PARIS (AP) -- French tiremaker Michelin said Wednesday weak demand for replacement tires in Europe and North America and a sharp rise in raw material costs caused net profit to shrink in the first half, and it again lowered its outlook for the full year.
Michelin cited the "troubled and difficult global environment" as it reported a 1.4 percent drop in net profit to 430 million euros ($675 million) in the six months to June 30, down from 437 million euros ($686 million) a year earlier. Michelin blamed the slide on a "significant drop" in the market for replacement tires for passenger cars and light trucks in Europe and North America.
The fall in demand accelerated in May and June, Michelin said.
First-half earnings also were hurt by an increase in the cost of raw materials such as natural rubber and oil byproducts that was "sharper than anyone could have anticipated," Michelin said, estimating that over the full year, extra raw material costs would add up to 750 million euros ($1.18 billion).
The Clermont-Ferrand-based tiremaker also cut its forecast operating margin this year, saying it should "approach" the 8.6 percent level achieved in the first half.
The weakening outlook came despite a raft of price increases, most recently a 9 percent hike in the price of aircraft tires that Michelin announced in late June.
The company's sales fell 1.9 percent in the first half to 8.2 billion euros ($12.9 billion) from 8.4 billion euros ($13.2 billion) a year earlier. Michelin blamed a 0.3 percent drop in demand for replacement tires for passenger cars and light trucks during the first half, with the effect felt most strongly in the U.S. and Western Europe.
The company expects this market to accelerate its decline in the second half, with an estimated 1 percent decline over the full year.
Michelin also forecast an 11 percent annual decline in the North American tire market for new cars and light trucks, after the 12.2 percent slide seen in the first six months of the year.
Michelin last cut its earnings forecast in late April, when it said operating profit this year "should approach" 2007 levels, lowering expectations from mid-February when it said there would be "further progress" in operating income.
Michelin shares fell 0.83 euros ($1.30) or 1.9 percent to 43.32 euros ($68.03).
