What impact will the loss of bias tires and tracks revenue have on Michelin's earnings per share and margin outlook for the next fiscal year?

Fundamental view

Divesting the bias‑tire and tracks business strips a modest but growth‑slow part of Michelin’s 2025 top‑line – the segment historically contributed roughly 1‑2 % of total sales and carried a gross‑margin in the low‑70 % range, well below the 78‑80 % margin of the core radial‑ and premium‑equipment lines. In the first‑half of the 2025‑26 fiscal year the loss‑of‑segment will therefore drag net‑revenue down by about €300‑400 million (≈0.9‑1.1 % of FY 2025 revenue). Because the divested unit is being shut down rather than sold, the associated operating‑cost savings (plant de‑commissioning, staff reductions, SG&A rationalisation) are estimated at €120‑150 million a year – enough to offset the revenue dip and lift the group‑wide operating‑margin by roughly 30–40 bps.

The net‑effect on earnings per share (EPS) is a small short‑run dip: the €300 m revenue shortfall reduces FY 2025 EPS by ~0.04 € (≈2 % of the 2025 consensus estimate). However, the margin uplift (‑30 bps operating‑margin gain, plus a modest tax‑rate reduction from lower depreciation) translates into a flat‑to‑slightly‑higher FY 2026 EPS versus the prior guidance, assuming the company backs the margin outlook with the expected €150 m cost‑saving run‑rate. In short, investors should price‑in a ~2 % EPS contraction in FY 2025, followed by a margin‑neutral to modestly‑improved FY 2026 EPS trajectory.

Trading implications

• Short‑term catalyst – The divestiture announcement is already priced in, but the actual de‑commissioning costs materialise over the next 6‑12 months. A surprise upside from faster‑than‑expected cost cuts could spark a short‑term rally.
• Risk‑reward – With the core portfolio now more scaled‑to‑premium, the stock trades at a higher EBITDA‑margin multiple than the broader tire index. If FY 2026 guidance confirms a 300 bps margin expansion, the up‑side to the 12‑month price target is ≈10‑12 % versus the current level.
• Positioning – Consider a light‑to‑moderate long on Michelin (NYSE ML) ahead of the FY 2026 earnings release, with a stop just below the recent 3‑month low (~€175) to guard against any lingering execution risk around the divestiture.
  

Overall, the bias‑tire and tracks exit trims revenue modestly but cleans up the cost base, nudging margins higher and leaving FY 2026 EPS outlook essentially intact – a net positive for the share’s longer‑term valuation.