Goodyear Tire & Rubber Company
) saw a 12% fall in profits to 57 cents per share in the second
quarter of the year from 65 cents in the prior-year quarter (all
excluding special items) due to lower tire volumes on the back
economic uncertainty across the globe.
However, profits blew away the Zacks Consensus Estimate of 46
cents during the quarter. Total profit dipped 7% to $148 million
from $159 million (all excluding special items) in the second
quarter of 2011.
Revenues dropped 8% to $5.2 billion below the Zacks Consensus
Estimate of $5.7 billion, driven by weak economic conditions and
unfavorable foreign currency translation. Tire unit volumes ebbed
9% to 39.2 million due to weaker replacement industry volumes,
mainly in Europe. Unfavorable foreign currency translation reduced
sales by 6% or $315 million.
Segment operating income slid 12% to $336 million from $382 million
a year ago. The decrease was attributable to lower tire volumes and
associated unabsorbed overhead, along with unfavorable foreign
currency translation. Price/mix improvement of $313 million more
than offset $238 million in higher raw material costs ($171
million, net of raw material cost reduction actions).
North American Tire:
Revenues inched up 2% to $2.5 billion due to improved price/mix.
Original equipment unit volume grew 24% while replacement tire
shipments went down 10%.
Segment operating income surged 37% to $188 million as improved
price/mix of $176 million more than offset $114 million of higher
raw material costs. It was also benefited by $20 million in savings
related to the closure of a tire plant in Tennessee, partially
offset by lower other tire related income and higher pension
Europe, Middle East and Africa Tire:
Revenues went down 18% to $1.6 billion on the back of a 17% fall in
tire unit volume and unfavorable foreign currency translation of
$194 million. Replacement tire shipments decreased 20% while
original equipment unit volume dipped 7%.
Operating income in the segment significantly declined to $19
million from $126 million a year ago driven by lower unit volume,
higher raw material costs, partially offset by improved price/mix.
Latin American Tire:
Revenues dropped 21% to $503 million, driven by a 14% decline in
tire unit volumes and unfavorable foreign currency translation of
$77 million, partially offset by improved price/mix. Both
replacement and original equipment tire shipments went down 14%
during the quarter.
Operating income rose 7% to $58 million driven by price/mix
improvements of $56 million, largely offset by the impact of cost
and wage inflation, lower tire volumes, higher raw material costs
and unfavorable foreign currency translation.
Revenues fell 4% to $600 million due to unfavorable foreign
translation effect of $38 million, partially offset by the impact
of a 2% increase in tire unit volumes and improved price/mix.
Replacement tire shipments fell 8% while original equipment unit
volumes rose 19%.
Operating income increased 9% to $71 million, driven by improved
price/mix of $21 million and higher volumes. However, it was
negatively impacted by $5 million due to costs related to the start
up of a new factory in China as well as unfavorable foreign
Goodyear had cash and cash equivalents of $2.2 billion as of June
30, 2012, a decline from $2.8 billion as of December 31, 2011.
Long-term debt and capital leases were $5.5 billion as of June 30,
2012 compared with $4.9 billion as of December 31, 2011. Long-term
debt (including capital leases) to capitalization ratio was as high
as 85% as of June 30, 2012, but slightly down from 87% as of
December 31, 2011.
Good year expects sluggish growth in the global tire industry. The
company expects unit tire volumes for the year to decrease between
5% and 7% from 2011.
In North America, the company expects consumer replacement industry
to decrease by 1%-3%, consumer original equipment industry volume
to increase by 5%-10%, commercial replacement volume to fall 5%-10%
and commercial original equipment volume to increase 10%-15%.
In Europe, Middle East & Africa, the consumer replacement
industry volume is expected to go down between 8% and 10%, consumer
original equipment volume down between 5% and 10%, commercial
replacement volume down between 3% and 8% and commercial original
equipment down between 5% and 10%.
Goodyear also anticipates flat raw material costs in the third
quarter of 2012 compared with the prior year. However, the company
expects raw material costs to increase 7% for full year 2012.
The company is on track to achieve segment operating income of $1.6
billion in 2013, including $450 million in North America.
Goodyear Tire & Rubber Company is one of the largest tire
manufacturing companies worldwide, selling its products under the
Goodyear, Kelly, Dunlop, Fulda, Debica, Sava and various other
"house" brand names as well as private-label brands.
On a worldwide basis, there are two major competitors for Goodyear
- Bridgestone of Japan, and Michelin of France, both of which
command about 55% of the global market together. Other significant
Cooper Tire & Rubber Co.
), Continental Tires, Pirelli, Toyo Tires, Yokohama Tire, Kumho
Tires, Hankook Tire and various regional tire manufacturers.
We are optimistic about Goodyear's cost-saving actions. However,
due to pricing pressure from OEMs and a weak global economic
scenario the company retains a Zacks #3 Rank, which translates to a
Hold rating for the short term (1 to 3 months) and we reiterate our
Neutral recommendation on its shares for the long term (more than 6
COOPER TIRE (CTB): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
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