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Michelin Profit Jumps, But Misses Target

Reuters
Friday, 15 Feb 2008 | 12:50 PM ET

French tire group Michelin reported on Friday a rise in 2007 operating income due to cost cuts and price hikes and said despite many uncertainties it expected a further increase in 2008.

Sales of speciality tires for earth movers and mining equipment were up due to a boost in grain and raw material prices which leads farmers and miners to boost output and buy equipment.

The shares fell 2.8 percent as traders said Michelin missed a profitability target and amid some disappointment about the company's cautious outlook. The share had gained more than 8 percent so far this year.

"Michelin is starting 2008 with a healthy and robust situation and is well armed to deal with a challenging environment marked by multiple uncertainties," managing partner Michel Rollier said.

"With the remarkable turnaround of free cash flow, we will be in a position to forge ahead with our development, while simultaneously strengthening our financial independence."

The operating margin before non-recurrent items was up 1.6 points to 9.8 percent and would have been 10.2 percent, but for a 74 million euro one-off payment for a French law change for early retirements. The market expected a 10.2 percent margin.

Under the Horizon 2010 plan, Michelin aims for a EBIT operating income margin of above 10 percent for that year.

The operating margin after non-recurring items was 7.8 percent.

Rollier said the group was not changing its targets yet because there was still time to 2010 and added that the key target of an operating margin above 10 percent had no upper limit while a 30 percent productivity gain target would be "more than met."

Net turnover rose 3 percent to 16.867 billion euros ($24.63 billion), and operating income before non-recurring items was up 22.9 percent to 1.645 billion.

The group took 326 million euros in restructuring charges for the closure of plans as part of a rationalization plan and the net attributable income was up 35.3 percent to 774 million.

It raised its dividend 10.3 percent to 1.60 euros.

Slightly Below Consensus

Analysts polled by Reuters Estimates had on average expected earnings before interest and tax (EBIT) of 1.71 billion euros and a net profit of 815.3 millions euros on sales of 17.01 billion. Operating income was slightly below forecasts due to the special charge for voluntary departures.

The operating margin before non-recurrent items was up 1.6 points to 9.8 percent and would have been 10.2 percent, but for a 74 million euro one-off payment for a French law change for early retirements.

Under the Horizon 2010 plan, Michelin aims for a EBIT operating income margin of above 10 percent for that year.

The operating margin after non-recurring items was 7.8 percent.

Michelin said the sales volume was up 3.2 percent, which it said was a return to growth after two sluggish years. It said that in 2008, sales would be driven by demand from emerging markets, while a rise in raw material prices would have a negative impact of 200 million euros, compared with 72 million in 2007.

"Provided there is no sharp deterioration in the trading environment, Michelin's net sales and operating income before non-recurrent items should post further progress in 2008," the company said in a statement.

Michelin had a net free cash flow of 433 million euros, against an outflow in 2006.

Michelin and Japan's Bridgestone juggle for the top spot in the global tire market. On Thursday, Michelin's market capitalization was $13.2 billion, while Bridgestone's was $12.8 billion. Goodyear Tire & Rubber posted better-than-expected fourth-quarter profit on Thursday as it benefited from higher pricing and a focus on more profitable branded tires.

Germany's Continental reports on Feb. 21.

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