Goodyear Q2 results 'another step on the path towards 2013 targets'
Richard J. Kramer, chairman and chief executive officer of Goodyear Tire & Rubber, says he is “very pleased” with the tyre maker’s “outstanding second quarter results.” Goodyear’s figures for the three months to the end of June, which were released on July 28, show a 24 per cent increase in sales to US$5.6 billion, despite a two per cent decline in unit sales. The results, Kramer added, “represent another step on the path toward our 2013 targets. They present confirmation that our strategies are right and that they are working.”
As mentioned above, the company’s sales rose 24 per cent year-on-year to $5.6 billion during the second quarter; this is, Goodyear shares, the highest quarterly sales the company has ever achieved in any quarter. Although total tyre unit volumes, at 49.2 million units, represented weaker industry volumes, particularly in the North American consumer tyre business, sales during the second quarter displayed an improvement in price/mix, which drove revenue up 18 per cent over the second quarter of 2010 (excluding foreign currency effects).
“All of our businesses continued to make solid progress in driving improved price/mix through innovative product offerings in targeted market segments,” Kramer commented.
Operating income during the second quarter amounted to $382 million, up $163 million from the year-ago quarter and a second quarter record. Segment operating income reflected an improved price/mix of $554 million, which more than offset the $428 million incurred through higher raw material costs. Goodyear’s second quarter 2011 net income available to common shareholders was $40 million (16 cents per share), compared with $28 million (11 cents per share) in the 2010 quarter.
Second quarter sales for the Europe, Middle East and Africa Tire business increased 34 per cent from last year to $1.9 billion. Sales reflect a two per cent increase in tyre unit volume, strong price/mix performance and a favourable foreign currency translation of $222 million. Original equipment unit volumes were up “slightly”, while shipments of replacement market tyres were up two per cent. Second quarter revenue per tyre increased 19 per cent in 2011 compared with 2010, excluding the impact of foreign currency translation.
Segment operating income in the second quarter of 2011 was $126 million, $53 million above the prior year. An improved price/mix of $199 million more than offset $135 million of higher raw material costs. The impact of favourable foreign currency translation and actions to reduce costs also contributed to segment operating income.
North American Tire
North American Tire’s second quarter 2011 sales increased 18 per cent from last year to $2.4 billion, a second quarter record. Goodyear comments that sales figures reflect improved price/mix, which drove a 20 per cent increase in revenue per tyre, excluding the impact of foreign currency translation, compared to the second quarter last year. Original equipment unit volumes decreased nine per cent while replacement tyre shipments were down five per cent. Sales were positively impacted by $178 million from higher sales in other tyre-related businesses, primarily third-party chemical sales.
Second quarter 2011 segment operating amounted to $137 million, $121 million above the prior year and the highest achieved in any quarter since 1998. An improved price/mix of $216 million more than offset $131 million in higher raw material costs. Fixed cost recovery due to higher production levels contributed $20 million to segment operating income. Segment operating income also benefitted from a $20 million reduction in general and product liability expense, higher sales in other tyre-related businesses and actions to reduce costs, while higher USW profit sharing expense was an offset.
“North American Tire’s results benefitted from proactive pricing for the value of our products in the face of rising raw material costs,” said Kramer. “These results will be difficult to repeat in the second half because of increasing raw material cost challenges and uncertain economic conditions.”
Latin American Tire
Goodyear’s Latin American Tire business’s second quarter sales increased 21 per cent from last year to $640 million, a record for any quarter. Sales reflect strong price/mix performance and favourable foreign currency translation of $55 million. Original equipment unit volumes were flat and replacement tyre shipments down five per cent. Second quarter revenue per tyre increased nine per cent year-on-year in 2011, excluding the impact of foreign currency translation. Sales were negatively impacted by $25 million resulting from the sale of Goodyear’s agricultural tyre business in April 2011.
The second quarter segment operating income of $54 million was down $12 million year-on-year. Price/mix improvements of $56 million offset $54 million in raw material cost increases. Segment operating income was negatively impacted by $8 million due to the sale of the agricultural tyre business, the impact of inflation on wages and other costs, and costs related to the ramp up of production in Chile.
Asia Pacific Tire
Second quarter sales at Asia Pacific Tire increased 27 per cent from last year to $626 million, a record for any quarter. Sales reflect a strong price/mix performance and favourable foreign currency translation of $63 million. Original equipment unit volumes were down 10 per cent, reflecting the impact of the Japan earthquake and tsunami. Replacement tyre shipments were up three per cent. Second quarter revenue per tyre increased 18 per cent year-on-year in 2011, excluding the impact of foreign currency translation.
Second quarter segment operating income of $65 million was $1 million higher than last year. Improved price/mix of $83 million more than offset $61 million of higher raw material costs. Segment operating income was also impacted by $10 million in costs related to the planned start up of a new manufacturing facility in China.
Goodyear expects the global tyre industry will continue to grow in 2011. In recognition of second quarter volume levels and a reduced outlook for the US consumer replacement industry, it now expects unit volumes for the year will increase at the lower end of its previously announced range of three to five per cent.
“A sluggish economic recovery in our developed markets and higher inflation in emerging markets have resulted in uneven growth in the tyre industry,” Kramer said. “We are confident, however, that Goodyear is well positioned to address the volatile demand environment with our strategy of focusing on targeted market segments and ongoing focus on cost reduction and productivity.”
In Europe, the consumer replacement industry is expected to be up between four and six per cent, consumer original equipment up four to eight per cent, commercial replacement up between seven and 11 per cent and commercial original equipment up approximately 50 per cent.
In North America, the consumer replacement industry is expected to be between flat and up two per cent, consumer original equipment up between five and ten per cent, commercial replacement up between 10 and 15 per cent and commercial original equipment up between 40 and 50 per cent.
Goodyear anticipates its raw material costs for the remainder of 2011 will increase more than 30 per cent compared with last year.