(Updates shares, adds Viborg details paragraphs 10-11)
By Rebecca Harrison
PARIS, Oct 22 (Reuters) - High raw material 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 for the full year.
Michelin, based in Clermont-Ferrand, France, said on Wednesday sales fell 1.7 percent to 3.8 billion euros in the year-ago period, meaning nine-month sales fell 4.6 percent to 11.15 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, although the purchase would knock 20-40 million euros off its operating profit.
Analysts said the sales figures were at the top end of expectations but the gloomier outlook sent Michelin's shares down almost four percent.
"The figures are good, particularly in terms of volume and price," said Citigroup analyst Thomas Besson. "The stock is falling 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 supremacy in the world tyre market, 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 fell 3.8 percent to 32.71 euros, lagging the DJ Stoxx Autos index which fell 0.9 percent.
VOLUMES RISE
The company reiterated its full-year income would be hit by a 300 million euro charge to cover restructuring at newly acquired Viborg, and said the loss-making business would not break even for at least another year.
"The situation is improving but Viborg is not back in the black yet and not expected to be in the black before the end of 2004 or early 2005", head of investor relations Eric Le Corre told a conference call.
Other auto firms 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.