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France's Michelin eked out a higher operating margin in the first half, beating expectations, as a better mix of prices offset a weaker global market and rising costs of materials such as rubber and steel.
The world's largest tyre maker said on Friday its operating margin crept up 0.1 percentage point in the first half to 9.2 percent, above an expected 8.8 percent, and predicted its margin before special items would improve in the full year.
The operating result was boosted by 29 million euros due to higher stocks of finished products, to which Michelin attributes part of its fixed costs, and Finance Director Michel Rollier said this effect would be reversed in the second half.
The stock effect made up 0.4 points of the margin, and the operating margin would have been 8.8 percent - in line with consensus - when this effect is stripped out.
It was the second positive surprise for the market from the tyre industry after Germany's Continental AG posted a strong second-quarter profit while maintaining its full-year profit forecast on Tuesday.
Michelin, however, said the global market was in retreat compared with a buoyant first half of 2004 and singled out an eight percent drop in demand in the European truck sector - apparently reflecting sluggish economic activity in the region for much of the year.
Michelin, caught up in a boom in world commodity prices, predicted its raw material costs would rise 14 to 15 percent in 2005, against initial hopes of containing it to 13 percent.
Full-year raw material costs are seen at 400-450 million euros, while the recovering dollar could add to this.
Michelin said first-half sales rose 0.1 percent to 7.49 billion euros ($9.24 billion) while operating income grew 0.7 percent to 687 million euros, above a median forecast from 13 analysts of 658 million euros.
The consensus was compiled and distributed by Michelin.
Net attributable profit rose 8.9 percent to 389 million euros. Analysts were looking for a bottom-line figure of 318 million to 374 million euros, according to the consensus data.
Michelin is bigger than Japan's Bridgestone Corp and US group Goodyear Tyre & Rubber. The French firm's shares have gained 16 percent so far this year, underperforming smaller German rival Continental by about 18 percent and the DJ Euro Stoxx auto sector index by 4.3 percent.

Copyright Reuters, 2005

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