Goodyear revenues fall short of expectations, but income up in Q2

Shares in Goodyear Tire & Rubber fell up to 8.7 per cent yesterday after the company reported second quarter net sales that were US$40 million below estimates. Prices tumbled to a daily low of $25.07 as Goodyear announced it achieved March to June quarter net sales of $4,656 million, 4.9 per cent lower than in the corresponding quarter a year ago.

Segment revenues were down in all regions aside from Europe, Middle East and Africa, where sales increased 0.2 per cent to $1,580 million in the quarter on the back of a 3.4 per cent increase in tyre unit sales, with a total of 15.1 million sold between March and June 2014. The region’s second quarter operating income rose 130 per cent to $117 million, with the operating margin lifting from 3.2 per cent a year ago to 7.4 per cent. “Our balanced approach of growth and cost control was especially critical in EMEA,” commented Goodyear chairman and CEO Richard Kramer during the company’s second quarter July earnings call on 30 July. “And in addition, we’re doing a much better job in the region of supporting our customers, thanks to a strong value proposition and product lineup.”

Although revenues were down 4.9 per cent, operating income amounted to $460 million, up 7.5 per cent on a year earlier and a second quarter record for Goodyear; higher sales volumes and higher first quarter production levels benefited results by $40 million year-on-year, while cost savings of $103 million for the quarter more than offset the negative $69 million impact of inflation. Lower raw material costs only partially offset reduced price/mix for a net unfavorable impact of $44 million year-over-year. Operating income for the first half of the year is $833 million, 14 per cent higher than the first half of 2013. “Achieving these results, even amidst global economic challenges, is perhaps the best reflection of the strength of our strategy and the changes we’ve made to Goodyear’s business. This further renews our confidence in hitting our target of ten per cent to 15 per cent annual segment operating income growth through 2016,” said Kramer.

Net income rose 20.2 per cent year-on-year to $232 million in the second quarter, with net income available to common shareholders amounting to $213 million, a 13.3 per cent increase. Excluding certain significant items, adjusted net income was $225 million, or 80 cents per share.

The company has reaffirmed its 2014-2016 financial targets, which include the ten to 15 per cent segment operating income growth mentioned by Kramer, annual positive free cash flow from operations, and an adjusted debt to EBITDAP ration of 2.0x to 2.1x. Additionally, Goodyear continues to expect a two per cent to three per cent increase in unit volumes for 2014 over 2013.

More information on Goodyear can be found here.