Goodyear reports higher Q2 earnings on 24 percent sales growth

|  July 28, 2011 |

Goodyear Tire & Rubber Co. on July 28 reported record sales and higher earnings for the second quarter of 2011.

“I’m very pleased with our outstanding second quarter results, which represent another step on the path toward our 2013 targets,” said Richard J. Kramer, chairman and chief executive officer.  “They present confirmation that our strategies are right and that they are working,” he added.

“Earnings growth in North America is a key outcome of our strategies.  North American Tire’s second quarter results show the type of performance we should be able to sustain once we reach our 2013 targets,” Kramer said.

Goodyear’s second quarter 2011 sales were $5.6 billion, up 24 percent from a year ago and the highest ever achieved by the company in any quarter.  Tire unit volumes totaled 42.9 million, down 2 percent from 2010, primarily reflecting weaker industry volumes, particularly in the North American consumer tire business.

Second quarter sales also reflect strong price/mix improvements, which drove revenue per tire up 18 percent over the 2010 quarter, excluding the impact of foreign currency translation.

“All of our businesses continued to make solid progress in driving improved price/mix through innovative product offerings in targeted market segments,” Kramer said.

Second quarter sales were also impacted by a $221 million increase in sales in other tire-related businesses, primarily in North America, and favorable foreign currency translation of $348 million.

The company had segment operating income of $382 million in the second quarter of 2011. This was up $163 million from the year-ago quarter and a second quarter record.  Segment operating income reflected improved price/mix of $554 million, which more than offset $428 million in higher raw material costs ($381 million net of raw material cost reduction actions).

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.  All per share amounts are diluted.

The 2011 second quarter included total charges of $66 million (27 cents per share) due to rationalizations, asset write-offs and accelerated depreciation, financing fees of $53 million (22 cents per share) related to the early partial redemption of 10.5% senior notes, $7 million (3 cents per share) related to discrete tax charges, and $3 million (1 cent per share) in costs related to tornado damage at a manufacturing facility; and a gain of $10 million (4 cents per share) on asset sales.  All amounts are after taxes and minority interest.

Business Segment Results

North American Tire
Second Quarter Six Months
(in millions) 2011 2010 2011 2010
Tire Units 15.7 16.6 32.8 31.8
Sales $ 2,411 $ 2,049 $   4,718 $ 3,828
Segment Operating Income 137 16 177 2
Segment Operating Margin 5.7% 0.8% 3.8% 0.1%

North American Tire’s second quarter 2011 sales increased 18 percent from last year to $2.4 billion, a second quarter record.  Sales reflect improved price/mix, which drove a 20 percent increase in revenue per tire, excluding the impact of foreign currency translation, compared to 2010’s second quarter.  Original equipment unit volume decreased 9 percent.  Replacement tire shipments were down 5 percent.  Sales were positively impacted by $178 million from higher sales in other tire-related businesses, primarily third-party chemical sales.

Second quarter 2011 segment operating income of $137 million was $121 million above the prior year and the highest achieved in any quarter since 1998.  Improved price/mix of $216 million more than offset $131 million of 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 tire-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.  These results will be difficult to repeat in the second half because of increasing raw material cost challenges and uncertain economic conditions,” Kramer said.

Europe, Middle East and Africa Tire
Second Quarter Six Months
(in millions) 2011 2010 2011 2010
Tire Units 17.0 16.8 36.7 35.2
Sales $ 1,943 $ 1,455 $   3,902 $ 2,984
Segment Operating Income 126 73 279 182
Segment Operating Margin 6.5% 5.0% 7.2% 6.1%

Europe, Middle East and Africa Tire’s second quarter sales increased 34 percent from last year to $1.9 billion.  Sales reflect a 2 percent increase in tire unit volume, strong price/mix performance and favorable foreign currency translation of $222 million.  Original equipment unit volume was up slightly.  Replacement tire shipments were up 2 percent.  Second quarter revenue per tire increased 19 percent in 2011 compared to 2010, excluding the impact of foreign currency translation.

Second quarter 2011 segment operating income of $126 million was $53 million above the prior year.  Improved price/mix of $199 million more than offset $135 million of higher raw material costs.  The impact of favorable foreign currency translation and actions to reduce costs also contributed to segment operating income.

Latin American Tire
Second Quarter Six Months
(in millions) 2011 2010 2011 2010
Tire Units 5.0 5.2 9.9 10.3
Sales $   640 $     529 $   1,225 $ 1,007
Segment Operating Income 54 66 121 142
Segment Operating Margin 8.4% 12.5% 9.9% 14.1%

Latin American Tire’s second quarter sales increased 21 percent from last year to $640 million, a record for any quarter.  Sales reflect strong price/mix performance and favorable foreign currency translation of $55 million.  Original equipment unit volume was flat.  Replacement tire shipments were down 5 percent.  Second quarter revenue per tire increased 9 percent in 2011 compared to 2010, excluding the impact of foreign currency translation.  Sales were negatively impacted by $25 million resulting from the sale of the farm tire business in April 2011.

Second quarter segment operating income of $54 million was down $12 million from a year ago.  Price/mix improvements of $56 million offset $54 million in raw material cost increases.  Segment operating income was negatively impacted by $8 million resulting from the sale of the farm tire business, the impact of inflation on wages and other costs, and costs related to the ramp up of a manufacturing facility in Chile.

Asia Pacific Tire
Second Quarter Six Months
(in millions) 2011 2010 2011 2010
Tire Units 5.2 5.3 10.3 10.5
Sales $   626 $   495 $   1,177 $    979
Segment Operating Income 65 64 132 133
Segment Operating Margin 10.4% 12.9% 11.2% 13.6%

Asia Pacific Tire’s second quarter sales increased 27 percent from last year to $626 million, a record for any quarter.  Sales reflect strong price/mix performance and favorable foreign currency translation of $63 million.  Original equipment unit volume was down 10 percent, reflecting the impact of the natural disaster in Japan.  Replacement tire shipments were up 3 percent.  Second quarter revenue per tire increased 18 percent in 2011 compared to 2010, 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.

Year-to-Date Results

Goodyear’s sales for the first six months of 2011 were $11 billion, up 25 percent from $8.8 billion in the 2010 period.  Sales reflect improved price/mix and the $140 million impact of a 2 percent improvement in tire unit volume, as well as a $497 million increase in sales in other tire-related businesses, primarily third-party chemical sales by North American Tire.  In addition, favorable currency translation increased sales by $473 million.

The company’s year-to-date segment operating income of $709 million was up 54 percent from last year.  Compared to the prior year, year-to-date segment operating income reflects higher sales in all four of the company’s business units and actions that reduced costs by $147 million.

Compared to the first six months of 2010, the 2011 period also benefitted from $915 million in improved price/mix, which more than offset $733 million in higher raw material costs. Raw material costs reflect $80 million in actions taken to reduce their impact.

Goodyear’s year-to-date net income available to common shareholders of $143 million (57 cents per share) compares to a net loss of $19 million (8 cents per share) in 2010’s first half. All per share amounts are diluted.

Outlook

Goodyear expects the global tire industry will continue to grow in 2011.  In recognition of second quarter volume levels and a reduced outlook for the U.S. consumer replacement industry, the company now expects that its unit volumes for the year will increase at the lower end of its previously announced range of 3 percent to 5 percent.

“A sluggish economic recovery in our developed markets and higher inflation in emerging markets have resulted in uneven growth in the tire 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 North America, the consumer replacement industry is expected to be flat to up 2 percent, consumer original equipment up between 5 percent and 10 percent, commercial replacement up between 10 percent and 15 percent and commercial original equipment up between 40 percent and 50 percent.

In Europe, the consumer replacement industry is expected to be up between 4 percent and 6 percent, consumer original equipment up 4 percent to 8 percent, commercial replacement up between 7 percent and 11 percent and commercial original equipment up approximately 50 percent.

Goodyear anticipates its raw material costs for the remainder of 2011 will increase more than 30 percent compared with the prior year.


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