Goodyear Q2 net income up despite lower sales and operating income

Although overall sales, volumes and operating income all decreased year-on-year, Goodyear Tire & Rubber nevertheless managed to increase its revenue per tyre in the second quarter of 2012. The US tyre maker reports sales of $5.2 billion during the three months to 30 June, eight per cent lower than in the second quarter of 2011 and reflecting weaker economic conditions and unfavourable foreign currency translation. Operating income decreased $46 million year-on-year to $336 million. Tyre unit volumes totalled 39.2 million in the quarter, down nine per cent from 2011 and reflecting weaker replacement sector volumes, most notably in Europe. Revenue per tyre increased eight per cent, while net income amounted to $85 million (33 cents per share), up from $40 million (16 cents per share) in the 2011 quarter.

“Our $336 million of segment operating income is a strong performance given global tyre volumes that are similar to those we saw at the depths of the 2009 recession when the company reported a segment operating loss,” said Richard J. Kramer, Goodyear chairman and chief executive officer. “It is clear evidence that our strategy is working.”

Business segment results

The company’s North American Tire business unit brought in a two per cent increase in sales, a total of $2.5 billion; this is, says Goodyear, a second quarter record. Revenue per tyre grew ten per cent year-on-year, excluding the impact of foreign currency translation. Replacement tyre shipments were down ten per cent while original equipment unit volume increased 24 per cent. Second quarter 2012 segment operating income of $188 million was up 37 per cent from the prior year and a record for any quarter.

“North American Tire continues to build on the structural improvements we’ve made to the business and has achieved year-over-year increases in operating income for 12 consecutive quarters,” Kramer said. “The business is on track to achieve its 2013 target of $450 million in segment operating income this year, one year ahead of plan.”

Sales made by the Europe, Middle East and Africa Tire business unit declined 18 per cent from last year to $1.6 billion. These figures reflect a 17 per cent decrease in tyre unit volume and unfavourable foreign currency translation of $194 million. Replacement tyre shipments were down 20 per cent and original equipment volumes seven per cent. Revenue per tyre increased ten per cent, excluding the impact of foreign currency translation. Operating income of $19 million was $107 million below the prior year, with unfavourable unit volume reducing segment operating income by $56 million.

Kramer said recessionary economic conditions in Europe continue to have a negative impact on tyre industry volumes in the region. “We are taking actions to manage our European business through this tough environment and ensure we are well positioned for continued growth in targeted market segments,” he commented. “The long-term industry mega-trends remain in place. We expect global tyre demand to recover and we remain committed to our 2013 target of $1.6 billion in segment operating income.”

The Latin American Tire business unit’s second quarter sales decreased 21 per cent from last year to $503 million. Sales reflect a 14 per cent decrease in tyre unit volume and unfavourable foreign currency translation of $77 million. Improved price/mix was a partial offset. Both replacement and original equipment tyre shipments were down 14 per cent. Second quarter revenue per tyre increased 11 per cent in 2012 compared to 2011, excluding the impact of foreign currency translation. Second quarter segment operating income of $58 million was up $4 million from a year ago.

Asia Pacific Tire’s second quarter sales decreased four per cent year-on-year to $600 million. Sales were negatively impacted by $38 million due to unfavourable foreign translation but benefitted from a two per cent increase in tyre unit volume and price/mix performance. Replacement tyre shipments were down eight percent while original equipment unit volumes rose 19 per cent. Second quarter revenue per tyre increased two per cent. Operating income, at $71 million, was nine per cent higher than last year. Goodyear also reports a $2 million impact on operating income from the temporary closure of its flood-affected factory in Thailand last year. The plant has now resumed full production.

“Three of our businesses increased year-over-year operating income and margins in a difficult economic environment,” Kramer noted. “Our improved ability to remain profitable through economic cycles is evident in our second quarter results and better positions us going forward given ongoing uncertainty in the global economic and policy environment.”

Full year outlook

Kramer says Goodyear remains confident that long-term growth in the global tyre industry will continue, but at a “slower pace near term than previously forecast due to continued economic challenges, particularly in Europe.” As a result, the company has lowered its sales forecast and now anticipates full-year tyre unit volumes will be five to seven per cent below those in 2011.

For the full year in North America, Goodyear expects the consumer replacement market to be down between one and three per cent, consumer original equipment up between five and ten per cent per cent, commercial replacement to be down between five and ten per cent and commercial original equipment up between ten and 15 per cent.

For the full year in Europe, Middle East & Africa, the consumer replacement industry is expected to be down between eight and ten per cent, consumer original equipment down between five and ten per cent, commercial replacement down between three and eight per cent and commercial original equipment down between five and ten per cent.

Goodyear anticipates its raw material costs for the third quarter of 2012 will be essentially flat compared with the prior year. For full year 2012, it expects raw material costs will increase approximately seven per cent compared with 2011.