Michelin beat cashflow projections, but what about profits?
When Michelin reported full-year 2012 free cash flow of 1.075 billion euros, financial analysts responded by describing the results as “a strong beat” compared with consensus expectations. However, questions about profitability (and the company’s continued momentum in this respect) remain a subject of discussion amongst the market watchers.
According to Morgan Stanley, Michelin exceeded its expectations and those of the consensus by roughly 600 million euros. Even when you remove the estimated 100 million euros the company generated from the sale of one of its Paris buildings, market analyst community were positively surprised.
That said with pre-tax (EBIT) profit margins coming in at 4 per cent, there was less positive feedback about this metric. In fact Morgan Stanley analysts described this as “light” compared with the consensus of expectations: “…we proved to be too optimistic on profit generation (second half 2012 EBIT was a 13 per cent miss versus Morgan Stanley estimates)…”
The explanation for both the “light” profitability and for the slightly off target predictions came down to the fact that Michelin’s light vehicle tyre segment delivered EBIT results 100 million euros lighter than expected. Looking forward, the analysts raised questions about how much of Michelin’s impressive 2012 cash generation was driven by decreasing volumes and favourable raw materials and therefore offers less of a long-term gain.