(BFM Bourse) – According to several analysts, the company held a briefing with analysts in anticipation of its first-half results. According to Bernstein, the tire maker mentioned lower-than-expected sales volumes for the second quarter.
Conference calls organized by companies with analysts can sometimes have a great influence on the stock price. As we wrote in a previous article, this is the case for “calls” organized following the publication of results.
But it also happens that some listed groups hold conferences before the publication of their results. This is before the “quiet period” of several days (between two weeks and a month), which precedes these publications and during which the companies no longer give indications to the market.
According to several analysts, Michelin held a “call” of this nature, giving certain orientations on its activity and its results before the publication of its half-yearly accounts, which will be published on July 24.
The company has, a priori, delivered more elements likely to worry the market than to reassure it. Around 10:30, Michelin shares fell 3.3%, the second largest decline in the CAC 40.
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A more complicated market than expected
Stifel explains that the company expects its sales volumes to constitute a significant “headwind” both in the second quarter and for the full year 2024. To the point where the evolution of volumes for the full year should be around a decline of 2.5% while the consensus was counting on a decline limited to 0.2%, the bank continues.
Bernstein writes that Michelin anticipates volumes down 5% to 6% in the second quarter alone, while the consensus, according to the research firm, is -1.4% for the same period. Furthermore, the second half should be slightly down, while the consensus anticipated a positive impact of volumes. As a result, volumes should approach a 3% drop over the whole of 2024, while Michelin had indicated at the beginning of the year that it anticipated a variation of between 0% and -2%.
“This underperformance is attributed by Michelin to the market and its approach to value rather than volume, which is consistent with our thesis that the company can compensate for weak volumes through ‘mix’ (the orientation of sales towards geographies and/or products with higher prices and margins, editor’s note)”, writes Bernstein.
The right mix
Precisely, the “mix” will have a positive impact on the group’s accounts. Bernstein explains that the company expects a robust positive impact throughout 2024, with a second quarter that could be more vigorous than the first (where the positive impact was 1.6%).
Stifel notes that cash generation could be positive in the first half of the year, which is not usually the case for Michelin due to seasonal effects. The group normally has to absorb a significant working capital requirement in the first six months of the year. However, in the first six months of 2024, the company should benefit from lower inventory build-ups (due to lower volumes) and dividend payments from joint ventures.
At its investor day held at the end of May, Michelin had indicated that it expected a modest impact from volumes in the medium term. To increase its operating margin for the sectors, its key profitability indicator, from 12.6% in 2023 to 14% in 2030 (and from €3.6 billion to €4.2 billion for the corresponding operating income), the group is counting more on the “mix”, and to a lesser extent on its non-tire activities and its operational performance.
For several years, Michelin has been pursuing an upmarket strategy that has led it to focus on higher-margin products, such as large tires for SUVs, tires for mining equipment and in “specialty sectors”, such as aeronautics or tractors. These initiatives have allowed it to benefit from a “pricing power” appreciated by the market and analysts and to improve its product “mix”.
Julien Marion – ©2024 BFM Bourse
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