(Adds details, analyst comment)
By Rebecca Harrison
PARIS, Oct 22 (Reuters) - High raw materials costs and a strong euro hit sales at Europe's biggest tyre maker Michelin in the third quarter and will push down its operating margin slightly for the full year.
Michelin, based in Clermont-Ferrand, France, said on Wednesday sales fell 1.7 percent to 3.801 billion euros in the year-ago period, meaning nine-month sales fell 4.6 percent to 11.149 billion euros ($13 billion).
The company said its 2003 operating margin would be slightly below last year's level of 7.8 percent, excluding the impact of acquisitions, partly because of a $350 million increase in operating expenses caused by higher material costs.
Michelin said its recent acquisition of Danish tyre distributor Viborg meant 2003 sales would be around 300 million euros higher than last year. However the purchase would knock 20-40 million euros off its operating profit.
It reiterated that its full-year income would be hit by a 300 million euro charge linked to the buy.
Analysts said the sales figures were at the top end of expectations and noted that although the outlook was not that upbeat, it had been largely forecast.
"The figures are good, particularly in terms of volume and price," said Citigroup analyst Thomas Besson. "The stock is falling a bit on the outlook, which is slightly disappointing, although this is mainly down to raw material costs."
Michelin, which vies with U.S.-based Goodyear Tire & Rubber Co and Japan's Bridgestone for world tyre market supremacy, said it expected global tyre markets to be stable for the full year, with demand for trucks slightly higher.
Michelin, also known for its upscale tourism and restaurant guides, had previously given no firm forecasts for 2003 other than to say that it aimed to boost performance and expected flat global tyre markets with a risk of decline. The stock slipped one percent to 33.66 euros in early trade, slightly lagging sector peers.
VOLUMES RISE
Other auto firm and suppliers have also been hit by a rocky car market and a strong euro. France's Valeo posted a fall in third-quarter profits and Goodyear is expected to do the same on Thursday.
Sales in terms of volume rose 2.6 percent in the third quarter but this was erased by a strong euro, with exchange rate fluctuations hitting revenues to the tune of 6.2 percent, or 8.7 percent impact in the nine-month period.
For the full year, Michelin expects sales of tyres for passenger cars and light vehicles to manufacturers to dip three percent in Europe and 4-5 percent in north America, even though some carmakers were starting to raise production in the fourth quarter.
Demand for replacement car and light truck tyres would grow 2-3 percent in Europe and be flat in north America in 2003, while sales of truck tyres would grow in all these markets.
Michelin reiterated the Viborg buy would be consolidated retroactively from April 1 2003 in its accounts in the fourth quarter of this year.