Goodyear increases 2011 sales, earnings despite low Q4 volumes

The Goodyear Tire & Rubber Company has reported increased sales and earnings for the fourth quarter of 2011 and the full year. In the Europe, Middle East and Africa region the company improved on its 2010 figures, with segment operating income up to $627 million, compared to $319 million in the previous year. The company’s fourth quarter represented a slowdown in the region, shipping fewer tyre units than in 2010 – 16.9 million vs. 17.7 million – and it predicted that 2012 would be down by up to nine per cent in European consumer business, with worse predicted for the commercial original equipment market. Chairman and chief executive officer, Richard J Kramer commented on the company’s overall sales and segment operating income records by saying the company had “successfully managed a challenging economic environment.”

“With full-year segment operating income of nearly $1.4 billion worldwide and $276 million in North American Tire, its best performance since 2000, we made strong progress toward our 2013 targets,” Kramer added. “Despite lower fourth quarter unit volume, all four of our tire businesses achieved record fourth quarter and full-year sales as we improved price/mix and gained branded share in our targeted market segments. We feel good about the progress we have made in improving our business model and remain confident in our long-term strategy.”

Goodyear’s 2011 annual sales were a record $22.8 billion, up 21 per cent from $18.8 billion in 2010. The company said its price/mix performance drove revenue per tyre up 17 per cent, excluding the impact of foreign currency translation. Sales were also positively impacted by an $875 million increase in sales in other tyre-related businesses, primarily third-party chemical sales in North America, while worldwide unit volumes were “essentially flat” compared with 2010. The sale of its Latin American farm tyre business negatively impacted sales by $67 million and segment operating income by $25 million. Raw material costs reflect $177 million in actions taken to reduce their impact, according to Goodyear.

Q4 volumes, operating income down

In the fourth quarter of 2011, Goodyear hit $5.7 billion in sales, up 12 per cent from a year ago. Tyre unit volumes reached 43.2 million, down 5 per cent from 2010, which Goodyear put down to “declining replacement industry volumes in mature markets along with business challenges in Latin American and flooding in Thailand”.

The company achieved segment operating income of $196 million, down $28 million from the 2010 period; while the company offset $631 million in higher raw material costs with improved price/mix of $702 million, it was also affected by $37 million in lower volume and $19 million due to lower profits from other tyre-related businesses, primarily third-party chemical sales in North America. The company’s income was also disrupted by the temporary closure of its Thai factory due to flooding, a plant closure in North America and poor productivity at factories in France.

North America, EMEA

Goodyear North American Tire’s fourth quarter saw sales increase by 17 per cent on 2010 to $2.6 billion, including a 19 per cent increase in revenue per tyre, though unit volumes decreased 2 per cent. Original equipment unit volume was up 7 per cent, but lower demands caused replacement tyre shipments to decrease 3 per cent. Segment operating income of $21 million was $10 million above 2010.

In Europe, Middle East and Africa sales increased 11 per cent in the quarter over 2010 figures to $1.9 billion, a fourth quarter record, driven by a 21 per cent increase in revenue per tyre. Tyre unit volumes decreased 5 per cent, with OE unit volume up 6 per cent and replacement shipments down 8 per cent on the back of decreased demand. The operating income of $88 million was $28 million above the prior year, with Improved price/mix of $280 million offsetting $201 million of higher raw material costs.

In Latin America, operating income was down to $231 million from $330 million, as raw material cost increases of $82 million saw off price/mix improvements of $66 million, while operating income dropped $16 million from lower volume and $9 million due to the company’s Latin Tyre farm unit sale.

In the Asia Pacific region, operating income also reduced by $21 million despite a 5 per cent increase in sales to $591 million – Goodyear estimates $10 million in higher costs related to the start up of a new factory in China. Original equipment unit volume was down 11 per cent and replacement tyre shipments were down 10 per cent. Flooding in Thailand cost the company $12 million in Asia Pacific segment operating income.

Outlook for 2012

While Goodyear still expects long-term growth in the global tyre industry to continue, it forecasts it happening at a slower pace in the short-term than previously thought due to the continued economic weakness in multiple markets. It expects its full-year tyre unit volume for 2012 will be essentially flat with 2011.

In 2012 Goodyear expects the North American consumer replacement market to be “flat to down 2 per cent, consumer original equipment flat to up 3 per cent, commercial replacement up between 2 per cent and 6 per cent and commercial original equipment up between 10 per cent and 15 per cent.” In Europe, it expects single digit reductions in the consumer replacement and OE and commercial replacement segments, with commercial original equipment down between 20 and 25 per cent. For the full year of 2012, Goodyear expects its raw material costs will increase approximately 5 per cent compared with 2011, with higher increases in the first half of the year slowing during the second.