Michelin’s stock plummeted by 5.94% after the company revised its 2024 operating profit target downward, now anticipating approximately €3.4 billion in operating income. This adjustment follows a forecasted sales volume decline of 4-6%, compared to previous estimates of 2-5%. CEO Florent Menegaux cited adverse economic, climatic, and geopolitical factors affecting sales. Despite the challenges, free cash flow projections improved to over €1.7 billion. Analysts maintain mixed ratings, with some highlighting weakness in specific market segments.
Michelin Faces Major Decline in Stock Following Profit Forecast Cut
Michelin’s stock plummeted by 5.94% to €31.80, one of the steepest drops in the CAC 40 index, after the tire manufacturer revised its 2024 operating profit expectations downward. The company now anticipates an operating income of approximately €3.4 billion at constant exchange rates, down from a prior estimate of more than €3.5 billion. Additionally, annual sales volumes are projected to decline by 4% to 6%, compared to earlier forecasts of a 2% to 5% decrease.
The forecast for free cash flow, prior to acquisitions, is now set at over €1.7 billion, an increase from the previous estimate of over €1.5 billion.
Florent Menegaux, the Chairman of Michelin, stated, “For several months, we have been grappling with increasingly severe economic, climatic, and geopolitical challenges. These factors have drastically affected most of our markets, particularly in the First Monte region, leading to a notable drop in sales volumes and reduced plant activity.”
Jefferies has maintained a ‘Hold’ rating on Michelin, with a target price of €34. The analyst predicts that the decrease in sector operating profit forecasts may take the market by surprise, noting that Michelin typically adheres to its projections. A reduction of 5% to 7% in the consensus for operating income is anticipated.
Despite the challenges, UBS continues to rate Michelin as ‘Buy’ with a target price of €43, although they acknowledge a downturn in the Specialty and Original Equipment segments, attributing lower-than-expected sales to sluggish volume growth.
OEM Segment Sees Significant Slowdown Amid Mixed Performance
The company’s volumes decreased by 5.3% in the reported period, with a steeper 7.1% drop in the third quarter. This decline is attributed to a significant slowdown in the Original Equipment (OE) sector across all segments, cyclical constraints in the Mining sector, and a continued focus on specific market segments. However, Michelin highlights strong performance in its more lucrative segments.
Sales for passenger car and light truck tires, particularly those 18 inches and larger, saw robust growth, reinforcing Michelin’s market share. The Mining division also gained ground in targeted markets.
Furthermore, the company’s mix effect has improved, now standing at 2%, reflecting performance in prioritized segments across all lines of business. The free cash flow forecast before acquisitions remains optimistic at over €1.7 billion, compared to previous estimates.
In summary, Michelin is navigating significant external challenges, impacting its sales and operating projections, but continues to show resilience in specific market segments.