Kramer praises loss-making Goodyear for ‘improvement across all businesses’
Although Goodyear Tire & Rubber recorded a net loss for the third consecutive year, company chairman and CEO Richard J. Kramer states he’s “very pleased” with the tyre maker’s fourth quarter and full year 2010 performance. “Our operating results reflect significant recovery, with improvement across all of our businesses versus last year despite escalating raw material costs,” Kramer commented.
Fourth quarter results
Sales during the final quarter of last year amounted to US$5.1 billion, up 14 per cent year-on-year from 2009. Goodyear notes that the quarter’s sales benefited from “record price/mix improvements” that increased revenue per tyre, excluding the impact of foreign currency translation, 12 per cent over the 2009 quarter. Sales were also impacted positively by a $159 million increase in sales in other tyre-related businesses, primarily third-party chemical sales in North America. Unfavourable foreign currency translation reduced sales by $111 million, however.
Segment operating income was $224 million in the fourth quarter, down 10 per cent year on year. Goodyear comments this operating income reflected improved price/mix of $315 million and the benefits of higher volume, offset by $430 million in higher raw material costs. Unfavourable foreign currency translation reduced segment operating income by $17 million while cost-cutting actions provided a $119 million benefit.
The 2010 fourth quarter included total charges of $213 million due to rationalisations, asset write-offs and accelerated depreciation, $20 million related to the elimination of the subsidised essential goods exchange rate in Venezuela, and a charge of $18 million related to a claim regarding the use of value-added tax credits in prior periods; and gains of $31 million on asset sales, primarily in Asia, and $22 million related to net tax benefits primarily due to tax law changes in the US and other countries. Fourth quarter 2010 net loss was $177 million compared with net income of $107 million in the 2009 quarter.
Goodyear’s annual sales for 2010 were $18.8 billion, up 16 per cent from 2009. Sales reflect the $1 billion impact of an eight per cent improvement in tyre unit volume as well as a $582 million increase in sales in other tyre-related businesses, primarily third-party chemical sales by North American Tire. Sales also reflect price/mix improvements and unfavourable currency translation. Revenue per tyre, excluding the impact of foreign currency translation, increased six per cent over 2009.
The company’s 2010 segment operating income of $917 million is up from $372 million in 2009, reflecting improved profitability in all four of the company’s business units. Compared to the prior year, 2010 segment operating income reflects higher sales, actions that reduced costs by $467 million and a recovery in under-absorbed fixed costs. These improvements more than offset higher marketing costs in support of the company’s brands and emerging market growth, wage inflation and foreign currency translation.
Compared to 2009, improved price/mix of $689 million offset $685 million in higher raw material costs ($549 million net of raw material cost reduction actions). Goodyear’s 2010 net loss of $216 million compares to a net loss of $375 million in 2009.
EMEA sales up 11 per cent
Europe, Middle East and Africa Tire’s fourth quarter sales increased 11 per cent year on year to $1.7 billion. This figure reflects a nine per cent increase in tyre unit volume and strong price/mix performance. Original equipment unit volume increased 11 per cent while replacement tyre shipments were up nine percent. Fourth quarter revenue per tyre, excluding the impact of foreign currency translation, increased 11 per cent in 2010. Unfavourable foreign currency translation reduced sales by $122 million.
Fourth quarter 2010 operating income for the EMEA region was $60 million, $65 million below the previous year. The 2010 quarter was positively impacted by improved price/mix of $85 million, higher volume, increased production levels and actions to reduce costs. Raw material costs increased $158 million over last year. Unfavourable foreign currency translation reduced segment operating income by $11 million.
New products driving record revenue per tyre
The words from Kramer’s lips are positive: “The percentage of new products in our overall line-up is the highest ever and is driving record revenue per tyre increases and continued success in targeted markets. Our selective approach to the business continues to present strong profit growth opportunities. Goodyear’s leading brands and technology offer customers in targeted segments with an outstanding value proposition.”
Union City factory to close
“We also remain firmly committed to improving our competitiveness and, as a result, have announced plans to close our Union City, Tennessee plant,” announced Kramer. “While we are committed to manufacturing in North America, all of our plants must be cost competitive and be able to demonstrate sustainable world-class productivity. That is not the case with this plant, and as a result, the market has moved beyond what the factory is able to build.
Due to this said inability to demonstrate sustainable world-class productivity the Union City plant, which currently employs some 1,900 people, is earmarked for closure before the end of 2011. Goodyear says this closure, when complete, will eliminate approximately 12 million units of available capacity and is the final action in plans announced in 2009 to eliminate 15 million to 25 million units of high-cost capacity globally. This action is expected to provide annual cost savings of approximately $80 million. Goodyear’s fourth quarter 2010 after-tax restructuring charge related to this action was approximately $160 million. Total after-tax restructuring, accelerated depreciation and asset write-off charges for this action are estimated to be approximately $270 million, of which approximately $140 million will be cash charges.
Outlook for 2011
Goodyear says it expects the global tyre industry to continue to grow in 2011, with volume expansion across all regions and major segments:
In North America, the consumer replacement industry is expected to grow between one and three per cent, consumer original equipment between five and ten per cent, commercial replacement between three and eight per cent and commercial original equipment between 20 and 30 per cent. In Europe, the consumer replacement industry is expected to grow between one and three per cent, consumer original equipment zero and five per cent, commercial replacement between five and ten per cent and commercial original equipment between 30 and 40 per cent. Goodyear also anticipates its raw material costs in the first quarter of 2011 will increase 25 to 30 per cent compared with the prior-year quarter.
“We carry significant momentum into 2011 and expect industry growth in our targeted segments will drive a three per cent to five per cent increase in Goodyear’s unit volume,” said Kramer. “Additionally, we will maintain our focus on price/mix and expect continued benefits related to cost performance and unabsorbed fixed cost recovery.”