Second Quarter Results From Goodyear

Goodyear has published its financial results for the second quarter of 2001. Turnover was $3.58 billion, virtually the same as for Q1 2000 and slightly ahead of the $3.

4 bn achieved in the first three months of this year. After-tax profits slipped to $7.8 m, 90% down on the Q2 2000 figure of $77.

1 m, but a vast improvement on this year’s first quarter loss of $46.7 m. The main reason for this improvement is entirely due to increased sales in the wake of the Firestone recall, initiated by Ford.

Experts reckon that these sales total one million extra tyres, contributing around $20 m to Goodyear’s operating profit. The Goodyear brand gained three extra market share points during Q2. Despite these extra sales, the number of tyres sold worldwide by Goodyear during the first half of the year totalled 108.

1 million, or 2% down on the same period last year. Reduced truck OE sales and a general weakness in replacement markets globally were cited as the main reasons. Chairman and CEO Sam Gibara said that the slowdown in demand had led to cuts in production and, looking ahead, he stated that further cuts would be necessary in the third quarter.

One other significant factor was the effect of currency fluctuations, with Goodyear estimating that these accounted for reductions in sales of $145 m and in operating income of $30 m. The Global Situation Currency movements are a fact of life for a company that operates globally; equally, it is often said that downturns in some markets are offset by gains in others, so how has Goodyear fared across the globe? The short answer is “not too well”, as seems to be indicated by the financial figures. In North America, we have already seen that the Firestone recall boosted replacement demand, but this was offset by reduced OE sales for both trucks and cars.

The situation in Europe was different, with OE sales up (+4.1% for Q2) and replacement sales down (3.7%).

Fierce competition and currency values led to a halving of operating income for Q2, down to $17.6 m from $39.8 m.

Currency fluctuations reduced sales by $60 m. Bad news too from the division dealing with Eastern Europe, Africa and the Middle East, where Q2 sales slipped 8.1% to $177.

9 m and there was a hefty fall in operating income, from $12.1 m to $3.5 m.

OE sales were particularly hard hit – down over 20% – with replacement sales falling 8%. The devaluation of the Turkish Lira (90% in the first half of the year) was a major factor in depressing results. There was better news from Latin America, where tyre volume slipped by less than 1% to five million units.

Admittedly, both sales and operating income were down on Q1 2000, but the fall was less dramatic than in other areas. Sales were $250.7 m (264.

5 m) and operating income $19.4 m (21.4 m).

The final operating area is Asia Tire. Volumes rose 1.7% to 3.

2 m tyres, with OE business increasing by 13.4% and replacement sales down 2%. Total sales were $128.

4 m, against $137.9 m for Q1 2000, and operating profit rose slightly, to $6.7 m, from $6.

3 m. Analysts’ Verdict This is a brief summary of Goodyear’s results, but what do the experts think? In a word, the verdict of the financial analysts is “cautious”. While nobody would describe the results as stunning, there seems to be a feeling that this was what was expected – indeed, when the results were first released, Goodyear’s shares rose by $1.

42 (or nearly 5%) on the New York Stock Exchange. Nevertheless, worries remain, with one view being that, even with the benefits and extra sales from the recall, Goodyear is struggling to make money in North America. Competition means that the company is restricted in its ability to raise tyre prices and the predicted cuts in production will do little to boost revenue.

Analysts are worried too about the situation outside the USA, declaring Goodyear to be particularly vulnerable to shifts in currency values. A wary eye is being kept on European operations, where analysts believe that the tyre markets will continue to be depressed. Asia is regarded as something of a success for Goodyear exceeding analysts’ expectations.

However, this optimism is tempered by the comment that it is a pity that this area is the one which has the least impact on the company’s results. What does the future hold? Again, the analysts are being cautious, believing that the company, and indeed the tyre industry generally, will struggle to make money in the near future. There is a ray of hope on the horizon, as, when the markets eventually improve, Goodyear, say the pundits, could benefit from having gained a bigger customer base as well as being leaner in operation – 5,800 of the proposed 7,800 job losses have already been shed.