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Investing.com -- Michelin (EPA:MICP) shares jumped over 5% on Thursday following its results, which were posted on Wednesday.
The stock movement reflects a response from investors who found reassurance in the company’s updated 2025 guidance, despite concerns about the sustainability of its projected recovery in the second half of the year.
The French tyre manufacturing company’s outlook was not as weak as initially feared, with the company setting a target of over €3.38 billion in segment operating income at constant foreign exchange rates, slightly exceeding Barclays’ prior expectations of €3.3 billion.
Free cash flow guidance also came in stronger than anticipated, with Michelin forecasting at least €1.7 billion, surpassing Barclays’ projected €1.5 billion.
Despite the relatively optimistic outlook, Barclays (LON:BARC) analysts noted that Michelin’s 2025 guidance is still heavily dependent on a strong recovery in the second half of the year, particularly in original equipment sales.
The company acknowledged on an investor call that they foresee continued volume-related challenges in the first half of 2025, which is expected to weigh on profitability in that period.
Barclays remains cautious on Michelin’s ability to execute a full recovery in the latter half of the year, describing the projections as "wishful thinking at this stage."
Additional factors influencing investor sentiment include anticipated raw material cost headwinds of approximately €250 million, which Michelin expects to partially offset through operational efficiencies and restructuring efforts in the U.S. and Germany.
The company outlined expectations for over €120 million in savings from these initiatives, slightly above Barclays’ forecast of €100 million.
However, analysts warned of potential risks, including limited pricing power, rising labor costs, and less favorable energy and transportation conditions in 2025.
While Michelin’s updated guidance was sufficient to provide some relief to investors, Barclays maintained an "underweight" rating on the stock, citing continued uncertainties in the company’s ability to meet its full-year targets.
The brokerage also noted that a meaningful portion of Michelin’s 2024 performance was supported by one-off factors, such as a partial reversal of super bonus-related provisions from 2023, which may not be repeatable.
(Pratyush Thakur contributed to this article).