Michelin Profits Plunge 42% on Restructuring Costs

French tyre manufacturer Michelin's first-half year profits plunged on higher restructuring costs amid flat demand from key markets.

Europe's largest tyremaker's net profits plummeted by 42% on year, to €507m ($671m, £436m), for the six months ending in June.

The decline was primarily due to a €250m restructuring charge in the period.

Sales for the period were also down 5.1% to €10.16bn. The company said weaker pricing accounted for €242m of the sales decline.

Demand for car tyres also declined 3-4% in Europe, where sales of new vehicles slumped due to the ongoing financial crisis.

However, tyre sales in the US rose 4%.

Michelin noted that demand picked up in the second quarter, following a weak start to the year.

In Europe, demand increased by 4% in the second quarter after an 11% decline in the first three months of the year.

Full-Year Outlook Confirmed

Despite the plummet in profits, Michelin CEO Jean Dominique Senard said the results were in-line with the company's full-year goals.

He also confirmed Michelin's full-year outlook as he expects modest growth in volumes in the second half.

"Michelin's first-half performance was in line with the 2013 objectives and attests to the Group's continuous improvement as it moves forward in its New Phase of Dynamic Growth," he said in a statement.

"The Group confirms its objectives for 2013, with the target of reporting stable operating income before non-recurring items, a more than 10% return on capital employed and positive free cash flow."

The company noted that lower raw material prices in the second half will add about €350m to operating income for the full year.

Furthermore, Michelin has planned a €2bn capital expenditure to expand in emerging markets, such as China, which is expected to add new production capacity and support growth.

The plan to offset the weak economic outlook and saturated vehicle markets at home is also expected to improve competitiveness in mature markets and drive technological innovation.

Plant Closures and Job Cuts

In June, Michelin announced that it would end production of heavy-truck tires at a French factory in Joue-les-Tours by the end of 2015.

The move would result in about 730 of the plant's 930 employees losing their jobs.

Michelin is also selling its tire activities in Algeria.

The company added that it wants to roll out flexible-work rules at all its 17 factories in France by mid-2014 to adjust the market contraction in Europe.