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Michelin confirms 2022 forecast despite supply constraints

FILE PHOTO: The logo of French tyre maker Michelin is seen on a Formula E racing car during a news conference in Rome

(Reuters) -French tyre maker Michelin on Tuesday reported better-than-expected quarterly sales helped by price increases and confirmed its full-year outlook despite continued supply chain disruption as well as costs linked to inflation.

First-quarter sales rose 19% to 6.48 billion euros, beating a company-provided analyst consensus of 6.34 billion euros.

"In 2022, in a very uncertain environment, markets should show slight growth," Michelin said in a statement, adding that growth in passenger car, truck and speciality business markets would be at the lower end of the ranges initially forecast.

Finance chief Yves Chapot said in a call that the group expects inflation to hit the company by 1 billion euros more than what it had forecast before Russia's invasion of Ukraine in February, mostly from raw materials, bringing its total impact to 2.4 billion euros.

The company's balance sheet exposure to Russia and Ukraine still amounted to roughly 200 million euros, he noted.

The group, whose tyres are used in cars, aircraft, bicycles and industrial equipment, still expects full-year segment operating income to exceed 3.2 billion euros ($3.4 billion) at constant exchange rates and a structural free cash flow above 1.2 billion euros.

"We should be able to be completely resourced between early and mid-June and not rely anymore on any raw material coming from Russia," Chapot added. He did not disclose the origins of the new supplies.

Michelin said last month it was looking for alternative supply sources in Asia and the Middle East.

Until now, nearly 30% of Michelin's carbon black -- used to strengthen rubber in tyres -- was sourced from Eastern Europe, the company said.

European Union sanctions against Russia over its invasion of Ukraine, including a ban on imports of coal and tyres, could further disrupt tyre makers' supply chains still recovering from the pandemic.

Goldman Sachs said in a note from March that the impact of the Ukraine conflict posed risks for tyre markers' supply chains as over half of European production of carbon black comes from Russia and Ukraine.

Michelin said demand for new tyres dropped 14% in March alone.

It added that passenger car and light truck markets grew by 2% in the quarter, as the group's replacement business offset the operational difficulties of manufacturers.

($1 = 0.9385 euro)

(Reporting by Dagmarah Mackos and Olivier CherfanEditing by David Goodman, Mark Potter and Leslie Adler)