Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Michelin (MGDDF, Financial) reported a strong segment operating income, reaching 13.2% of sales in H1, up from 12.1% in H1 2023.
- The company generated a robust cash flow before acquisition of EUR 669 million, driven by disciplined business management.
- Michelin (MGDDF) achieved a 1.9% mix improvement, offsetting negative price effects from indexation clauses.
- The specialty segment posted a high 16.8% margin despite adverse conditions in certain markets.
- The company maintained its 2024 guidance with expectations of segment operating income exceeding EUR 3.5 billion and free cash flow exceeding EUR 1.5 billion before acquisition.
Negative Points
- Sales were down by 3.1% excluding currency effects, with a notable volume decline in specialties and transportation segments.
- The tire market was distorted by high inflows of budget tires, particularly affecting the replacement markets.
- Original Equipment (OE) markets experienced a sharp decline, especially in Europe and North America.
- The polymer composite solutions market was temporarily soft compared to the first half of 2023.
- SG&A expenses increased by EUR 100 million, primarily due to inflation and labor cost inflation.
Q & A Highlights
Q: Can you confirm whether the 5 percentage points of improvement in the 18-inch tire mix means year-on-year growth in that segment in the premium segment, and does that mean you gained share, either on value or volume? Also, could you give more color on the drivers of margin improvement in RS2?
A: Yes, we have seen a sharp improvement in the overall content of our sales into higher mix. Regarding RS2, the improvement is driven by focusing on areas where we can demonstrate performance and where customers are willing to pay for it. This includes both OE and replacement markets. We are confident in our ability to deliver our commitments despite market challenges. (Florent Menegaux, CEO)
Q: Can you give us an update on the dealer's inventory situation for the different segments? Also, should we expect the same negative pricing effect in the second half, and is the mix effect repeatable?
A: In passenger cars, stocks are at the norm across regions. Truck tires are also at normal levels, while mining shows a slow decrease. The negative pricing is entirely due to indexation, and we expect the second semester to be comparable to the first. The mix effect might be even better in the second half due to a more favorable market mix. (Florent Menegaux, CEO; Yves Chapot, CFO)
Q: What was the contribution from logistics in the manufacturing and logistics tailwind realized in the first half, and what are your expectations for transport costs for H2 and into the first half of 2025?
A: We don't disclose detailed information, but we had positive maritime logistics and freight cost inputs. We expect these benefits to continue due to renegotiated contracts. The Red Sea crisis did not lead to inflatory costs related to shipping. (Florent Menegaux, CEO; Yves Chapot, CFO)
Q: Are you observing any market distortions or impacts from imported budget tires, and do you worry that the price gaps between premium and budget segments are getting too wide?
A: We see market distortions, especially in emerging countries, but we don't anticipate structural changes. The influx is likely an inventory buildup. In the US, truck tire imports from Thailand increased by 90% due to anticipated tariffs, which is an artificial situation. (Florent Menegaux, CEO; Yves Chapot, CFO)
Q: Can you help us with your restructuring cash outflows in 2024 and 2025, reflecting the work to improve capacity and loading of your plants in Europe?
A: We expect restructuring cash outflows to be between EUR200 million and EUR250 million for the full year, in line with previous announcements. (Yves Chapot, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
