French tyremaker Michelin reported a big increase in first-half profits on Friday but its shares dropped for a second day running because the market had expected even more. Michelin said its net profit had leapt by 58.2 percent in the first half to 436.7 million euros (599 million dollars).
It stressed it was committed to maintaining production in western Europe and North America, at the same time as making inroads in emerging countries. Michelin's strategy was to "invest in emerging countries to serve markets in these countries," Jean-Dominique Denard, the company's financial director said when presenting the results, in a reference to China and Latin America.
Group strategy was also to invest "equally in Europe and North America to make local factories more competitive". He said: "We are absolutely convinced that a strongly performing industrial base in mature regions can be fully competitive with industrial arrangements in emerging countries trying to bring tyres into western countries."
The profits were less than had been forecast by analysts at Exane BNP Paribas and Deutsche Bank, who had predicted figures of 440 million and 465 million euros respectively. Michelin shares, which had lost 6.07 percent a day earlier, shed another 1.86 percent in late morning trade to 91.82 euros on a Parisian market which was 0.41 percent lower.
Michelin said its net profits had been helped by a fall of 97 million euros in restructuring charges on a 12-month comparison. Operating profit before non-recurring items, rose by 33.5 percent to 860.6 million euros, on sales which increased 4.7 percent at 8.401 billion euros.
The operating margin before non-recurring items, a simpler expression of underlying profitability, increased by 2.2 percentage points to 10.2 percent, up from eight percent in the same period a year earlier, thanks to cost cutting and increased sales.
Analysts polled by Thomson Financial had expected a margin of 10 percent. In a statement, the group said despite an anticipated increase in raw-material costs in the second half, it expects the margin to "approach" the first-half level over the full year.
Michelin had registered a 35.7-percent slump in 2006 net profit due to restructuring and surging rubber costs, but had predicted that sales and operating profits would rise sharply this year.
"In the light of healthy demand, despite higher average raw material costs in the second half than in the first, Michelin... confirms that fiscal 2007 should post a substantial improvement relative to financial year 2006", it reiterated on Friday.