New Goodyear plant to meet growing Americas demand
Due to a strong free cash flow in 2013, Goodyear Tire & Rubber is reallocating approximately US$1.1 billion of its 2014-2016 cash flow – $300 million of this will go towards establishing a new consumer tyre facility in the Americas. Goodyear aims for the plant to begin production in the first half of 2017 with an annual capacity of around six million tyres, an amount that will be expandable as demand increases. Site selection to identify a suitable location for serving North and Latin American customers is now underway. Total plant investment will be in the vicinity of $500 million.
LMC Automotive forecasts quoted by Goodyear indicate that demand for consumer tyres within the Americas is growing by an average of 2.5 per cent a year, with more than 90 per cent of this growth occurring in the high-value-added segment (17-inch rim diameter or higher, low profile, H speed rated or higher). By 2019, demand for an additional 71 million units (compared with 2013) will exist in the combined original equipment and replacement markets. Based on these figures and assuming it maintains its current market share, Goodyear anticipates it will be able to supply an additional 12 million high-value-added consumer tyres in the Americas by 2019, compared with 2013. The new plant will meet half this expected demand.
According to the tyre maker, the new plant will support its long-term growth in high-value-added consumer replacement and original equipment market segments. “Our investment supports another key element of our strategy – to focus on winning with consumers in profitable market segments,” commented Richard J. Kramer, Goodyear’s chairman and chief executive officer. “With growing consumer demand for our high-value-added tyres in North America and Latin America, the time is right to invest in additional manufacturing capacity in the Americas to maintain Goodyear’s leading position and to grow earnings beyond 2016.” He added that “Goodyear is well-positioned to meet this market demand and has a proven track record of producing strong returns on capital investments.”
In addition to the new plant, Goodyear will add 6 million units of capacity through upgrades to existing plants at a cost of $350 million. Together, the new factory and expansions to existing plants account for 55 per cent of Goodyear’s 2014-2016 Growth Capex Allocation.
Along with taking advantage of high-return growth opportunities in the Americas, a goal of updating Goodyear’s 2014-2016 Capital Allocation Plan is to place a stronger focus on increasing shareholder returns. Measures that will be implemented include an increase in the quarterly cash dividend on Goodyear’s common stock from 5 cents to 6 cents per share beginning in September. The payout represents an annual rate of 22 cents per share for 2014 and 24 cents per share for 2015. The company will also increase its share repurchase programme by $350 million to allow Goodyear to acquire up to $450 million of its stock through 2016. And based on company performance, Goodyear’s shareholder return programme can be increased up to an additional $250 million, to a total of $900 million. In addition, Goodyear intends to allocate an additional $400 million towards debt reduction, further strengthening the company’s leverage metrics and advancing its objective of achieving an investment grade credit rating.
“This updated capital allocation plan for 2014-2016 reflects Goodyear’s commitment to balancing all our priorities – returning cash to shareholders, investing in high-return growth projects and achieving investment grade metrics – to drive long-term shareholder value consistent with our articulated strategy,” stated Kramer.
The company has also reaffirmed its 2014-2016 financial targets, which include segment operating income growth of between ten per cent and 15 per cent a year and annual positive free cash flow from operations. Additionally, the company continues to expect a two per cent to three per cent increase in unit volumes for 2014 over 2013.