20.6% Fall in Sales, 78% Fall in Operating Income for Michelin in H1

  • 2020-07-29 12:00:00
  • Reporter

The French tire giant Michelin recently announced its financial results for the January to June 2020 period, which was characterized by the coronavirus pandemic. The crisis brought on by the pandemic has been as intense as it is unprecedented, according to the company, which says it has demonstrated its resilience through this most challenging of times. 

Nonetheless, collapsing demand led to sales falling by 20.6% during the period, at 9,357 units, compared to 11,781 in the same period of 2019. There was a 22.4% decline in volume, leading to a deep fixed cost shortfall. Segment operating income plunged 78.5% during the first half at 310 million euro ($363.4 million), compared to 1438 million euro during the same period last year. 

Michelin says that the first half saw a  0.3% gain from assertive pricing policy at a time of falling raw material prices and a 1.6% gain from the still buoyant mix, reflecting market share gains in the 18-inch tire and larger segment and resilience in the specialty businesses. 

Michelin saw a 192 million euro ($225 million) cut in SG&A (Selling, General and Administrative Expenses) costs during the first six months of this year, excluding 77 million euro ($90.2 million) in exceptional outlays directly related to the coronavirus pandemic. 

The Clermont-Ferrand headquartered company noted that the COVID-19 crisis and the resulting lockdown policies applied by governments in most parts of the world led to an “unprecedented slowdown in economic activity” during the first six months of 2020. This resulted in a steep plunge in tire demand in every geographic region and most of the business segments.  

During the first half of 2020,           Michelin says global sales of OE and Replacement Passenger car and Light truck tires fell by 24% in terms of numbers of tires sold

Global unit sales of OE passenger car and light truck tires were down 34% during the period, as coronavirus outbreaks spread across the world and lockdowns caused economic activity to come to a near-halt. Global OE tire demand fell by 22% during the first quarter, mainly due to the 46% fall in China which went into lockdown mode earlier than other countries. Global OE tire demand fell 45% during the second quarter, as the pandemic spread and auto manufacturing plants across European and US markets were shut down.  

Europe saw OE tire demand fall 62% (with a low point of a 94% decline in April), while demand fell by 70% in North America (with a low point of 99% in April), and by 84% in South America (plunging by 100% in April). Meanwhile, demand in China continued to recover in the second quarter, rising 8%. The other regions (Africa-India-Middle East and Asia excluding China) were also impacted by lockdown policies. 

The global Replacement passenger and light truck tire market ended the first half of 2020 by falling by a historic 21%. Demand fell by 11% in the first quarter, since only China and a few smaller Asian countries were impacted, but was down to 30% in the second quarter, as the COVID-19 outbreak spread across the world, leading to lockdowns across most nations. 

The full impact of lockdown measures hit Europe in the second quarter, causing a  30% in demand for replacement tires, as compared to the year-ago period. The decline was most pronounced in France, Spain and Italy, where tight lockdowns were implemented. This decline eased to 12% in the month of June. 

Michelin says that the fall in demand for its replacement passenger and light truck tires in North America, the collapse in demand was particularly steep in   April and May, leading to a 33% fall in the second quarter. In a difficult economy, consumers shifted to more entry-level tires. In South America, Michelin’s replacement tire sales fell just 1% in the first quarter, but demand plummeted to 52% during the second quarter. Meanwhile, China’s demand for Michelin’s replacement passenger and light truck tires was down 31% during the first quarter, when the COVID-19 outbreak and lockdown first occurred, but the market returned to growth in the second quarter, up 3%.  

In Africa-India-Middle East, the company said Replacement demand suffered both due to the coronavirus crisis and the collapse in oil prices, which impacted  economic instability in the region. 

Demand in Southeast Asia for the company’s replacement tires was down 8% during the first quarter, falling 25% during the April to June 2020 quarter. 

Regarding sales of truck tires (radial and bias), Michelin says the number of new truck tires it sold globally fell by 18% during the first half of 2020, hit by the collapse in freight demand at a time of economic crisis. The second-quarter performance was in line with first-quarter trends. 

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