PARIS -- French tyre maker Michelin raised its operating margin target for 2002 on Tuesday as it posted better than expected first-half profits, sending its shares up as much as six percent in early trading.
Europe's largest tyre manufacturer said that excluding a worsening in the tyre market, or in exchange rate and raw material conditions, it expected an operating margin between 7.0 and 7.4 percent, versus a previous range of 6.7 to 7.4 percent.
Michelin posted a 31 percent fall in net profit to 254.1 million euros for the first six months of 2002 -- but that drop was entirely attributable to a large capital gain which inflated last year's result by 304 million euros.
Excluding exceptional items, net profit showed a 279 percent gain.
Underlying operating profits pushed up 16 percent in the period to 569.6 million euros, taking the operating margin up to 7.3 percent from 6.4 percent.
Both the net and operating profit figures were above markets forecasts. A consensus analyst forecast published by Michelin pointed to net profit of 216 million euros and operating profit of 546 million.
"The key here is the outlook and that's what the market is reacting to," said analyst Nicolas Hirth at Morgan Stanley Dean Witter. "Virtually every company in the sector has been supported by strong results, with the only exception perhaps being Fiat."
ROAD TO RECOVERY
Michelin has been plagued for much of the past year by a weak car market and high raw materials prices, but the figures released on Tuesday showed the firm is on the road to recovery.
Sales rose 1.4 percent in a depressed market during the first half, while inventories and net debt both declined.
The rise in net profit also looked strong, once the impact of a capital gain on the sale of the firm's 2.8 percent holding in carmaker PSA Peugeot-Citroen was stripped out.
Excluding the gain, profits surged 279 percent to 254.1 million euros from 67 million a year earlier.
"For the second half the group is still anticipating a challenging and uncertain environment," Michelin said in a statement.
"However, provided tyre markets, raw materials prices and exchange rate parities do not deteriorate further, and taking into consideration the internal improvements already achieved in the first half, Michelin raises its annual operating margin target from 6.7-7.4 percent to 7.0-7.4 percent for 2002."
Michelin Finance Director Michel Rollier told a news conference the group could be affected, albeit temporarily, by further dollar weakness in the second half, and also expressed concerns about fragile economies in South America.
"We are very worried about South America and economic developments in Brazil and Argentina. We see the crisis spreading to Venezuela and perhaps Chile," Rollier said.
Overall, however, the group should benefit from a reduction in inventory and structural improvements, Michelin said.
Further boosting investor sentiment has been the strong results posted by European carmakers over the past week.
Both French heavyweights Renault and PSA surprised the markets with robust first-half profits. On Tuesday, German giant Volkswagen posted stronger than expected second-quarter earnings.