PARIS -- Michelin, the world's largest tire maker, reduced its full-year profit outlook on Monday, citing a "tougher-than-expected" operating environment in the third quarter, particularly for truck tire replacement sales.
It said third-quarter sales rose to 3.89 billion euros ($4.65 billion), a 3.3 percent like-for-like rise, while sector analysts had expected a figure of 3.83 billion euros. The sales figure, however, included price rises to offset rising costs of raw materials such as rubber, steel and energy.
Michelin said some of its key markets did not progress as well in the third quarter as expected, which was likely to keep margins from rising as expected.
In particular it now expects the European truck replacement market to be down 6 percent in 2005, while in August it saw a 3 percent fall.
"Looking to the fourth quarter of 2005, Michelin does not expect any significant market improvements. In these conditions, the group has introduced a number of measures to adjust output levels in the final quarter," it said in a statement, adding it was reducing output and stepping up inventory controls.
"Under the current circumstances and barring any further deterioration of the markets in the final quarter, Michelin considers that its operating performance will be at least as good as last year's," it said.
The company now expects the operating margin for the year to be as least as high as its 8.2 percent in 2004, Michelin said. That compares with its previous expectation for a rise in the margin to above 8.7 percent.
Michelin said the European truck replacement market -- tires sold to truck operators and not to the truck makers -- was down 3.5 percent in the third quarter year-on-year, compared with a 3.2 percent decline in the second quarter.
It said a weak economic environment with ailing French, German and Polish economies and a significant increase in diesel prices contributed to the fall.
The U.S. passenger and light truck replacement market has been soft since the beginning of September.
Turnover in euros was up due to price increases, while the impact of a spike in raw material prices was in line with the company's forecasts.
Overall sales of passenger car and light truck tires were up 5.3 percent to 2.155 billion euros, while sales of truck tires were up 4.8 percent to 1.287 billion euros.
Special tires were virtually flat at 448 million euros.
Michelin raised prices on the North American car replacement market by 5 percent in March for its main brand and by 6 percent for BF Goodrich, while in July it added another 8 percent.
In Europe, it raised its brands by 5 percent on average.
Michelin said the impact of rising raw material prices, in dollars, had been mitigated by the depreciation of the dollar versus the euro. But this was now stabilizing.
ANOTHER HIT FOR THE SECTOR
Shares of tire makers have already been hit recently by news from Finland's Nokian Renkaat, which expects to report a third-quarter profit drop due to slower sales growth, and from Cooper Tire and Rubber Co., which withdrew its quarterly financial forecasts, citing weak sales and high raw material and energy costs.
Japan's Bridgestone last week unveiled a $5.2 billion spending plan to take 20 percent of the global market and dethrone Michelin as the world's number one by 2008.