Michelin's tires are running out of air

By Laurence Frost | February 14, 2009, Saturday |

Print Edition

MICHELIN & Cie, the world's second-largest tire maker, pledged to slash spending after profit fell 53 percent last year because of declining sales, more expensive raw materials and the cost of scaling back production.

Net income dropped to 360 million euros (US$465 million), or 2.46 euros a share, from 774 million euros, or 5.22 euros, a year earlier, the French company said in a statement yesterday. It will cut investment by almost half -- from 1.3 billion euros last year to 700 million euros this year.

"Michelin likes spending money so a cut this large shows they're seriously focused on cash preservation in 2009" and "will get investors' attention," said London-based Morgan Stanley analyst Adam Jonas, who says Michelin stock is "underweight."

Michelin's sales and earnings are being squeezed by the slowdown in car production and a weakening demand for replacement truck tires as freight carriers and construction companies lose business.

Michelin cut its profitability goal for 2008 three times last year and said in December that production cuts would wipe a further 150 million euros from profit.

Michelin stock rose as much as 1.14 euros, or 3.7 percent, to 32.10 euros in early Paris trading, paring the stock's decline this year to 16 percent.

The tire maker has a "bearish outlook for the coming months," Chief Executive Michel Rollier said in the statement. The company gave no sales or earnings forecasts for this year.

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Michelin's tires are running out of air

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