French tire maker Cie Generale des Etablissements Michelin (ML.FR) Tuesday reported a 24% year-on-year increase in its third-quarter revenue, to EUR4.65 billion, driven by a rebound in demand for tires worldwide that pushed the company's volume sales up by 14% compared to the corresponding period of 2009.

The third-quarter revenue figure was well above an average estimate of EUR4.38 billion among a group of 11 analysts surveyed by the company.

Michelin said it now expects its volume sales will increase by around 12% this year from 2009. Michelin's previous sales guidance has been for volume sales to grow by more than 10%. The company reaffirmed its target of generating positive free cash flow this year and an operating margin of close to 9% despite an expected negative impact of between EUR600 million and EUR650 million from rising raw material costs. It said it will continue its "reactive" policy of passing on higher input costs to its customers.

Price increases during the period more than offset rising raw materials costs, but the product mix deteriorated because sales of original-equipment tires to car manufacturers rose at a faster pace than sales of replacement tires that offer higher margins.

The world's second-largest tire maker after Japan's Bridgestone Corp (5108.TO) said its revenue for the first nine months of this year was 19% above those of the same 2009 period at EUR13 billion. Michelin said it had also benefited from a positive foreign currency impact of EUR338 million in the third quarter and of EUR537 million in the first nine months thanks to favorably fluctuations of the U.S., Canadian and Australian dollars, the Brazilian real and the Mexican peso against the euro.

Last week, Bridgestone said it expects a 21% increase in annual revenue by 2012, with operating profit set to rise by 8% over the period.

Michelin said revenue of its car and light commercial vehicle segment rose by 20% year-on-year in the three months to Sept. 30, while revenue from truck tires was up 27% and that of its specialty tires was 33% above that of a year earlier. It noted that the recovery of global tire markets has been more rapid than was expected at the beginning of this year.

The steep rise in demand for tires from car makers partly reflected the very low levels registered in the third quarter of 2009 as automobile manufacturers cut back production to a build-up of inventories.

Original-equipment sales in the U.S. market fell 22% in the first nine months, while those in Europe were down 9%. By contrast, original-equipment sales surged 37% in Asia as manufacturers located in China and the rest of Asia ramped up their production, and were up 23% in South America. Replacement tire sales declined 3% in the U.S. in the first nine months, but were up 4% in Europe, by 30% in Asia and by 13% in South America.

Earlier this month, Michelin raised EUR1.22 billion through a rights issue to help finance an ambitious capital spending program to add production capacity in the fast-growing markets of Asia and Brazil. the plan calls for the company to add capacity of 150,000 tons, equivalent to more than one new production plant every year.

Michelin is a heavy consumer of natural rubber, and Dominique Senard, one of Michelin's three managing partners, told an analysts' meeting that the price of rubber, which reached record levels this week, is "incredibly high, and probably abnormally high."

"We're not surprised by high raw materials," he said, adding: "We could imagine that it remains at that level for next year." Senard said that Michelin considers a 5% average annual increase in raw material prices to be "standard."

Michelin's head of finance operations, Marc Henry, said that the volume of rubber being sold today "is less than in 2007, so that explains some of the abnormality of this pricing level."

-By David Pearson, Dow Jones Newswires; +33 1 4017 1740; david.pearson@dowjones.com
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