Michelin’s volume recovery falls short; 2027 profit recovery depends more on product mix and price increases
Michelin’s third-quarter volumes fell below consensus, while a tariff refund supports its full-year profit growth guidance. Bernstein cut its 2027 earnings forecast and price target but remains positive on a medium-term recovery. The ability to pass higher raw material costs on to customers is a key condition.
Original source：BernsteinFirst published on Unhidea：Original source date：
Key takeaway
After volumes recovered less than expected, Michelin’s profit recovery depends mainly on an improved product mix and cost pass-through. Bernstein maintains its Outperform rating but has lowered its earnings forecast and price target.
What actually fell short of expectations in the third quarter?
Michelin’s third-quarter 2026 revenue was 6.488 billion euros, up 3.9% year on year but 0.9% below the company-compiled market consensus. The main shortfall was in volumes: they fell 0.6% year on year, versus consensus expectations for growth of 0.6%. Price and product mix together contributed 1.5%, also slightly below the consensus estimate of 1.7%.
Volumes have declined year on year for 18 consecutive quarters. This was particularly disappointing because disruption to US distribution in the same period of 2025 created a low comparison base, and the US truck cycle was recovering, factors that had been expected to help volumes return to growth.
Was European weakness merely the result of advance channel stockpiling?
The company attributed weak volumes to European dealers stockpiling Chinese tires ahead of EU tariffs, further deterioration in the agricultural equipment cycle, and lower-than-expected vehicle production. Advance purchases depressed subsequent ordering demand, and Bernstein believes data also support the latter two explanations.
But European passenger-car replacement tire performance points to a market-share issue: the local market for tires of 18 inches and above continued to grow at a double-digit rate, and imports fell after the tariffs took effect, yet Michelin’s volumes declined. Bernstein therefore believes the company may have lost some share to peers, most likely in winter tires.
The company expects volumes to decline slightly again in the fourth quarter. Bernstein consequently changed its forecast for second-half 2026 volumes from growth of 1.6% to a decline of 0.5%, lowering the starting point for the full-year recovery.
Why can full-year profit guidance be maintained despite weaker volumes?
Michelin still guides for year-on-year EBIT growth in 2026 at constant exchange rates and scope of operations, supported by a 80 million-euro tariff refund booked in the second half. This gain was not included in guidance at the time of the half-year report, and Bernstein does not expect any further refunds.
This allows guidance to be maintained even as operations weaken. Bernstein expects an adjusted EBIT margin of 9.6% in the second half, below 11.4% in the first half. The drag from raw material costs will also increase in the fourth quarter, while a higher share of original-equipment tires associated with increased North American truck production will reduce the product-mix contribution.
What will drive the 2027 profit recovery, and what conditions must be met?
Bernstein cut its 2027 adjusted EBIT forecast by 6% to 3.13 billion euros, still an increase of approximately 380 million euros from its 2026 forecast. Around 200 million euros of that increase comes from changes in scope of operations and exchange rates; the remaining approximately 7% in organic growth relies mainly on an improved product mix.
The contribution from volumes is limited: the bank expects volumes to grow only 0.6% in 2027, below the Visible Alpha consensus of 1.1%, with all growth coming from truck and off-road businesses. The earnings recovery therefore does not depend on a broad-based rebound in volumes.
A more important condition is that price increases cover costs. Raw materials accounted for 41% of Michelin’s costs in 2025. The company expects cost inflation of more than 400 million euros in 2026, including approximately 300 million euros in raw material costs and 100 million euros in energy, logistics and other costs. Bernstein expects the raw material impact to be greatest in the first half of 2027; its base case is that the costs are ultimately passed on to consumers. If the company’s historical ability to pass through costs fails, the profit recovery will come under significant pressure.
Why maintain Outperform despite a lower price target?
Bernstein lowered its price target from 38 euros to 36 euros, approximately 17% above the 21 October closing price of 30.86 euros. The cut reflects lower earnings forecasts; the valuation still uses an EV/EBIT multiple of 8.1 times.
The bank remains positive on the scope for recovery over more than 12 months and expects dividends and buybacks combined to return capital equivalent to 7%–8% of market capitalization. However, Michelin is now its lowest-conviction Outperform pick in the sector, and its near-term performance depends heavily on how the Middle East conflict evolves.
