Michelin is continuing to say that its earnings and sales will improve this year and expects higher raw-material prices to limit growth in the second half.
“Raw-material prices are and will continue to rise and put pressure on margins,” CEO Edouard Michelin told French newspaper Le Figaro in an interview published on Thursday, according to Reuters.
“You can’t extrapolate our results for the whole year from the first half onwards, particularly regarding operating margins,” he said. The company’s first-half operating margin – operating profit as a percentage of sales – was 8.9%.
He said that a 10% increase in raw-material costs meant the company would raise its prices by 2% “to avoid the erosion of margins and to remain competitive”.
Raw-material costs take up about 20% of Michelin sales, he said, according to Reuters.
The news agency noted tha company’s first-half net profit doubled to $US392.9 million as price increases and fewer one-off charges offset rising rubber costs, putting it on track to meet its target of higher full-year profitability.
Growth in demand would slow in the second half, the company said at its earnings presentation in July, and it would have to weather a 6% to 7% rise in raw-material costs compared with the first half.
“For sure we are constantly improving our productivity,” Michelin reportedly told Le Figaro. “But if the price increases for raw materials persist we will continue to raise our tariffs.”
Reuters noted that Michelin said in July that raw-material costs in the second half could outpace prices, especially in north America. A jump in raw-material costs, particularly rubber and steel, had lopped $228 million off Michelin’s first-half operating profit.