Charges deflate Goodyear’s strong operating performance

A one-time pre-tax charge of US$646 million linked to the deconsolidation of its Venezuelan subsidiary’s financial statements dragged Goodyear Tire & Rubber into the red in the fourth quarter of 2015. The tyre maker recorded a GAAP basis net loss of $380 million during the three months to 31 December 2015, a far cry from the $2.1 billion net income achieved a year earlier. Goodyear calculates that excluding certain significant items, most notably the abovementioned deconsolidation, adjusted net income came to $257 million, or $0.93 per share.

“The decline in our net sales for the quarter is more than explained by the strengthening of the US dollar,” noted chief financial officer and executive vice-president Laura Thompson during a Goodyear earnings call on 9 February. Following the deconsolidation of the Venezuelan subsidiary’s financial statements, which took effect 31 December 2015, Goodyear began reporting results for that operation using the cost method of accounting. The fourth quarter 2015 charge for this change amounted to $577 million after tax.

Goodyear’s fourth quarter 2015 sales came to $4.1 billion, compared to $4.4 billion a year ago. Sales were impacted by $339 million in unfavourable foreign currency translation. Total Q4 tyre volumes amounted to 42.1 million units, up seven per cent from a year earlier; this rise was in part to Goodyear’s acquisition of Nippon Goodyear Ltd. (NGY) in Japan. Replacement tyre shipments were up nine per cent and original equipment volumes up two per cent.

The company reported segment operating income of $476 million in the fourth quarter of 2015, up 33 per cent from a year ago. The increase was driven by favourable price/mix net of raw materials and higher volume, partially offset by cost inflation and unfavourable foreign currency translation.

Full-year 2015

During Goodyear’s fourth quarter and full-year earnings call, company chairman, president and chief executive officer Richard Kramer referred to Goodyear’s 2015 results as “impressive,” specifically the 18 per cent growth in operating income to $2.0 billion. “Excluding the impact of currency on our results, our segment operating income grew 27 per cent, which is a clear indication of the strength of our underlying business,” he commented.

Goodyear’s 2015 sales amounted to $16.4 billion, compared to $18.1 billion in 2014. The company reports that sales were impacted by $1.6 billion in unfavourable foreign currency translation. Tyre unit volumes totalled 166.2 million units, up three per cent from 2014, due in part to the acquisition of NGY in Japan. Replacement tyre shipments were up two per cent and original equipment unit volume up three per cent.

Net income available to common shareholders in 2015 amounted to just $307 million, or $1.12 per share – 87.2 per cent lower than the $2.4 billion reported a year earlier. Excluding certain significant items, most notably the deconsolidation of the Venezuelan subsidiary, adjusted net income was $906 million, or $3.32 per share. Full-year adjusted net income was also impacted by $165 million of US tax expense following the release of the company’s US tax valuation allowance.

“As we look at 2015, I’m very pleased with our fourth quarter and full year results,” commented Richard Kramer. “Achieving these outcomes, even amidst global economic challenges, is perhaps the best indication of the strength of our strategy and the changes we’ve made to Goodyear’s business over the past several years.”

Outlook – 2016 and beyond

Commenting on the situation in Venezuela, chairman, Richard Kramer observed that the country’s macroeconomic crisis has dramatically worsened in tandem with declining oil prices, however following the subsidiary’s deconsolidation, Goodyear is once again back on course to achieve the growth set out in the company’s three-year plan in 2013. He said Goodyear is “committed to grow ten per cent to 15 per cent in our remaining businesses in 2016 and to that same initial level of $2.1 billion to $2.2 billion.”

In addition to this growth in segment operating income of between ten and 15 per cent for ongoing operations, the company also aims to achieve positive free cash flow from operations and an adjusted debt to EBITDAP ratio of 2.0x to 2.1x at year-end.

“We are confident in our 2016 plan and remain committed to our strategy of pursuing profitable volume and share in segments where the Goodyear brand is a differentiator,” stated Kramer. “With the heightened concern about the state of the global economy today, we will continue to initiate adjustments to our cost base amidst changing markets. We also are working on plans for further actions on cost, including capacity actions later this year.

“Looking beyond 2016, we expect our growth will continue,” the chairman, president and chief executive officer added. “We are as focused as ever on being the industry’s innovation leader, being first with customers, being the leader in targeted market segments, and as a result, being a company that continuously drives sustainable value.”

Further information about Goodyear’s fourth quarter and full year 2015 results can be found in the Tyrepress.com company profiles and reports section.