Are tyre pricing trends improving?
Following Michelin’s reporting of third quarter 2015 revenues that were slightly ahead of expectations at 5.309 billion euros on Friday 23 October, financial analysts predict that the French tyre manufacturer’s share price will respond positively as a result. However, what will perhaps be of wider interest was their suggestion that tyre pricing – which has taken a battering during 2015 – is improving.
Writing in an investor’s note issued after the financial results were announced, Morgan Stanley analysts wrote that they believe industry “pricing trends have improved”. This is said to be particularly the case in the passenger car tyre segment was price/mix was described as “slightly positive for the first time in several quarters”.
Bringing it back to Michelin’s third quarter financials, the analysts wrote that the aforementioned pricing improvement should support margin expansion in the second half of 2015. And as a result of this thesis, Morgan Stanley increased its 2015 estimated earnings per share for Michelin by 5 per cent to 7.88 euros and its share price target to 82 euros.
However, if Morgan Stanley is right, the bank’s observation has wider impact than Michelin alone – we could be witnessing some kind of tyre price recovery, which will no doubt result in increased margin for shrewd businesses across the supply chain.