PARIS -Shares in French tyre maker Michelin eased slightly on Tuesday morning as investors were split between management’s increased spending guidance catching them by surprise and better than expected annual results.
On a call with analysts late on Monday, Michelin finance chief Yves Chapot said the company will need to increase its capital expenditure in 2022 and 2023 to catch up on projects hit by the pandemic-induced economic slowdown over the past two years.
Michelin says the planned capital expenditure of between 2.1 billion and 2.2 billion euros ($2.4 billion to $2.5 billion) will be used mostly for its tyre business, adding that the free cash flow guidance of more than 1.2 billion euros takes the increased spending into account.
“We have a lot of factories in the world that we need to maintain in good shape (and increase production capacity),” Chapot said, adding that capital expenditure was frozen in the last three quarters of 2020 to safeguard liquidity.
Shares in Michelin, having initially fallen as much as 2.9%, were down 0.4% in early trade, against a 1.3% gain for France’s blue-chip CAC 40 index.
The capex guidance was a surprise, RBC Capital Markets analyst Tom Narayan wrote in a note to clients, though it kept an ‘outperform’ rating on the shares.
“We continue to like owning Michelin in this inflationary environment, especially as chip recovery visibility continues to be poor,” he added, referring to the global semiconductor shortage that has curbed output by carmakers.
Michelin expects this year’s profits to exceed pre-pandemic levels, it said on Monday, having posted better than expected 2021 results, helped by volume and price increases that offset inflationary pressures.
“Michelin delivered very good results in extremely difficult conditions, showcasing dynamic pricing management,” J.P. Morgan analysts wrote in a note.
($1 = 0.8824 euros)