Second-Half Earnings Forecast Revised Downwards By Goodyear

Goodyear Tire & Rubber Co. has revised its financial forecast for the second half of this year. Originally, the manufacturer was predicting a small improvement, but it now says that the best in can hope for in the third quarter is break even, or perhaps a slight loss.

Furthermore, unless there is a change in either market conditions or economic factors, the same seems likely for the fourth quarter too. Global economic and industry conditions, says Goodyear, have worsened even beyond the company’s most pessimistic forecasts, hitting profits hard. Higher costs were much to blame, with Goodyear’s raw material costs increasing by 3 per cent since June, and 10 per cent over the year to date.

Oil-derived products are at ten-year high prices, and these account for 20-25 per cent of the cost of a tyre. Energy costs too have risen this year – up one fifth – and look like going even higher. This raises manufacturing costs and has had an impact on Goodyear’s chemical business.

Currency movements in Europe have not been helpful, with the Euro falling to a record low against the Dollar to 84 cents. This is ten cents lower than Goodyear had expected at this time. In total, the Euro’s value against the Dollar has fallen 28 per cent since it came into being; 16 per cent this year.

Goodyear had planned for sales volumes to have increased in the second half, but it has in fact slowed down since June, due partly to production cutbacks in the original equipment vehicle sector. Goodyear has responded by reducing production to keep inventory at a reasonable level, but this leads to higher unit manufacturing costs. The on-going phase out of production at Fort Dunlop in the UK has increased costs in Europe.

Pricing levels of tyres have fallen across the globe, in the USA, Europe and Asia and have not kept pace with raw material price increases. Samir Gibara describes the economic outlook for the industry as “difficult at best” and refers to recent initiatives, such as the appointment of Robert Keegan as president and COO, and the appointment of other senior managers. “The company is also continuing its efforts to redeploy certain assets” he said.