Tyre maker Michelin has warned that achieving its financial targets for the year would be harder due to higher commodity prices.
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Reuters said the company echoed recent comments by rivals Continental and Bridgestone as it highlighted the risk to earnings from soaring rubber and other raw material prices and a slide in the value of the dollar.
Managing partner Edouard Michelin reportedly told shareholders it was becoming particularly difficult to pass on higher rubber prices to the truck tyre market.
The company said it was sticking to its goal this year of repeating last year’s core operating margin of 8.8%, but it injected a note of uncertainty that drove down shares.
“We are essentially maintaining our target, but it has become more difficult to reach it,” Edouard Michelin told the company’s annual general meeting, according to Reuters.
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By GlobalDataMichelin reportedly pledged to keep down costs to combat rising commodity prices and said it would continue to increase sale prices when possible.
“We have been able to maintain our operating margin by controlling our production costs, and we intend to continue to do so,” Edouard Michelin said.
“If we don’t raise our own prices to make up for the rise in commodity prices, then our margins would be decimated, and if everyone in the industry was not doing the same thing, then the whole sector would be loss-making,” he said.
But Reuters noted that Michelin added that raising prices was not the group’s “number one priority to boost earnings”, and that its first goal was to offer “better products and services at lower costs”.
Michelin reportedly aims to improve its tyres through innovations such as the airless tyre, a special tyre for Nordic countries and low-energy-consumption tyres in order to be able to command a premium price over competitors.
It is also seeking growth in rapidly developing economies. The company said Asian demand remained buoyant.
On April 25, the world’s biggest tyre group reported a 10.2% rise in first-quarter sales, beating analysts’ forecasts, Reuters said.
But it also raised its outlook for the expected impact of the spike in raw materials such as rubber for 2006 to EUR540m ($US670.8m) from EUR370m.
Michelin said the European truck replacement market had returned to growth, but that this remained to be confirmed in the months to come, while in North America the truck replacement market was contracting, Reuters added.
