PARIS -- Tire maker Michelin is set to report lower operating margins for the first half of 2005 on Friday due to a rise in raw-material costs such as rubber and steel that price hikes have not totally offset.
Financial analysts said they expect the world's biggest tyre group to stick to its 2005 full-year guidance for operating profit at least equal to that of 2004, with the first half seen as less good than in 2004, when it experienced what it called an exceptionally strong rise in demand.
The family-run group, based in Clermont-Ferrand, in central France, recently suffered the embarrassment of seeing the U.S. Grand Prix Formula One race turned into farce when it was unable to guarantee the safety of tires to be used in the commercially important race and the teams using Michelin tires pulled out.
Michelin collates its own data from 13 analysts' forecasts, according to which, first-half sales are seen in a range of 7.365 to 7.611 billion euros, with the median at 7.5 billion euros ($9.24 billion). This compares with 7.486 billion last year, restated to comply with new IFRS accounting standards.
Operating income is seen in a 620-674 million euro range, with a median of 658 million and a comparative of 683 million.
This is likely to result in operating margin of 8.8 percent, sown from 9.1 percent in the first half 2004 but above the 8.2 percent of the second half that year.
Net profit is seen in a range of 318-374 million euros, against 366 million last year, with net debt up at some 3.5 billion against 3.4 billion at end-2004.
Germany's Continental AG on Tuesday surprised the market with a strong second-quarter profit while maintaining its full-year profit forecast.
Analyst Petra Horn at Exane BNP Paribas said she expected Michelin too to keep its 2005 guidance unchanged.
She said that due to the 40 percent rise in oil prices and 30 percent hike in rubber, investors were starting to worry about Michelin's capacity to pass on the costs in prices.
"We remain confident that the group will be able to increase margins above the 2004 level of 8.7 percent," she said.
Credit Suisse First Boston analysts, however, said they saw scope for Michelin to reduce its guidance for flat earnings.
"We do not believe pricing has been sufficient to maintain EBIT margins against lower volumes, mix and 200 million euros higher costs," they said in a note dated Tuesday.
Michelin is the biggest tire group in the world, followed by Bridgestone and Goodyear Tire & Rubber.