Compagnie Generale des Etablissements Michelin SCA
PAR:ML
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
29.81
38.37
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Compagnie Generale des Etablissements Michelin SCA
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the Michelin Conference Call. This conference call will be conducted by Mr. Florent Menegaux, Chief Executive Officer; and Mr. Yves Chapot, General Manager and Group CFO. You are able to download the presentation from Michelin Corporate website.I now hand over to Florent Menegaux and Yves Chapot. Gentlemen, please go ahead.
Ladies and gentlemen, good evening. I'm very pleased to have the opportunity to share with you our sales for the third quarter of 2020. Overall, at the end of September 2020, our sales land at EUR 14.9 billion, down 15% at constant exchange rate versus the previous year. With the Q3, which has been better than what we expected, with sales down 5% at constant exchange rates. Of course, after the, let's say, the peak of the crisis during the Q2 with the global tire demand has raised in Q3, passenger car and light truck tires demand has been declining by 6% in Q3 after much more favorable drop during the first half. The truck market also have ended the first 9 months, down 14%, then they were mostly, let's say, pulled by a strong demand in original equipment in the Chinese market. And the specialties remain overall in the same trend than the first half with a rebound in agriculture and 2 wheels, which have offset the slowdown in mining, and in, of course, aircraft business. Mining, let's say, having recognized the effect of the health crisis with a slight lag versus the other activities. So our sales for full 9 months have been down by 16.8% year-on-year, including 1.7 point of ForEx effect. So we can break down this sales by evolution by volume first, minus 17%, but with a stronger-than-expected third quarter, which was down by 6.7%., we have gained market share in the automotive and specialty businesses and on the road transportation businesses, our market share has been held by the unfavorable geographical mix. We have still a strong price-mix effect of 1.7%, thanks to the strength of the Michelin brand and our market share gain in premium segments, and of course, our discipline in managing our prices over the different businesses, particularly in some regions, I'm thinking about South America, for example, where we have been -- we have seen the strong devaluation of the currencies, and we have raised the price in most of these markets, several times during the summer.And then we have a 0.3 point net increase from change in scope of business, but which is, let's say, fading away due to the acquisition, which were mostly done during the first half of 2019. The group remained very strong financially. And the last proof is our syndicated revolving credit facility that we have renewed and raised at EUR 2.5 billion last week. And of course with this credit facility -- the cost of this credit facility is now included some social and environment criteria.Last, we have revised -- we'll be revising our guidance upwards for 2020, taking into account our new market forecast, and of course, the cost reductions particularly in the context of the COVID-19 crisis.So first market on -- you have here the seconds of the market by quarter. Automotive market are down by 17%, but with a much stronger third quarter than expected with minus 6%, both by the way, in original equipment and replacement. In worldwide, with Europe at minus 8%, North America at plus 6%, mostly pulled by the Tier 3 brands, imported brands or non-tool brands in the North American market on the replacement market. And China, which has shown a very strong growth during the quarter plus 7% at original equipment and plus 10% replacement. On the truck market side, the market is down 14% at the end of the 9 months, minus 6% on the original equipment and minus 16% for replacement. And here also, Q3 at minus 6% with original equipment and RT having globally the same evolution, but a very contracted evolution by region.Mostly North America, where OE was still at minus 22% in Q3 when RT was slightly positive, plus 2%. And China, where the original equipment market bounced by 58% during the last quarter. On the specialty side, we have seen 2 wheels, particularly the permitting market, increasing during the quarter. The agricultural market, particularly the replacement market, has been very resilient. On the contrary, mining have seen a slight decrease, mostly due to the effect of the COVID-19 crisis, which has impacted the sector with a slight delay. So 9 month sales, minus 15.1% without currency effect. Minus 17% due to volume, minus plus 1.7% due to price-mix, of which 1.3 points is coming from the mix. Zooming on the quarter. So our sales at ISO currency rate are down by 5.4%. With organic growth minus 6.7%, and the price-mix, which is still very strong, 1.3%, including 0.8 points with the mix.So despite the application of raw material closes adjustment in our index business, we are still able to show a positive price effect and our mix is still very strong, both in SR1 and in SR3. The currency effect is negative, and 2/3 of this EUR 251 million is coming mostly from Latin America, the currency, Brazil, Chile, Argentina, Mexico, where we have seen the currency devaluating. Looking at the sales by segment. So SR1 sales are down by 16%, but showing positive growth -- better situation during the Q3, minus 4.6% after the dramatic 37% drop in the Q2.The Michelin brand is performing very well with strong market share gains in the 18-inch segment and volumes returning close to the 2019 levels, particularly at the end of the quarter.On SR2, our overall sales are down 20% with Q3 at minus 14%. We have, in this segment, applied a very attractive pricing policies to offset the depreciation of the currencies I just mentioned. And the Michelin brand is also showing a strong resilient.Our market share is in this segment impacted by the geo mix, which is unfavorable due to our small presence on the original equipment channel in China. SR2, SR3, sales are down by 15% and by 14.6% on Q3. The slowdown in the mining business is partially offset by the recovery in agriculture and 2 wheels tire sales.So regarding our financial position. So the group has a very strong cash and liquidity reserves at the end of the quarter, we have EUR 2.9 billion in total cash and cash equivalents at the end of September. We have, as I already mentioned, renewed our credit revolving facility. And we have extended this facility from EUR 1.5 billion to EUR 2.5 billion. And this facility does not include any, let's say, financial covenant, but the cost of this facility will be indexed on the achievement of free social and environmental targets, the group employees engagement rate, the group reduction of our greenhouse gas emission on the scope 1 and 2, and last, the reduction of the environmental impact of our sites.The last point that I just want to mention is that we have a EUR 2.5 billion commercial paper program, which is today used -- which was at the end of September, used at the rate of EUR 1.4 billion.Moving forward to the end of the year.So in a nutshell, we are, let's say, revising slightly upward our vision of the automotive market. Our previous guidance was the vision of the market between minus 15% and minus 20%, and we are more now in the range of minus 13% to minus 15%. So a year to go roughly at minus 5%.So fourth quarter roughly at minus 5%. We have also slightly revised toward our vision of the truck tire market. So from a range between minus 13% to minus 17% to a range between minus 12% to minus 14%. And here, we are also seeing the year to go to the fourth quarter at roughly minus $8 million.And specialties, we have slightly degraded our market vision from a range of -- from minus 13% to minus 17% to a range between minus 15% to minus 19%. So that's in a nutshell our vision of the market.Based on these assumptions, we consider that we should be able to grow in line with the market, excluding, of course, the impact of the geo mix. We are expecting a positive impact in the cost of raw material. And this effect has increased over the last months. On the other hand, we are expecting a negative impact of the -- on the currencies, including the U.S. dollar, which will have an adverse effect during the last quarter. And finally, the overall net price mix and raw material effect should be positive. And if we look at the entire second half of the year, it should be close to the equivalent of the first half.So that lead us to our new guidance, which is, of course, the guidance, which is excluding any new systemic effect of the COVID-19. So we expect our segment operating income at constant exchange rates to be above EUR 1.6 billion. So we revised the guidance by EUR 400 million. And we expect the structural free cash flow above EUR 1.2 billion from the previous guidance, which was above EUR 0.5 billion. So that in a nutshell, our -- the situation of Michelin at the end of September and our forecast for the last quarter and the full year. So now we can open the Q&A session, and we will try to answer to your questions.
[Operator Instructions] We have a first question from Tom Narayan from RBC.
It's Tom Narayan, RBC. My first one, regarding the upward guidance revision on operating income, how much of this is coming from the better volume guidance and raw materials? And how much of this is coming from lower cost? We're kind of seeing this across the autos group where companies are reporting big operating income beats in Q3 on lower SG&A and R&D. Wondering if you're noticing this dynamic as well. And then digging a little deeper on specialty and on mining specifically, could you comment on trends in the mining end market and when you could potentially see a recovery there?And then lastly, on your hydrogen venture with Faurecia, are you concerned about the OEMs doing hydrogen in-house, particularly since most of the applications are on things like heavy-duty commercial truck, we're already seeing Daimler involved, will do a JV. Is there really a place for suppliers like yourselves in this market?
Yes. On the first element, it's really a mix of volume versus our previous guidance. Of course, it's really a mix of volume and cost effects. Volume because the market, we have been a bit surprised by the, let's say, I will not say the recovery, but the market improving faster than what we expected on one hand. And so it means that our factories are running at the maximum of their current capacities with -- at the same time, an overall, let's say, constraint cost structure, both in the factory side, on the manufacturing side, but of course, on the SG&A because of lot of activities that we were conducting previously, such a lot of motor sport activities, a lot of travel events, although the group has -- you have probably seen, we launched this communication and brand campaign, are limited due to the current situation.Regarding the mining, we have seen probably during -- and one thing which was expected during 2020 is a slight decrease of the inventory of tires in the mine, which were basically, we were expecting a 3% effect on our -- on the overall -- 3-point effect on the overall market situation.For sure, what has happened in the mining is that some regions, and particularly the Southern hemisphere has been affected by the COVID-19 during the winter there, so the summer here, which has disturbed a lot of mines operations in South America, in South Africa. It's a bit too early to draw conclusion about the evolution of the mining business in the future. For sure, there is some categories of materials where we can expect, let's say, sustainable demand. I'm thinking about copper, iron ore. On the other hand, some, for example, activities like thermal coal are probably going to decline slightly in the future.So we remain optimistic on the mining markets in the future. So we don't see anything structural happening there. We just see that we had the COVID effect later than in other businesses, more due to inventory adjustments than real drop in demand from the markets. Now as far as the hydrogen question is concerned, we have said that with Faurecia that we wanted to take -- to be a leader in this environment. But we have already mentioned that will mean maybe from 10% to 20% market share, which means that they will remain 80% to 85% share that can be taken by others. So of course, vehicle manufacturers are forming alliances today, but it doesn't say that there is not space for independent provider of fuel cell because those are some vehicle manufacturers have not invested early enough in that technology, and that's where the space will be. So -- and of course, when you look at this market, hydrogen application, hydrogen fuel cell applications are very wide. It goes from train to heavy trucks, to light trucks to van then to automotive. And there are many, many applications for hydrogen fuel cells. So before we are in a saturated market, there is going to be many, many years.
Next question from Thomas Besson from Kepler Cheuvreux.
Three questions as well, please. First one on operating leverage. So I mean, clearly, you've mentioned that markets are recovering faster than you were anticipating. You are guiding in H1 for a higher negative operating leverage because of the magnitude of the decline. Can you help us understanding how it works on the way back up? So on lower decline and hopefully soon on positive volume development. That's the first question.The second question is on free cash flow. You raised your guidance for structural free cash flow substantially more than your guidance for operating income.Can you help us bridge that gap? Maybe talk about CapEx, working capital as possible drivers of the increased improvement in cash flow versus adjusted operating income.And finally, third question on FX. You've mentioned that most of the negative effect in Q3 was LatAm on your revenues. Can you help us understanding the bridge between the revenues or the drop-through between revenues and operating income when it comes to this kind of more aggressive currencies versus the dollar. So should we assume 30%, 40% drop-through on the revenue H2 impact as the H2 EBIT hit? Or is that too much?
Okay. So let me take the first question. Yes, the markets are -- have been more buoyant than they were -- that we had anticipated. So we are more now in a V shape recovery than in the U Shape or L Shape recovery. As far as the drop-through is concerned, we are progressing on the drop-through. And today, we discussed about the revenue, but the drop-through we are progressing according to the market. Now what you -- you have to consider as well that because of the COVID situation, plants are now running at full speed. However -- the demand is there. However, we have many instances in many different plants around the world where we have COVID cases happening, and then we have to stop a workshop for the time because -- for the time we sought the issue in the plants to make sure that all our employees are safe. And therefore, we cannot be as efficient overall in terms of output that in normal conditions. But we were running at the maximum speed right now. And of course, it will have a positive impact on the drop-through.
Maybe on the second question, Thomas, regarding the free cash flow. In fact, our position on the CapEx has not changed. We have maintained our plan because we made some decision during the spring. And due to the inertia, you cannot suddenly raise again your capital expenditure. So for 2020, we keep the plan, we have [ real ] CapEx. Let's say, most of the good news regarding the BFR was coming from the working capital due, one, to the inventory. As Florent mentioned, our factories are running at full speed, and we are trying to rebuild some inventories, but probably -- it will be -- it's still a challenge. And we have probably -- we'll have less inventory than what we expected at the end of July for the end of the year. We have also probably were very prudent partly during the peak of the crisis and regarding account receivable. And up to now, we have rather good surprise on that side.So which make us, let's say, revise the lending of our receivable at the end of the year. So that's mostly the main element. And on top of that, as we are relaunching our whole manufacturing organization, we will increase again the payable because we are purchasing back raw material because our raw material inventory, if you remember well, has dropped severally during the first half and has continued to drop during the third quarter. So that's basically on the working capital side. And in our financial models, we have also, in the past, included probably financial needs from our JV, that finally was not necessary, which is also a good, let's say, a good surprise on the cash flow side.Regarding Forex, the Brazilian real represent around 3% of our sales. And we estimate a drop-through of around 20% to 30% of the currency because we are producing in Brazil. On the other hand, if I take Argentina, where we are only an importer, we have a drop-through rate, which is higher. But it's basically what I can share at this stage regarding the drop-through of the main LatAm currencies.
And maybe last precision on the cash flow is that the investment, if you remember, we curtailed the investment. We dropped the investment by EUR 500 million. So over next 3 years, we will have to reinvest this EUR 500 million that we saved this year because those investments were needed but could be postponed. As soon as the situation gets back to normal level, we will have to reinvest those EUR 500 million on top of the rest of the investment.
Next question from Henning Cosman from HSBC.
It's Henning speaking. If we know you be very conservative, and if I do this cheat sheet calculation that you've given us with the FX exposures and drop-throughs, I get to something like EUR 150 million or so. So if I subtract that from your new guidance, I suppose you're telling us the consensus is too low, right? You're not telling us how much, but you're telling us it's a little below. So I'm also trying to understand in which buckets, right? And my first question is on price-mix raw material. From your comments, I understand that raw material is intently more positive than you were thinking, yet you're also quite pleased with the price and mix, which is also maybe rather more positive than you were thinking. Yet you're still saying similar price mix raw material altogether as in H1, and this was already your guidance a quarter ago. So my first question is, is there maybe upside to that seeing you're quite constructive on all 3 and you've already said flat semester over semester 3 months ago. So that's the first question.Second question on the market share gains. Just wondering if you think these can be sustainable. I think most of your peers and yourself, you said you were just more nimble in terms of shipping smaller allotments to European dealers taking share from Asian importers. So just wondering if that can be sustainable in your opinion, into the fourth quarter as well, and therefore, maybe for the group, if you are at all able to comment on that, if we can expect a similar group volume development also in Q4 as compared to Q3. I'll maybe leave it at that 2 long questions.
So thank you for commenting my conservative behavior. But regarding your first question, so in which price-mix and raw material. There is a lot of the story from one quarter to another might be very different. So starting with the last one, the raw material, we have a very limited raw material effect at the beginning of the year, then it was a little bit more significant in Q2. It increased in Q3, and we believe it will remain quite strong in Q4. Although we observed that raw material has started to increase again, first. And second, let's say, the upstream supply chains are pretty cumbersome nowadays. And we have to also bear some cost of shipping or moving raw material that we are not expected. On the price-mix side, we are expecting -- so our policy and it will make a link with the question about the market share, our policy is not to gain market share at any cost. We try to get the market share we deserve by the quality of our product, the performance of our product and the quality of the service. So on the price side, regarding, let's say, non-index business, we have always sound a very clear message. And I think quarter-after-quarter, we are sitting very strongly on our position that we are holding very firm our pricing in all our business segments. The mix is something that we don't, let's say, we are less mastering. We have very strong OE effect on SR1, which has a negative, let's say, which is weighting down on the mix, although the product mix is still very positive. We are particularly gaining market share on 19-inch tires, both from the original equipment and replacement, but the market mix is -- might be negative on the last quarter. And SR2 is more neutral on the mix side and SR3, let's say, the mining and aircraft being down. And on the other hand, we have the 2-wheel business, which in the agricultural business, which are recovered, and which will continue to recover, although the fourth quarter is less important for these 2 segments. There is a strong first half for summer seasonality on these businesses. We might have also a rather negative mix effect on the SR3 side. And of course, there is the effect of the indexed businesses, which is still negative. So we are holding on the position we took during the first half result announcement is to have overall the price-mix raw material effect, which will be the equivalent on the H2 versus H1, but with very different components.Regarding the sustainability of our market share. Well, besides the geo mix effect that we don't master, of course, we are trying to grow at least at the pace of the market and to build the market where -- when it's possible.
But back to my comment to the previous question, towards the end of the year, it will be very difficult to read and nothing structural to read because it will entirely depend on the capability to produce properly in plants. And it's very difficult to factor how our competitors are managing COVID within their plants. So as the market is now in high demand and everybody is running at maximum speed -- maximum possible speed, and that possible speed is very difficult to assess, who is going to make what -- so I think towards the second semester, raising on market share, we have to be cautious, not to take too many conclusions too quickly on the fact that it's sustainable or not.
Next question from Gabriel Adler from Citigroup.
It's Gabriel from Citigroup. Two questions, please. The first is coming back to the EBIT guidance. Previously, you factored in potential bad debt in the second half into your operating income guidance. Am I correct to assume that you're no longer including this in the greater than EUR 1.6 billion figure? And if so, what sort of net contribution do you think we can now expect for cost savings this year? And my second question is on the shape of the volume recovery in SR1 because clearly, near-term trends have been very, very good in replacement tires for passenger cars. Do you think that anything has changed structurally as a result of the pandemic that may mean that vehicle usage and consequently, replacement demand won't recover to 2019 levels? And over what time do you think we can expect the replacement market to recover to that sort of level?
Okay. So regarding the bad debt, we have -- we mentioned that during the first half, we have only one main bad debt, which was linked to a wholesaler in Europe, in Italy and Germany, but with a limited effect because we were [ insured ] on part of the risk. And that's true that during the peak of the crisis, we were expecting, and at that time, we had some customers who have asked for support, but financially, most of them were able to get bank loans with government warranties, which happened in some European countries, for example. And finally, the market recovery has probably helped them to also recover financially. So that's why we should have -- we are not 100% sure, but we should have less surprise on -- limited surprise on that side at end of the year. Regarding the cost saving, we had a very strong cost reduction on the G&A on the first half. Part of it was due to the lockdown in most of the regions. It has, let's say, we have seen also some cost savings during the third quarter and we should continue to get some cost savings during the fourth quarter, probably a little bit less. But it will also depend on the constraint of movement of our operations.And overall, as Florent was mentioning previously, as our factory are running at full speed, but with limited resources, we should have also a positive impact on the manufacturing cost.And maybe I will start to answer on the first -- the second question on the SR1 volume recovery. We have seen also one element partly on the replacement side. If you look at the European and North American market, but also in the rest of the world, is that people tend to prefer using their car rather than public transportation. And particularly, during the summer, private owners probably invest a little bit more in the maintenance on the vehicle because they use -- they have -- they use their vehicle, let's say, more intensively than in the previous year because it was -- air trips were very limited. And it has probably an impact linked to the crisis on the demand on the replace -- particularly on the replacement side.
And to complement what Yves was saying is I think the only thing structural that is happening in the automotive industry is the electromobility happening, which means that now it is clear that electromobility will reshape the entire automotive industry in the future because the usage of fossil will be less and less authorized with the happening of zero-emission zones in cities and the fact that electromobility is the way forward for most of the -- for cars, trucks, vans, et cetera. As far as replacement demand, we have to be careful, again, as soon as the [ pandemic ] is behind us, I think we will go back to normal travel behaviors. We have more usage of bicycle in cities, but it will not have a structural impact on the worldwide replacement demand, which should come back to the traditional growth mode due to the vehicle park and the average mileage per vehicle will not change drastically. Our assumption is that it will not change drastically.
Next question from José Asumendi from JPMorgan.
This is José, JPMorgan. Can you talk, please, a little bit more around your SR3 guidance for the year and what it means on the lower end in terms of volumes for the fourth quarter. It looks like a sequential deterioration Q4 versus Q3. So I'm just wondering, what are you seeing in the market? What are you thinking there in terms of that deceleration? It seems quite pronounced in Q4?And then are you -- within SR3, are you looking to maybe implement some cost-cutting plans within mining or within the aircraft business to offset that deterioration in volumes, which I think will probably continue into 2021? That will be the first question. Second question, please. In terms of capacity that you're taking out for -- in SR1 and SR2, specifically in Europe, am I right understanding that you're probably taking between 10% and 15% out of your production capacity effectively as of the first half 2020?
So I will take the first -- the second question first. As far as the net worldwide capacity impact, yes, we have taken out. So if you look at passenger car, it's around 1.5% capacity out worldwide. And in SR2, it's more around 7.5%.
Including the investments.
Including the investments. So it's a net balance between new investments and closing of capacities. So as far as capacity is taken out, yes, net capacity has been taken out, both in SR1 and in SR2 in different proportion, more in SR2 than in SR1.
Regarding the SR3 guidance, our expectation is that the market should have -- should be, let's say, probably around minus 17% overall, so including very different markets. And of course, with a mix -- market mix, which is very depending on the seasonality, I already mentioned, the agriculture market, for example, is very strong during the spring and the summer as the 2-wheel market. Generally, the mining market is a little bit more stable around the year. So it's our overall expectation for this market. Regarding cost cutting, we have factories that are producing aircraft tires that are either mixed with other production. And then we were generally able to reallocate our workforce on the other production, thinking we have a factory in Southeast Asia, for example, producing both truck tire and aircraft tire. And we were also reallocating in the factories that are, let's say, solely producing aircraft tire. We have reallocated -- I'm thinking in France, employees in other sites because this market will grow again in a few years, and we don't want to lose the competencies that we have in the group.
Next question from Martino De Ambroggi from Equita.
One more question on the guidance. Am I right in assuming that the EUR 400 million upward revision is roughly 60%, 70% coming from volumes, and the rest maybe from cost savings, just to summarize what you commented during the call. The second question is still on the guidance but from a different perspective. If you could provide us just a rough indication of the EUR 400 million by division. So it's clear I suppose the change that mainly comes from the car division. But I was wondering if the specialty is probably negative in this bridge. And the third question is on the free cash flow guidance because you mentioned that there were cash out from joint -- for joint ventures financial need not needed anymore. Could you quantify it because it's probably more company-specific than the other variables.
First part of the question about the split. First of all, I think here we disclose the global elements. We give more details every semester. So at this stage, we will not give what is the split in our assumption for the revised guidance. And no for the second question because our guidance, we give an overall guidance and not a guidance by division. And regarding the free cash flow, we have -- regarding the JV, there is financing of the JVs that we have announced during our last Capital Market Day in Almeria last year, particularly the hydrogen and additive printing, 3D printing activities. These activities are, let's say, in line financially regarding the financial needs with what we expected to bring to these activities.It's more on the other companies. We have JV in the upstream in the AVR farming in Southeast Asia and Indonesia and in West Africa. And of course, JV in distribution. And at -- when there was, let's say, the lockdown in the different region of the world, we thought that the JV in some of them have started to ask us for support, but finally was not necessary. And on contrary, we have a very rather positive news from our TBC JV in North America. We've been able to reimburse some of the loan that we have set up.
Okay. If I may, just a follow-up on the price mix in Q3. If you could provide some additional details, specifically for cars and trucks, separating price and mix, if possible.
No, we don't disclose this level of detail at this stage.
Yes. We don't -- we give already some qualitative elements during the call. So you have already all the information in the presentation.
Next question from [ Michael Jack ] from Bank of America.
I have 3 questions if you don't mind. The first one is how much visibility do you have into your current stockholding levels in the distribution channels? And could you perhaps share some insight into how much of Q3's rebound was from the restocking impact? That's the first question. The second question is perhaps just following up on one of the previous questions around pricing discipline and raw materials. Are there currently any signs of some of your competitors perhaps not holding this firm? And if it transpires that they don't in the coming months, would you perhaps change your stance? That's the second question. And then the third question is just on price mix. If you could please just clarify. You mentioned that there should be a positive price mix impact. Would that be more from mix, as I would imagine that price might be a little bit weaker because of the lower raw material prices.
Okay. So let me take the first 2 questions, and Yves will respond to the third one. So visibility on the stockholding. So we have -- it depends -- it varies from region to region around the world. But globally, what has happened in Q2 was a very heavy destocking, especially on Michelin brand in some zones. So now that we are running flat out, there's no real restocking happening in the distribution channels. It's more due to the overall demand. So -- and that's why we're running at full speed. So yes, we have a pretty good visibility on stockholding. And that's why we are confident that it is not a sell-in phenomenon, the rebound of the market right now. This will happen, probably, but later on, probably next year. As far as pricing is concerned, our policy in pricing, and I'm very clear, and with Yves, we are very clear on the fact that we say in this market environment, there is no point managing our prices, especially where today our customers are happy to buy our offerings at this price. So we don't look too much to what our competitors are doing. And of course, if the market went crazy and that if we are losing massively market share, we may have to reassess this policy. But at this stage, we have no intention to change this.So regarding the price mix, if you look at the second, let's say, first half and third quarter, so at the end of June, we have a price mix of 1.8% in our sales value, 0.3 points coming from the price and 1.5% from the mix.And at the -- and during the Q3, we have 1.3 points of price mix effect. Half, 0.5% coming from price and 0.8% from the mix. So you've seen that the price effect is pretty steady and holding firm, despite the fact that, as we always mentioned, we have some businesses where you have raw material indexed closes that is waiting on the price effect. So it means that our pricing are all in firm on the other area of the business. And the mix effect is, of course, less important during the third quarter than it was during the first half, mostly because of the intra mix market effect between original equipment and replacement on SR1 and the mix between the business lines within the SR2. So on aircraft and mining on one side being, let's say, having a lower weight than expected, contrary 2-wheels and agriculture, having a bigger weight in our sales during Q3 than previously. That's basically the main driver between the price mix evolution from the first half to the third quarter.
Perhaps on the last question, I think I perhaps wasn't clear enough. I was referring more towards the guidance into Q4 on the split between price mix if you're able to share?
On the price-mix on the Q4, we have probably a little bit a similar pattern than on the Q3. Yes. And overall, if you look at the operating margin, an overall price-mix raw material effect on the overall second half, which will be the equivalent of what it was on the first half.
Next question from [ Gustav Ope ], private investor.Okay. We will go to the next question from José Asumendi from JPMorgan.
Yes, apologies for following up. I just have one quick follow-up, please. Just going back to this full year guidance on SR3. I'm a little bit confused. So this means basically, we're looking at fourth quarter volumes down in the 20s or so in the fourth quarter. Is this how we should be addressing the fourth quarter, such a large deceleration in Q4 versus Q3? And then what does this mean there for 2021? I know maybe for the group it's not that relevant, but I'm personally a little bit surprised to see this deceleration, which you clearly addressed in your presentation, by the way. So thank you for all the details. But maybe if you could just clarify those. What does this mean for the fourth quarter in terms of volumes? Am I right assuming the down 20 or so in the fourth quarter for SR3? Again, what are you doing about the cost base to address this slowdown?
So first, José, I will not elaborate on 2021. It's far too early, and as we have already mentioned, the main challenge we have -- we are encountering since the beginning of the crisis is the lack of visibility or the unpredictability of the market. Regarding SR3, we estimate that -- so our sales during the first 9 months have been down by 15% in value and around 13% in volume. And we are expecting a slight degradation during the Q4. And as I mentioned already, we expect market being down by 17%. So it would be roughly the range of evolution of the SR3 during the Q4.
Fair enough, and I fully appreciate the view on '21. I agree the visibility is limited.
Okay. So well, I think we have finished with all the questions. So thank you very much for joining us, and we'll see you soon for the next call. Thank you for your attention.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for your attention. You may now disconnect your lines.