011, beating analysts’ expectations of 1.32 billion, on a 16 percent revenue increase to 20.72 billion.

Michelin, based in Clermont-Ferrand, central France, saw earnings rise this year on the back of price rises introduced to offset escalating raw material costs.

“I’d expected to see some slippage on price and (product) mix, but it’s surprisingly strong,” London-based Credit Suisse analyst Erich Hauser said.

After rising as much as 3.9 percent earlier in the day, Michelin shares ended 3 percent down at 54.04 euros, after a weak U.S. market opening sent European auto stocks lower.

The STOXX Europe 600 autos and parts index sank 1.9 percent, as Fiat tumbled 3.3 percent and PSA Peugeot Citroen 3.2 percent.

Michelin’s profit gain came despite a sales volume increase of just 6.7 percent, lower than the 8 percent advance the company had forecast.

But price hikes boosted earnings by 2.01 billion euros, outstripping the 1.75 billion euro negative impact of higher raw material costs. In July, Michelin predicted pricing would only cover the rising bill for rubber, steel and oil-derived synthetic rubber.

Material costs will dent 2012 earnings by a more limited 300 to 350 million euros, the company predicted.

BUOYANT DEMAND

Sales to truck manufacturers jumped 56 percent in North America and 35 percent in Europe last year. Demand from U.S. vehicle makers remained buoyant in the fourth quarter, with gains of 22 percent gain in car tyre sales and 49 percent in heavy trucks.

Before one-time gains and losses, operating income rose 15 percent last year to 1.95 billion euros, or 9.4 percent of sales, compared with a 9.5 percent operating margin in 2010. The company raised its 2015 target to 2.5 billion euros from 2 billion.

Car- and truck-tyre margins fell, weighed down by the higher materials bill, while so-called specialty tyres for planes, agriculture and earthmovers used in mining recorded a sharp increase in profitability.

“Specialty tyres are what’s driving this beat, and it’s a business where only Michelin is really present in Europe,” Credit Suisse’s Hauser said.

Such products include the world’s largest tyre, fitted by Michelin to Caterpillar’s 797 truck, a 15-metre (50 foot) behemoth that shifts payloads of 360 metric tons (400 U.S. tons) around open-pit mines and construction sites.

The tyre alone contains enough steel within its four-metre diameter to build two small cars.

Michelin is targeting a 9 percent return on capital every year until 2015 while aiming to pay out 30 percent of its profit as dividends. Sales volumes are seen growing 25 percent by 2015 and 50 percent by 2020.

Chief Executive Michel Rollier said Jean-Dominique Senard, named last year to succeed him, would take over the top job at the company’s May 11 shareholder meeting.

The French tyremaker, which ranks behind Bridgestone of Japan in global production, raised 1.2 billion euros in a 2010 share issue to finance an emerging market expansion adding the equivalent of one new plant each year.

The company said it would raise its dividend to 2.10 euros per share from 1.78 euros a year before.

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