Goodyear reports higher Q1 earnings, outlines 3-point Europe plan

Although Goodyear Tire & Rubber shipped fewer tyres and generated lower sales in the first three months of 2013 than a year earlier, the bottom line for the quarter was much healthier. The only regional disappointment was, predictably, Europe – and Goodyear says it will address weakness in the European markets by implementing “additional productivity improvements”. Specific details regarding these measures have yet to be announced.

First quarter sales declined 10.9 per cent to US$4.9 billion, a figure reflecting $364 million in lower tyre unit volumes, $178 in lower sales in other tyre related businesses, notably third party chemical sales in North America, and $115 million in unfavourable foreign currency translation. Tyre unit volumes totalled 39.5 million, down eight per cent from 2012 and primarily reflecting lower volumes in Europe.

The company reported segment operating income of $302 million in the first quarter of 2013. This was up three per cent from the year-ago quarter, reflecting $230 million in lower raw material costs (before the benefit of cost savings actions) and cost-reduction activities that exceeded inflation, partially offset by $138 million in lower tyre volume and associated unabsorbed overhead costs, lower price/mix of $71 million and $17 million in unfavourable foreign currency translation. Goodyear’s first quarter 2013 net income available to common shareholders was $26 million (10 cents per share), compared to a net loss of $11 million (5 cents per share) in the 2012 quarter. All per share amounts are diluted.

“Despite a tough economic environment, we continue to achieve solid earnings improvement,” said Goodyear chairman and chief executive officer Richard J. Kramer. “Our first quarter earnings demonstrate that our strategic focus on improving productivity and selling innovative products in targeted market segments where our brands add value is working, especially in North America, where our business continues to outperform expectations.”

Performance by region

Three of Goodyear’s four regional businesses achieved higher earnings, with North America and Asia Pacific posting record first quarter operating income. Asia Pacific and Latin America achieved both increased tyre unit volume and higher operating income. 

North America’s first quarter 2013 sales decreased 13 per cent from last year to $2.2 billion. Sales reflect a six per cent decrease in tyre unit volume and lower price/mix. Original equipment unit volume was flat. Replacement tyre shipments were down nine per cent, reflecting weak industry demand and decreased sales of lower-value consumer tyres. First quarter 2013 segment operating income of $127 million was a 59 per cent improvement over the prior year and a first quarter record. Segment operating income was positively impacted by $163 million in lower raw material costs. This was partially offset by $58 million, resulting from decreased volume and unabsorbed overhead from related production cuts, $47 million in lower price/mix and $18 million primarily due to lower third party chemical sales.

Latin America’s first quarter sales decreased $8 million from last year to $513 million. Sales were negatively impacted by $62 million in unfavourable foreign currency translation and $33 million related to the sale of the company’s cross-ply truck tyre business. These were partially offset by a five per cent increase in tyre unit volume and improved price/mix. Original equipment unit volume decreased five per cent. Replacement tyre shipments were up 11 per cent. First quarter segment operating income of $60 million was up nine per cent from a year ago. Price/mix improvements of $45 million benefited segment operating income and lower raw material costs added $4 million. Segment operating income was negatively impacted by higher conversion costs of $33 million, primarily due to cost inflation, and $11 million in unfavourable currency translation. The devaluation of the Venezuelan bolivar fuerte against the US dollar in February 2013 and weak economic conditions in that country negatively impacted segment operating income by approximately $16 million in the first quarter of 2013.

Asia Pacific’s first quarter sales decreased $10 million from last year to $567 million. Sales were negatively impacted by $15 million in lower sales in other tyre-related businesses and $14 million in unfavourable foreign currency translation. Original equipment unit volume was up five per cent. Replacement tyre shipments were up four per cent. First quarter segment operating income of $84 million was up 25 per cent from last year and a first quarter record. Segment operating income was positively impacted by $31 million in lower raw material costs. It was negatively impacted by $7 million in lower price/mix, $3 million in unfavourable foreign currency translation and the impact of inflation on wages and other costs. Compared with the year-ago quarter, segment operating income improved by $4 million due to insurance recoveries for costs resulting from flood disruption in Thailand.

Europe, Middle East and Africa’s first quarter sales decreased 17 per cent from last year to $1.6 billion. Sales reflect a 16 per cent decrease in tyre unit volume, primarily due to economic weakness in the region, as well as unfavourable foreign currency translation of $38 million. Original equipment unit volume was down 12 per cent. Replacement tyre shipments were down 18 per cent. First quarter 2013 segment operating income of $31 million was $59 million below the prior year. Lower raw material costs of $89 million were offset by the $83 million impact of reduced volume and unabsorbed overhead from related production cuts and $62 million in lower price/mix.

“In Europe, we are taking steps to address weak industry demand brought about by recessionary conditions that continue to impact the auto and tyre industries,” stated Kramer. “We are executing a three-point plan to address profitability in this region.” In addition to exiting the agricultural tyre business in the Europe, Middle East and Africa region and closure of the Amiens plant in France, Goodyear intends to: Increase share in targeted market segments; grow in emerging markets; introduce additional productivity improvements across the region, totalling $75 million to $100 million.

Outlook

Goodyear is now forecasting its 2013 tyre unit volumes to be essentially at 2012 levels as a result of weak industry conditions, especially in Europe. For the full year in North America, Goodyear expects consumer replacement to essentially remain at 2012 levels. The company’s full year 2013 outlook in other North American market segments is unchanged; it expects consumer original equipment volumes to be up approximately five per cent, while commercial replacement and original equipment are both expected to remain at about 2012 levels.

For the full year in Europe, Middle East and Africa, Goodyear expects consumer replacement to be at essentially 2012 levels. The company’s full year 2013 outlook in other Europe, Middle East and Africa market segments is unchanged; it expects consumer original equipment volumes to be down approximately five per cent, commercial replacement to be up approximately five per cent percent and commercial original equipment to be flat to up five per cent.

“We remain confident in our full-year outlook and continue to expect global segment operating income of $1.4 billion to $1.5 billion in 2013, which would be up more than 12 per cent from 2012 and a record,” said Kramer. The company continues to target positive cash flow in 2013, excluding pension pre-funding.