Emerging Markets Help Goodyear Achieve Strong Q2 Sales

Strong overseas performance, particularly in emerging markets, has enabled Goodyear to report record second quarter sales. During the three months to June 30, the tyre major generated US$5.2 billion in sales, a 6.5 per cent improvement on the previous year. Goodyear comments that this stronger result was achieved through improved pricing, a richer product mix and the impact of favourable foreign currency exchange. These factors offset lower volume sales in Europe and North America. Also impacting results, says Goodyear, was the 2007 divestiture of the company’s T&WA tyre mounting business, which had sales of $186 million in last year’s second quarter.

Total segment operating income from continuing operations was $330 million, up 6.5 per cent from the year-ago period. Second quarter 2008 net income from continuing operations was $75 million (31 cents per share). This compares to $29 million (14 cents per share) 2007 quarter. Including discontinued operations, Goodyear had net income of $56 million (26 cents per share) in the 2007 second quarter. All per share amounts are diluted.

Revenue per tyre, excluding the impact of foreign currency translation, increased 9 per cent over the 2007 quarter. Again, this result reflects the implementation of worldwide price increases and a revised product mix, part of the company’s strategy to focus on high-value-added tyres. Goodyear’s year-over-year revenue per tyre has now increased for 15 consecutive quarters.

During the three month period Goodyear’s international businesses collectively increased sales 18 per cent over 2007’s second quarter and represented approximately 60 per cent of total sales in the quarter. This growth helped to offset lower sales in North American Tire, which declined 6 per cent. Compared to 2007, North American Tire’s second quarter unit volume was down 12 per cent, reflecting an environment in which demand is weak. The decline was most notable in the consumer OE market and in low-value-added segments of the consumer replacement market.

“Our strong second quarter and first half performance demonstrates the successful execution of our strategies despite the significant economic challenges we are facing, particularly in North America,” said Robert J. Keegan, chairman and chief executive officer. “Robust growth in our international operations, especially in emerging markets, more than offset the continuing weakness in the North American market. Our strategy to invest in emerging markets has resulted in a profitable and growing set of businesses.”

“We remain confident in our ability to manage through the challenging near-term business conditions and are focused on maximising business performance given the environment,” Keegan added. “At the same time, our long-term investment strategy positions us to capitalise on available, attractive market opportunities.”

Goodyear’s strategy to drive profitable growth includes what it calls significant plans to capitalise on worldwide increases in demand for its, high-value-added tyres. The company also plans to build on its strength in emerging markets in Latin America, Eastern Europe and Asia. This plan also includes the reduction of ‘high-cost manufacturing capacity’, such as the late June announced closure of the Goodyear’s last remaining factory in Australia.

Tyre volume at North American Tire declined by 2.5 million units in the quarter, leading to sales dropping six per cent compared to the 2007 period. Second quarter segment operating income was $24 million, down from the 2007 quarter as increased pricing, product mix and structural costs were more than offset by the effects of market weakness, higher inflation and costs related to modernising factories and training new manufacturing employees. An improved pricing and product mix of $107 million was thus more than offset increased raw material costs of $59 million.

Europe, Middle East and Africa Tire’s quarterly sales exceeded $2 billion for the first time, increasing 15 per cent compared to the second quarter of 2007. The increase resulted primarily from the favourable impact of foreign currency translation, product price increases and product mix, and these factors more than offset lower volume resulting from softer market conditions. Sales in the 2008 quarter were positively impacted by market share gains in Goodyear- and Dunlop-branded consumer replacement tyres. Segment operating income increased 20 percent due in part to improved pricing and product mix of $78 million that more than offset $37 million in higher raw material costs. Favourable foreign currency translation also benefited the second quarter 2008 period. These positive factors, reports Goodyear, were partially offset by lower volume and higher manufacturing costs partly related to a strike in Turkey, ongoing labour issues in France and the impact of inflation.

Latin American Tire’s second quarter sales increased 25 per cent compared to the 2007 quarter, primarily thanks to pricing and product mix, and the favourable impact of foreign currency translation. Sales in the 2008 second quarter were positively impacted by market share gains for Goodyear-branded tyres in premium market segments. Segment operating income increased 14 per cent from 2007 due to improved pricing and product mix of $43 million that more than offset $17 million in higher raw material costs. Higher inflation impacting manufacturing and transportation costs as well as favourable foreign currency translation also affected the quarter, says Goodyear.

Asia Pacific Tire’s quarterly sales exceeded $500 million for the first time, increasing 20 per cent compared to the 2007 second quarter primarily due to improved pricing and product mix, higher volume and the favourable impact of foreign currency translation. Segment operating income increased 27 per cent in the 2008 quarter, primarily due to improved pricing and product mix of $21 million, which more than offset raw material cost increases of $11 million. Higher unit volume also positively impacted the quarter.