CLERMONT-FERRAND, France—Marginal upswings in global original equipment markets and strong performances in the specialty tire segments were enough to help Michelin overcome sluggish replacement tire demand. And that added up to a solid enough first quarter.
It was a quarter during which the Clermont-Ferrand-based tire maker saw consolidated sales rise by 7.4 percent to around $7.7 billion. And that is growth that comes despite a 6.6-percent decline in unit volumes, due mainly to destocking.
"The first quarter of 2022 was characterized by strong inflation and supply disruptions exacerbated at the end of the quarter by the conflict in Ukraine," Yves Chapot, Michelin Group general manager and chief financial officer, said during an investors call. "On the other end, in 2023, as the supply chain has improved, we have observed that distributors tend to reduce inventory. Overall, sell-in markets tendency was below sell-out markets."
First-quarter sales across Michelin's specialty businesses were up 16.4 percent year-over-year, coming in at $1.94 billion. This includes sales of ag, construction, mining, two-wheeler and aircraft tires as well as conveyor belting and specialty polymers.
The outlook for ag and mining tires remains particularly favorable, though construction tire demand appears to be leveling, Michelin said.
Conveyor belting, likewise, is showing promise for continued growth, Michelin said, noting that "the market remains robust, both in the mining segment, driven by demand for commodities, and in the manufacturing segment, supported by high capital spending."
Automotive sales, meanwhile, reached $3.79 billion, marking a 6.2-percent year-over-over increase, while road transportation sales grew by 1.3 percent compared to Q1 2022, coming in at $1.86 billion.
These are the kinds of trends that Michelin expects to see throughout the year.
"For the time being, that is our view," Chapot said. "It should be pretty balanced between the two semesters. But don't forget that, generally, in our industry, we tend to have a stronger H2 than H1 because of the volume, because of the (seasonality) of the business. We generally have stronger sales between August—starting in August in North America—until the month of November.
"So, for the time being, our expectation is to have balanced earnings among segment operating incoming among the two halves."
First-quarter passenger and light truck replacement demand was down about 4 percent globally year-over-year, while original equipment demand was relatively flat—up just 1 percent compared to 2022.
In North and Central America, OE demand was up 8 percent in the first quarter compared to the previous year, while replacement demand dropped 7 percent year-over-year.
Europe's first-quarter P/LT replacement market was down around 9 percent compared to 2022, while OE increased by 14 percent.
China saw a 14-percent decrease in first-quarter OE P/LT demand, while the replacement market saw a 3-percent increase. OE P/LT demand was up 9 percent in Asia—excluding China—while replacement demand dropped 4 percent.
South America was the only region to see increased demand for OE and RT, recording 9-percent year-over-year increases for both.
On the truck tire side, global OE demand grew by about 4 percent year-over-year in the first quarter, with Europe (10 percent) and the Americas (9 percent) showing the strongest demand.
Replacement tire demand dropped 4 percent in North and Central America, while European RT demand fell by 14 percent.
"I think the U.S. truck tire (market) was quite weak in March," Chapot said of the RT sales figures. "… It is a segment that has been heavily penalized in 2022 by supply chain disruptions. And, as the supply has improved, what we are seeing, basically, is fleets and dealers reducing their inventory, reducing the safety inventory they built during the tight supply chain environment.
"On the other end, we are still seeing very buoyant original equipment demand, both in Europe and North America as, more and more demanding environmental (expectations) are pushing fleets to look for performance, particularly in the rolling resistance and more efficient tires."
OE and replacement truck tire demand was up 7 percent and 4 percent, respectively, in Africa, India and the Middle East. Meanwhile, Asia (excluding China) saw a 5 percent increase in OE demand, but experienced a 7-percent drop in replacement tire demand.
In China, demand for OE truck tires was relatively flat (up just 1 percent), while replacement tire demand grew by 10 percent.
South American OE demand weighed heaviest, on the segment, dropping by 18 percent. RT demand was relatively flat, showing a 1 percent improvement.
The volatility of demand aside, there is good news on the horizon. Chapot was quick to note that the company's around and beyond tire products and services are offering silver linings for the months ahead.
"As our non-tire sales growth is concerned, we pushed 15-percent (growth) in Q1 2023, but it is 15 percent on top of the 22-percent growth we saw in 2022," Chapot said. "… What we are seeing in both fleet management—what we call Michelin Connected Mobility—and high-tech materials is very positive trends for the time being."
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