Shares in Michelin fell by as much as 5% on Tuesday after the French tyre maker reported a decline in full-year earnings followed by a cautious outlook for 2015.
The manufacturer, which is based in Clermont-Ferrand, reported full-year net income down 8.5% at EUR1.03 billion for 2014, missing the average analyst expectations for EUR1.29 billion in earnings.
The company blamed cut-throat competition for its entry-level brands, sluggish demand in emerging markets such as Russia, Latin America and parts of Southeast Asia and a sharp decline in sales of speciality tyres to customers in the agricultural and mining industries.
Michelin is engaged in a sweeping cost-cutting programme as it tries to address its problems with aggressive pricing in mass-market car tyres — to which it has bigger exposure than its rivals, Pirelli of Italy and Germany’s Continental — and still weak demand in some parts of the passenger car and truck tyre market.
For instance, demand from European truck makers fell 9% — thanks to a sharp drop in Eastern Europe — with the decline accelerating in the fourth quarter.
Stuart Pearson, analyst at Exane BNP Paribas, said the falling rubber price was meanwhile exacerbating the pricing competition for Michelin. “The issue is, when you have lower raw materials costs overall, it’s hard to maintain discipline [across the market],” he said.
Michelin has moved aggressively to slash costs over the past decade, closing factories in the UK, mainland Europe and North Africa while cutting back production lines elsewhere.
Jean-Dominique Sénard, chief executive, said the company would now accelerate its latest cost-cutting plan, promising to achieve EUR1.2 billion in savings for the period 2012-16, up from a previous EUR1 billion planned programme of cuts.
Full-year sales came in at EUR19.6 billion, down from EUR20.2 billion in 2013. Unit volumes rose 0.7%, though this was less than the 1-2 % growth forecast in October — itself a target that had been revised downwards from guidance for 3 % growth.
The company expects volumes to grow “in line with global trends” in 2015 — though it did not go into more detail — with the speciality agricultural market declining further.
Kristina Church, analyst at Barclays, said: “In theory, you would think they would start to play catch-up. Given their brand premium, why are they not expecting to outperform the market?”
Michelin shares closed down 2.6% at EUR84.13.