(Bloomberg) — Michelin said this year will be just as much of a struggle as 2021 as severe bottlenecks in supply chains and transportation routes drive up costs.
Shares in Michelin dropped as much as 2.9% in early Paris trading Tuesday after the French tire maker published full-year earnings and an outlook for this year based on continuing logistical challenges.
“We anticipate 2022 will be as disrupted as 2021,” Chief Executive Officer Florent Menegaux said Monday during a presentation. The company faced acute transport problems last year, and sometimes had to deal with dozens of supply-chain crises daily, he said.
Michelin “more than offset” 1.2 billion euros ($1.36 billion) in extra costs in 2021 with three price increases, according to the presentation. Another price hike was pushed through at the start of the year and they could be raised again April 1, at least in North America, according to Chief Financial Officer Yves Chapot.
So far there has been “no shift in demand from premium tires to budget brands,” he said in an interview on Bloomberg TV.
Global manufacturers have been facing higher costs and labor shortages in many countries, which has hindered their ability to fill growing demand for goods as economies emerge from the worst of the pandemic. Michelin isn’t alone in raising product prices, with companies like paintmaker Akzo Nobel NV moving ahead with double-digit increases.
Read more: Dutch Paint Maker to Raise Prices Up to 16% on Supply Crunch
Michelin offered a muted outlook for tires for passenger cars and light-trucks, expecting the market to stay stable or grow as much as 4% compared with last year, when shortages in semiconductors crippled vehicle production lines and hurt tire sales to automakers.
Read more: Michelin FY Total Segment Operating Income Meets Estimates
Michelin’s guidance for free cash flow generation this year is below expectations but “could reflect a cautious approach by management,” Citigroup analyst Gabriel Adler said in a note, adding that this caution may also have been applied to the outlook for pricing and cost inflation.
The manufacturer is expecting demand from automakers for tires to equip new vehicles to improve in the second half, and take off in the last quarter, Chapot said. The squeeze on chips has also raised the cost of equipment Michelin needs to upgrade and digitalize its plants, he said.
Acquisitions remain part of Michelin’s longer-term strategy to grow, Menegaux said.
(Adds shares in second paragraph, CFO comments from fourth.)
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