Sculpting success: Michelin manages costs, sees 2022 sales boost

CLERMONT-FERRAND, France—With 2022, Michelin managed to sculpt a rather successful year from a rather difficult one.

"In a chaotic environment impacted by a combination of systemic crises, Michelin delivered solid results in 2022," Managing Chairman Florent Menegaux said in a statement.

Michelin posted 2022 sales of around $30 billion, an increase of 20.2 percent year-over-year.

The company, meanwhile, recorded segment operating income of about $3.58 billion. This is an increase of about $452 million year-over-year. Michelin attributes this growth to positive foreign exchange effects (about $193 million in all) and the company's continued progress.

The operating earnings ratio stood at 11.9 percent for 2022, and Michelin's net income increased 39.4 percent to $2.11 billion.

All of these successes, Menegaux said, are the direct result of Michelin's focus on managing costs and its balanced business approach. During a call with investors Feb. 13, he attributed the growth, in part, to "firm pricing discipline and fast-growing non-tire sales."

And that non-tire area of Michelin's business is probably one to keep an eye on.

Yves Chapot, Michelin's general manager and chief financial officer, noted during the Feb. 13 call that the non-tire area—think: high-tech materials, mobility experience and fleet management, for example—accounted for 1 percent of the overall improvement and contributed 26 percent of Michelin's segment operating income improvement.

And it did all of that while accounting for just 5 percent of sales.

For the full year, "non-tire sales grew by 22 percent at constant exchange rates, confirming their strong momentum," Michelin said in a statement.

Overall, group tire sales volumes slumped slightly, something the French tire maker attributes to both the ongoing war in Ukraine and the impacts of the COVID-19 resurgence and subsequent lockdowns in China.

Moreover, Chapot said, the "seasonality by market has been very contrasted."

Take for instance, the first half of 2022 that was especially difficult for the original equipment market, which remained relatively flat compared to 2019, down just 1 percent. The second half, however, saw a "sharp rebound" growing by 15 percent compared to 2019 levels, Chapot said.

"This phenomenon is both due to the poor winter season—particularly in Europe and also in North America—but also to the destocking and distribution," Chapot said. "Distributors have received important quantities of budget tire brands during Q3."

And while each reporting segment contributed to improved segment operating income, it was the Specialties area that stood out. Here, Michelin said, the margin reached 16.2 percent in the second half of 2022.

"The Specialties market has been well oriented," Chapot said, "pulled by the demand in mining, the recovery of commercial aviation in Europe and North America, and strong demand in materials handling and conveyor belts."

As the automotive market continues its rebound, Michelin harnessed its strength. Globally, passenger and light truck OE tire demand was up 7 percent year-over-year with the strongest growth coming in two regions—Africa, India and the Middle East (17 percent), and North and Central America (10 percent).

South America saw 9-percent growth in OE P/LT tires, while Asia (excluding China and India) and Western and Central Europe saw 6 and 4 percent growth, respectively.

Overall, replacement tire demand was down 1 percent globally, but was bolstered by 11-percent growth in South America. Asia (excluding China and India) showed 4 percent growth, while Western and Central Europe grew just slightly year-over-year with two percent growth.

Replacement sales across the Africa, India and the Middle East region were flat.

North and Central America replacement demand was down about 4 percent.

Truck tire sales were a bright spot for Michelin throughout 2022 as fleets upgraded and freight activity saw an uptick. Generally, sales were strong for both the OE and replacement markets when the impacts from China and the Commonwealth of Independent States are not considered.

North and Central America saw OE truck tire demand rise 10 percent, while replacement truck tire demand grew 13 percent. Meanwhile, Western and Central Europe saw demand climb 5 percent and 6 percent, respectively, for OE and replacement truck tires.

"The European and North American markets are oriented as lack of drivers and strong demand in freight constitute a strong incentive for fleets to renew their vehicles," Chapot said.

South America saw an 18-percent increase in OE truck tire demand and 4-percent increase on the replacement side. Asia, excluding China and India, saw OE and replacement growth of 6 and 4 percent, respectively.

In China, OE demand plummeted 44 percent, while replacement tire demand dropped 14 percent.

For Michelin, success—in 2022 and beyond—was and will be a balancing act.

That balance is built into the company's all-sustainable vision which pledges to consider and balance people, profit and planet across its business decisions.

But that balance also is evident in the way Michelin—a mobility company at its core—has diversified its product and solutions offerings and business. The largest portion of Michelin's sales in 2022—42 percent—came from replacement tires and two-wheel tire sales. Automotive OE accounted for 10 percent of the sales.

Transportation accounted for 26 percent of sales and the Specialties area 18 percent.

High Tech Materials—flexible composites and engineered polymers—contributed 4 percent to 2022 sales.

And that balance of product and service offerings is exactly how Michelin's With, Around and Beyond Tires strategy is intended to play out.

"In 2023, we will stay the course and keep building on our fundamentals through our tire business, while continuously adapting for the future through our Around and Beyond tires strategies," Chapot wrote in a LinkedIn post Feb. 15.

But it's not just in sales where the tire maker is finding balance. Michelin also has managed to find a balance geographically.

For 2022, North and Central America accounted for 35 percent of the company's overall sales, while Europe and Asia (excluding India and China) combined for 38 percent of sales. The rest of the world made up 27 percent of group sales last year.

"Over the 2019-2022 period, the group has demonstrated the resilience of its business model," Menegaux said.

It's a model Menegaux expects will continue to show strength in the months and years ahead.