Michelin, the world’s second-largest tire maker, raised its earnings target Friday for the year 2015, saying that new plants in Brazil and China will add to profit starting this year.
Operating profit in 2015 will amount to $3.3 billion, compared with an earlier target of $2.6 billion, the Clermont-Ferrand, France, manufacturer said in a statement.
Michelin also said it plans $1.3 billion in cost savings in its industry and service segments over five years.
“Growth in operating income and, given capital expenditure of around [$2.5 billion] for the year, the generation of free cash flow should both be in line with the group’s 2015 objectives,” Michelin said.
The company agreed in September to invest in a tire-making venture in China, adding to its four plants in the world’s biggest car market.
China’s industrywide vehicle sales, including cars, trucks and buses, increased 2.5 percent last year, and U.S. light-vehicle deliveries jumped 10 percent, in contrast to a drop in Europe’s car market of 1.4 percent.
The cost-reduction program will focus on generating savings without any reorganization of operations, co-managing partner Jean-Dominique Senard said in a conference with analysts Friday. Improvement of the truck tire unit’s profitability is among the goals, he said.
Operating profit gained 15 percent in 2011 to $2.5 billion, Michelin said. Net income jumped 39 percent to $1.92 billion, and sales rose 16 percent to $27.3 billion.
Profit last year was helped by price increases that outpaced a $2.3 billion jump in raw material costs, Michelin said. The raw material cost effect this year will be $396 million to $461 million, Senard said at an earlier news conference in Paris.
The average price of natural rubber is likely to decline to $4.05 from $4.60 last year, Michelin said in an online statement.
The tire maker, which ranks second behind Bridgestone Corp. in global production, sold its 9.98 percent stake in South Korea-based Hankook Tire Co. in November, raising as much as $610 million to fund expansion in emerging markets.
Michelin said it plans to hold volume “steady” in 2012 as growth is “favorable” in emerging markets against a “less buoyant” Europe. The company reiterated targets of 25 percent volume growth in the 2011-2015 period and an annual return on capital employed of at least 9 percent.
The tire market this year “will probably be negative in the first half due to the high figures from the previous year,” Senard said. “In the second half, we see a general rebound, meaning that the year as a whole will be stable if there are no surprises.”
The company has adequate funds to cover pension commitments and has moved in the last three to four years to reduce pension risks, lessening its exposure to stock market fluctuations, Senard said. Michelin might have to add some cash to the fund in the future, he said.
Senard will become Michelin’s sole chairman in May when Co-Managing Partner Michel Rollier steps down, the tire manufacturer also said.
Michelin’s North American operations include production of the Uniroyal and BFGoodrich tire brands.
