April 22, 2013 / 4:11 PM / 5 years ago

Michelin sales decline on pricing setback

PARIS (Reuters) - French tyremaker Michelin (MICP.PA) said first-quarter sales fell 8.1 percent as it was forced to cut prices amid sluggish demand in its home region and weaker-than-expected growth elsewhere.

The logo of French tyremaker Michelin with Bibendum or the Michelin Man mascot is pictured during the company's 2011 annual results in Paris February 10, 2012. REUTERS/Charles Platiau

Revenue declined to 4.88 billion euros ($6.36 billion) in January-March from 5.3 billion a year earlier, the Clermont Ferrand-based company said in a statement on Monday.

Michelin, which counts on its namesake brand’s relatively high pricing to cover the fixed costs of its French production base, said a drop in the prices paid for its tyres accounted for one-third of the revenue decline.

Michelin is pushing a 2 billion euro overseas expansion in emerging markets such as China to offset the weak economic outlook and saturated western vehicle markets.

The quarterly revenue slide partly reflects a “carefully managed price repositioning” in some product categories, Michelin said.

Compounding disappointing levels of North American demand, the U.S. has also seen a “steep increase in Asian imports since customs duties were lifted last autumn”, Michelin added.

The worsening pricing and mix - reflecting a demand shift to cheaper tyre models - will wipe 300 million euros from full-year earnings, Michelin said.

It nonetheless reiterated its full-year goals, including stable operating profit - helped by a 550 million euro gain from falling costs of steel, oil derivatives and rubber - positive free cash flow and a 10 percent return on capital.

The pricing declines are a concern despite the maintained guidance, Credit Suisse analyst David Arnold said in an emailed note.

“Whilst raw materials are now better than expected, another part of the (earnings forecast) is less robust, with price-mix the most obvious source,” Arnold said.

Investors may be less willing to pay for “earnings which are a consequence of temporary raw-material effects”, he added.

Declining volumes also took their toll in the quarter, with European car tyre sales falling about 10 percent and sales to U.S. truckmakers dropping 12 percent.

The cooling-off in raw materials also translated into a 13 percent drop in revenue from specialty tyres for mining and farming vehicles, which had contributed a strong sales and earnings gain last year.

Michelin said currency effects including the euro’s gain against the dollar accounted for 61 million euros in lost quarterly revenue, about 14 percent of the year-on-year decline.

Reporting by Laurence Frost; Editing by James Regan

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