Morgan Stanley: Michelin Revenues to Grow 7% in 2010

Although Michelin managing partner Michel Rollier has expressed doubt that the tyre major’s revenues will increase in 2010, other expert opinions differ. Morgan Stanley Research Europe stated on November 24 that “we expect revenue growth of seven per cent – far more optimistic than Michelin management's recent outlook of no growth.” This prediction is even more optimistic than the Bloomberg survey of analysts that netted an average estimate of revenues rising by 4.3 per cent to 15.4 billion euros. To expand on the Morgan Stanley projection, an expected ten per cent volume growth should be partially offset by a three per cent decline in price/mix.

A seven per cent revenue growth, notes Morgan Stanley, leaves Michelin with a 6.1 per cent EBIT margin, compared with a long-term average of 7.5 per cent in a market environment that is still difficult. Morgan Stanley also forecasts tyre prices to decline one per cent year-on-year during 2010, which it believes still implies “pretty healthy pricing” after the increases put through over the previous two years: “Recent declines in raw material prices appear to be a relief, but falling volume and excess capacity likely precipitate a negative pricing trend. Inventory reduction created the illusion of pricing discipline that we expect will be eroded away over the next 6 to 12 months.”