Michelin Has Miles To Go- US-FOREX.US
With demand crumbling, tire maker Michelin is not yet out of the woods. Still, the Paris-based company managed to post a small operating profit and stuck to its cash flow goals, cheering investors.Shares of Michelin
rose 6.4%, or 3.02 euros , to 50.53 euros in morning trading in Paris. “In this environment it is hard to remain profitable but Michelin managed to do what they said they were going to do,” said Michael Tyndall, an analyst with Nomura International in London, referring to the fact the firm had managed to cut costs, like other suppliers to the car industry.
Michelin said its operating profit before non-recurring items fell 60.2% to 282 million euros in the second quarter, hit partly by the decline in unit sales. The decline was less severe than expected – according to a Michelin-conducted poll analysts were forecasting a profit of 100 million euros . The company also managed to generate 575 million euros in free cash flow in the first six months of the year, thanks to a reduction in inventory and by cutting capital expenditure to 319 million euros from 500 euros million in the first half of 2008. Michelin has also shed 5,000 jobs since the start of the year. Also encouraging, is Michelin’s progress in tackling its debt load. The firm Michelin cut net debt by 10.7%, to 3.8 billion euros during the first half of the year, down from 4.3 billion euros during the same period last year.Morgan Stanley said that the cash flow and cut in net debt were “significant positive surprises”. “Michelin surprised in all the right areas,” the investor note said.Yet Nomura’s Tyndall said inventors will be “a little unnerved” about the firm’s cautious outlook. “Concerning the business environment, inventories have now returned to more normal levels, but not to the extent that we can talk about a real upturn,” Chief Executive Michel Rollier said. Rollier had already warned that he didn’t foresee a pick up in tire sales worldwide before the middle of 2010.
Michelin, whose competitors include Germany’s Continental AG and U.S.-based Goodyear, said sales were down 13.4% at 7.1 billion euros in the first half. Six analysts polled by Reuters had expected sales of 7.2 billion euros on average.On Thursday, Goodyear
posted a smaller-than-expected loss and said there were signs the economic downturn was easing. “Reports from the sector suggest that we are through the worst of the recession but the question is now on the pace of the recovery.”Separately, Continental AG
won a board room vote to repair its finances but looked set to lose its second chief executive in less than a year amid a bitter power struggle with German ball-bearings maker Schaeffler, which owns just under 50% of Continental.
Thomson Reuters contributed to this article.