Michelin, the world's largest tire maker, cut its full-year operating profit margin goal in the face of rising prices for rubber and energy and sluggish markets for its products, mainly in North America.
The French company said first half operating income dropped 6.2 per cent to E644.7 million, below a median analysts consensus of €667 million.
Its shares were indicated two per cent down before the market opening.
The company said it now expected a full-year operating margin, before non-recurring items, of close to eight per cent, below its previous target of 8.8 per cent. And it raised its estimate for the full year impact of costlier raw materials to €800 million from €540 million.
"The massive increase in raw material costs, plus 21 per cent compared to the first half of 2005 representing an additional cost of €352 million, weighed on Michelin's operating performance," it said in a statement.
Michelin said that trends observed in the first half were expected to continue in the second half. The North American replacement market was expected to remain depressed but in Europe these markets should be robust.
It said it had implemented new price increases that would become effective in the second half, in order "to limit as much as possible, the negative effects of these headwinds," it added, referring to 55 per cent and 39 per cent rises in two kinds of natural rubber.
Sales grew 7.1 per cent to E8.02 billion versus a median expectation of €8.07 billion, while net income fell 28.2 per cent to 276.9 million. Michelin said the net figure was down primarily because of restructuring charges for the closing of the BF Goodrich plant in Kitchener, Canada.
"Over the past two and half years, the repeated increases in raw material prices have deteriorated Michelin's costs by more than one billion euros," managing partner Michel Rollier said in a statement.
"As the group is finding it difficult to fully compensate for this evolution, it is becoming essential to accelerate the productivity improvement and cost reduction programs that are already in place," he added.
Shares in Michelin plunged on May 12 when late managing partner Edouard Michelin told an annual shareholders' meeting that rising rubber and steel prices would make it difficult to achieve its goal of repeating last year's core operating margin of 8.8 per cent.
Mr Rollier has been sole managing partner since Michelin's death that same month.
Rubber prices are at multi-year highs because of lower output of the raw material from Thailand, Indonesia and Malaysia and strong demand, notably from China. Growing global demand has also pushed up oil and steel prices.
The truck tire segment, which uses more rubber and steel, is especially sensitive to price rises.