CLERMONT-FERRAND, France—Higher volumes and a rebound in demand in China and Europe helped Michelin register growth in operating income for the full year 2016, although sales revenue was off slightly.
Operating income from recurring activities rose 3.7 percent to $2.95 billion, while sales fell 1.4 percent to $22.9 billion, yielding an operating ratio of 12.9 percent, up about three-fourths of a point over 2015. Net income rose 43.1 percent to $1.83 billion.
CEO Jean-Dominique Senard called 2016 a "successful milestone in our strategic roadmap," and said 2017 was expected to be "another year of growth, in line with the group's 2020 objectives."
In 2017, Michelin expects tire markets to track the trends observed in late 2016, in particular with the upturn in mining tire sales. At the same time, Michelin expects rising raw materials prices to impact earnings by nearly $990 million.
In response to the cost pressure, Michelin said it will "agilely manage prices so as to hold unit margins firm in businesses not subject to indexation clauses."
Unit volumes were up 2.1 percent, with car and light truck tire volume up 3 percent and truck tire volume 1 percent. Volume sales of earthmover, farm, aircraft and two-wheeler tires, by contrast, dropped 1 percent.
Capital spending was up slightly to $1.98 billion.
Sales of passenger car and light vehicle tires rose 0.6 percent to $13.3 billion, while the segment's operating income on recurring activities rose 14.5 percent to $1.74 billion.
The mix effect remained "favorable" for this segment, Michelin said, driven by strong sales of the new Michelin CrossClimate and Michelin Pilot Sport 4S lines.
The company said it continued to improve "competitiveness" throughout the year, "albeit at a slower pace in the second half due to production scalebacks at a small number of plants."
Net sales in the truck tires and related distribution segment declined 4.2 percent to $6.53 billion while operating income from recurring activities fell 10.1 percent to $635 million.
In this segment, Michelin said, the "favorable" trend in raw materials costs "was not enough to offset the full impact of price repositionings and strong growth in sales of intermediate tires."
Michelin noted that there had been "production cutbacks at certain plants in the second half" as well as industrial optimization projects and cost discipline.
In specialty businesses, net sales dropped 3.6 percent to $3.11 billion and operating income fell 3.8 percent to $577.2 million for the full year. In this segment, Michelin said it has observed "a particular rebound" in the fourth quarter.
Commenting on the markets for passenger car and light vehicle tires, Michelin said OE demand in Europe rose 3 percent during the year. The figure reflects a sustained 4 percent increase in Western Europe, despite the slowdown in car sales in the second half of the year, and a steep 12 percent drop in Eastern Europe.
The North American market stabilized at a high level, with a 1 percent increase, in line with registrations. Demand in Asia, excluding India, ended the year up 7 percent overall.
"The Chinese market remained buoyant, with a 14 percent increase led by the government's compact car purchase incentives and the popularity of SUV models," Michelin said.
Elsewhere in Asia, markets saw declines in demand in Japan, South Korea and the ASEAN nations.
Markets in South America continued the sharp decline, losing 12 percent throughout the year, but signs of improvement emerged in the first months of 2017 in Argentina and Brazil.
In the truck tire business, OE demand in Europe was up 1 percent despite a slowdown in the second half. The North American commercial tire market fell 19 percent in 2016, which Michelin said was expected, "given the renewal of the local truck fleet observed in recent years."