Goodyear “On the Right Path” in Second Quarter

According to company president and chief executive officer Richard J. Kramer, Goodyear “pulled the right levers” during the economic downturn and is thus well positioned for growth opportunities presented by the recovery. “During the second quarter, we achieved significant progress across all our businesses, driven by a combination of sales growth and cost actions,” said Kramer during a conference call on July 29. “Versus the comparable prior year period, sales were up 15 per cent, units up 10 per cent and segment operating income was $219 million, an improvement of more than $190 million from the second quarter 2009.”

Goodyear’s second quarter 2010 sales were $4.5 billion, a result that, as Kramer noted, reflects the $304 million impact of a 10 per cent increase in tyre unit volume due to improved global demand. The growth in segment operating income from $24 million in the second quarter of 2009 to $219 reflects higher global demand, strong price/mix performance and cost reduction actions. Net income during the quarter was $28 million or 11 cents per share, compared with a loss of $221 million (92 cents per share) in the comparable 2009 quarter.

“We are very pleased with our strong performance in the second quarter and first half of the year,” Kramer commented. “Our businesses continue to perform better than a year ago as they capture the benefits of recovering industry demand, strong new product performance and solid productivity improvements. We are clearly on the right path as our strategies position us to grow profitably as markets continue to improve.”

Sales in Goodyear’s home market, the North American Tire region, increased 21 per cent year-on-year in the quarter to $2 billion, reflecting a 13 per cent increase in tyre unit volume, improved price/mix and branded share gains in the consumer replacement business. Original equipment unit volume increased 69 per cent, primarily in the consumer business. Replacement tyre shipments were up two per cent from last year. Second quarter 2010 segment operating income of $16 million was a $107 million improvement over the prior year. Compared to the prior year, price/mix improved $36 million, while raw material costs were essentially unchanged. The 2010 quarter also benefitted from higher volume, increased production levels, decreased pension expense and actions to reduce costs.

Second quarter sales for the Europe, Middle East and Africa Tire business increased five per cent from last year to $1.5 billion primarily due to a six per cent increase in tyre unit volume and strong price/mix performance. Original equipment unit volume increased 27 per cent, while replacement tyre shipments were up one per cent. Second quarter 2010 segment operating income for the regions was $73 million, an $88 million improvement over the prior year. Improved price/mix of $23 million during the quarter more than offset $3 million in higher raw material costs. Goodyear notes the 2010 quarter was also positively impacted by higher volume, increased production levels and actions to reduce costs. “In Europe, where innovation has been our mainstay, we introduced the LHT II trailer tyre, which completes our FuelMax line-up,” reported Kramer when discussing the company’s activities within the region. “And to provide a sense of the impact this product delivers, a fleet using FuelMax tyres in average long-haul operations can realise savings of up to $3000 per truck per year in addition to reducing CO2 emissions by 5,200 kilograms per truck per year.”

Goodyear’s Latin American Tire business’s sales in the second quarter increased 21 per cent year-on-year to $529 million primarily due to a 13 per cent increase in tyre unit volume and strong price/mix performance. Original equipment unit volume increased 16 per cent, resulting from higher vehicle production. Replacement tyre shipments were up 11 per cent. Segment operating income was $66 million in the quarter, $7 million lower than in 2009. This reduction, says Goodyear, occurred primarily due to a $32 million decline related to events in Venezuela, including the currency devaluation. Improved price/mix of $33 million in 2010’s second quarter more than offset $24 million in higher raw material costs. The 2010 quarter was also positively impacted by higher volume and increased production levels. Reflecting a weaker demand environment, events in Venezuela, including the currency devaluation, may adversely impact Latin American Tire’s full-year 2010 segment operating income by more than $75 million as compared to 2009.

Asia Pacific Tire’s second quarter sales increased 16 per cent from last year to $495 million due to a nine per cent increase in tyre unit volume with strong replacement market volumes in China and India and favourable foreign currency translation. Original equipment unit volume increased 22 per cent, resulting from higher vehicle production. Replacement tyre shipments were up two per cent. Segment operating income was $64 million, an increase of $7 million over last year and a second quarter record. Improved price/mix of $29 million in 2010’s second quarter offset $28 million in higher raw material costs. The increase in segment operating income was also due to higher volume and actions to reduce costs.

Looking ahead to the full-year and further into the future, Kramer said: “My near-term focus remains on the areas I discussed last quarter: offsetting escalating raw material costs with price mix and material cost reduction and substitution programmes – our track record here certainly speaks for itself; improving manufacturing efficiency by changing how we work in our factories and getting increased operating leverage out of our existing equipment; and building a world-class advantage supply chain that not only efficiently makes and delivers the right tyre to our customers, but lets us to so with lower investment in inventory. We have seen our efforts already produce results in our growing North America truck business, where we are achieving higher levels of service with significantly lower levels of inventory.”

According to Kramer, Goodyear has already made improvements in each of these areas this year and expects to continue doing so in the second half and into 2011. “Execution of these imperatives is required to take advantage of growth opportunities in China, Latin America and Eastern Europe. These are markets where we have leading positions, where we have demonstrated capability, and where we have identified segments with profitable growth potential.”