Goodyear Reports Improvement in Q3, but Decline Vs 2008 Continues
Goodyear Tire & Rubber Company’s third quarter 2009 financial report showed sales and income improvements in comparison with quarter two, but the results continue to reflect what the company calls “weak industry demand”. Accentuating the positive, Goodyear states that it “sees opportunities as markets recover”, an idea reflected in the company’s launch of 57 new products over the course of the first three quarters of 2009 (15 in quarter three), a figure that surpasses the full-year target. Additionally, Goodyear has improved its liquidity, made year-to-date savings totalling $540 million and reduced its inventories by more than $1 billion in the period, while producing a third quarter segment operating income of $275 million, a figure that shows improvement on 2008, with sales 11 per cent up from quarter two at $4.4 billion.
However, this figure is also 15 per cent down from 2008’s third quarter sales, representative of the company’s sales for 2009’s first nine months – $11.9 billion, down from $15.4 billion in the 2008 period. According to the company, year-to-date “sales reflect the $1.7 billion impact of a 14 per cent decline in tyre unit volume due to lower global industry demand, as well as an $828 million reduction in sales in other tyre-related businesses, primarily third-party chemical sales by North American Tire. Unfavourable foreign currency translation reduced sales by $1 billion.” The company’s year-to-date segment operating income was $123 million compared to $963 million last year. Meanwhile, “third quarter 2009 sales reflect the $276 million impact of a 7 per cent decline in tyre unit volume due to lower industry demand as well as a $279 million reduction in sales in other tyre-related businesses, primarily third-party chemical sales by North American Tire. Unfavourable foreign currency translation further reduced sales by $159 million,” the company’s statement said.
Third quarter 2009 results
The company had segment operating income of $275 million in the third quarter of 2009, up from $266 million in the 2008 third quarter and $24 million in 2009’s second quarter. Compared to the prior year, third quarter 2009 segment operating income reflects continued weak industry demand, which resulted in a negative volume impact of $64 million and under-absorbed fixed costs of approximately $107 million. The 2009 quarter benefited from $207 million in lower raw material costs. Goodyear made additional progress during the third quarter on its Four-Point Cost Savings Plan. The company achieved $195 million in new savings during the third quarter, for a total of $540 million in the first nine months of 2009.
During the third quarter of 2009, the company reduced its global work force by 300 positions, adding to approximately 5,500 first half reductions. The company’s full-year target was a reduction of 5,000 positions.
In terms of earnings, third quarter 2009 Goodyear net income was $72 million (30 cents per share), up from $31 million (13 cents per share) in 2008’s third quarter. The company had net losses of $221 million (92 cents per share) in the second quarter of 2009 and $333 million ($1.38 per share) in the 2009 first quarter. All per share amounts are diluted.
In its Europe, Middle East and Africa segment, Goodyear saw third quarter sales decline 18 per cent from last year primarily, it states, due to lower tyre unit volume, reflecting reduced industry demand, as well as unfavourable foreign currency translation. Original equipment unit volume declined 20 per cent. Replacement tyre shipments declined at a much slower rate, down 6 per cent.
The segment saw a third quarter operating income of $106 million, experiencing lower sales and production levels. The quarter benefited from $63 million in lower raw material costs and actions to reduce costs, which offset higher manufacturing costs. Foreign currency translation also negatively impacted operating income.
In North America, Tire Review reports that through the first three quarters, Goodyear’s North American Tire unit saw tire unit sales fall from 54.2 million units in 2008 to 45.8 million this year, and sales dollars fall from $6.3 billion to $5.1 billion year-over-year. The result is a net loss of $278 million through the first three quarters of 2009 compared to a net profit of $37 million last year.
Latin American Tire’s third quarter sales declined 16 per cent from last year primarily due to lower tyre unit volume, as well as unfavourable foreign currency translation. Original equipment unit volume declined 8 per cent. Similarly replacement tyre shipments were down 7 per cent. Third quarter segment operating income was $99 million, down slightly from the 2008 quarter.
In Asia Pacific, third quarter sales declined 3 per cent from last year, with OE showing a steady 4 per cent increase in unit volume. Replacement tyre shipments were down 6 per cent, though the company says, “improved price/mix partially offset the lower volume.”
Robert J. Keegan, chairman and chief executive officer, looked to the future in preparing his statement to accompany the company’s figures: “The strength of our brands and steady stream of new and innovative tyres such as our branded fuel-efficient tyres provided marketplace momentum and led a strong third quarter performance,” said.
“The success of our Top Line, Cost and Cash actions together with improving market conditions and lower raw material costs drove improved third quarter earnings compared to both last year and to the second quarter,” he said. “We are pleased that our results for the quarter were in line with our original operating plan despite more difficult conditions than we had expected at the beginning of the year,” Keegan added.
Goodyear said it anticipates year-over-year global industry growth in 2010, especially in markets for tyres featuring high-value-added features, larger rim diameters and fuel-efficient technology. The company believe that its “industry-leading new product engine, advantaged supply chain and reduced cost structure position it well to capitalise on these market opportunities”.
Additionally, the company said its strength in high-growth markets of the world in Asia, Latin America and Eastern Europe will allow it to leverage its advantages in these markets and capture a significant portion of that growth potential.