The world’s largest tire maker is tipping its hand early. Profits may fall a fifth below forecasts. Free cash flow will be between €1.5 and €1.8bn this year, largely due to a drop in working capital that betrays slowing business.
The US market is weighing heaviest on Michelin. Tech may be strutting, Trump may be crowing, but American industry — especially trucking — is still a grind. Tariffs aren’t helping, either.
Cash flow flagged trouble last year. Now the stock is down a quarter, and earnings back near 2017 levels. Net debt quadrupled since then, courtesy of acquisitions. So far they’ve been a polite handshake, not a fireworks show.
You can’t fault the steering though. Management is disciplined and capable. But the tire business remains a capital-hungry, cutthroat pond, with returns on capital that’ll never make you swoon. And the world has changed. Interest rates bite harder now.
Valuation flirts with its historical floor of one times book value, a floor it’s tested exactly once, briefly, and that was in 2009 during the subprime circus.
Share buybacks continue, while the hefty dividend stays very well covered. Michelin could be a nice buy at those levels. Kind of a boring buy, until it isn’t.