Headwinds, OE demand weigh down Michelin's 2024 results

CLERMONT-FERRAND, France—Michelin came into 2024 with cautious optimism, but headwinds have forced the tire maker to re-evaluate its full-year outlook.

In its most recent earnings report, Michelin said it expects pre-tax operating income to come in 2.5 percent lower than originally expected, while unit sales are expected to be between 4 and 6 percent year-over-year.

Throughout the first nine months of 2024, Michelin faced what Yves Chapot, general manager and chief financial officer, called "unprecedented events and headwinds" that included geopolitical tensions and disruptions in maritime shipping as well as supply chain disruptions and complications.

Amid all of this, depressed OE demand also weighed heavily on nearly all of the tire segments—passenger/light truck, truck/bus and specialty. Meanwhile, replacement markets held fairly steady despite the influx of Asian imported replacement tires, particularly in North America.

"When we break down this performance by business segment, we can say overall that our group sales have been penalized by original equipment downcycles across the three segments and some contextual headwinds in specialties," Chapot said during a call with investors. "Overall, our operating margin has been preserved."

Third quarter sales, which came in around $7.32 billion, were down about 4.2 percent compared to the third quarter of 2023. Michelin mainly attributes the difference to those "deteriorating OE markets" across all of its segments, but noted it was partially offset by strong mix improvements.

For the nine months ended Sept. 30, Michelin posted sales of around $22.1 billion, down about 3.4 percent compared to the first nine months of 2023.

"Non-tire activities were stable over the quarter with composite polymer solutions slightly declining," Chapot said.

The French tire maker noted that sales of PC/LT tires with rim sizes of 18-inch and above "grew sharply," helping to sustain the brand's market share. This also underscores Michelin's decision to focus on high-value products.

"In this context, the group is strengthening its value-driven strategy, reinforcing its Three-P model (people, profit, planet)," Chapot said. "And for that purpose we can rely on our key assets: the very highly engaged and talented teams; our powerful and widely recognized brand; our innovation leadership; and our unique research and development capabilities able to bring our new vision at scale and the excellency in the market-defined services and the quality of our offerings."

Through the first nine months of 2024, global OE P/LT tire volumes slipped by 3 percent year over year. China was the only market to see an increase, and that was at a modest 1 percent.

Asia—excluding China and India—saw the biggest drop in OE tire volumes, down 8 percent year over year. In Europe, OE tire volumes slipped by 6 percent, while South America saw a 5 percent drop. The region comprising Africa, the Middle East and India saw OE tire volumes slide by 2 percent, while North and Central America saw a 1-percent year-over-year drop.

Meanwhile global replacement tire volumes rose by 3 percent. This increase was driven by both the Americas and Europe, the latter of which saw a 7 percent uptick in year-over-year volumes for the period. North and Central American replacement tire volumes jumped 3 percent, while South America saw a 4 percent rise in volumes year-over-year. The region comprising Africa, India and the Middle East also saw a 3 percent year-over-year increase in volumes.

China and Asia (excluding China and India) each saw volumes drop by 1 percent.

On the truck tire side, OE tire volumes were down significantly in Europe (-20 percent) and the region comprising North and Central America (-11 percent). These were offset globally by South America and China, which saw increased year-over-year volumes of 27 percent and 8 percent, respectively.

Africa, India and the Middle East saw OE volumes rise by 4 percent year over year, while Asia—excluding China and India—saw a 1 percent drop in year-over-year.

Overall, this amounted to a global year-over-year drop of 6 percent.

On the replacement side, however, the strength of the market in the Americas showed through in spite of the uptick of Asian tire imports to the North American region, especially. In North and Central America, Michelin saw year-over-year tire volumes rise by 11 percent.

South America and the region comprising Africa, India and the Middle East each showed a gain of 5 percent year-over-year. China was up 4 percent and Asia—which excludes China and India—was down 4 percent.

Globally, replacement tire volumes were up 3 percent year over year.

Specialty tire segments, meanwhile, faced some significant headwinds.

"Although some fundamentals are positive the demand is impacted, especially for mining, by the inventory drawdown," Chapot said. "The beyond road markets are globally depressed with the very strong drop in original equipment for agriculture, infrastructure and construction with a double-digit drop during the quarter."

Within ag tires, where OE markets are more cyclical, adverse weather events and farming income reductions led to steep declines in sales, Michelin said. The replacement side of the ag market was fairly flat year-over-year.

"Demand for Infrastructure tires contracted over the period, dampened by the slowdown in homebuilding, particularly in Europe," Michelin said. "Business was more resilient in North America, however, supported by the growth in public spending and homebuilding."

In the Beyond Tires space, Michelin is encouraged by demand within the conveyor belt market, which it said "remains buoyant." Demand for service offerings also continues to grow.

"In the other Polymer Composite Solutions markets, which concern a variety of verticals, global demand is still returning to normal levels as built-up inventory is reduced across the value chain," Michelin said. "In the engineered films and fabrics segment, for example, the luxury leisure marine market is seeing a sharp slowdown from the very strong demand experienced in the two post-COVID years."