Goodyear Tire & Rubber Company
) revealed a sharp 71% decline in profit to $6 million or 3 cents
per share in the fourth quarter of 2011 from $21 million or 7 cents
per share in the same quarter of 2010 (all excluding special
With this, the company failed to meet the Zacks Consensus
Estimate of 26 cents per share during the quarter. Including
special items, the company's profit was $18 million or 7 cents per
share in the quarter compared with a loss of $177 million or 73
cents per share a year ago.
The decline in profit was primarily attributable to higher raw
material costs, lower replacement industry volumes in mature
markets along with business challenges in Latin America and
flooding in Thailand.
Sales in the quarter went up 12% to $5.7 billion despite a 5%
fall in tire volumes to 43.2 million units reflecting the above
mentioned factors. It was also lower than the Zacks Consensus
Estimate of $5.9 billion.
Strong price/mix performance led to a 19% rise in revenue per
tire during the quarter, excluding the impact of foreign currency
translation. Unfavorable unit volume and foreign currency
translation reduced sales by $174 million and $49 million,
Segment operating income went down $28 million to $196 million
in the quarter as positive impact from improved price/mix of $702
million was more than offset by $631 million in higher raw material
costs ($583 million net of raw material cost reduction
Segment operating income was also adversely impacted by $37
million in lower volumes and $19 million due to lower profits from
other tire-related businesses, primarily third-party chemical sales
in North America. The other factors that negatively affected
operating income include business disruptions and the temporary
closure of the company's factory in Thailand due to flooding,
inefficiencies related to a plant closing in North America and poor
productivity at factories in France.
Sales in the North American Tire segment increased 17% to $2.6
billion reflecting improved price/mix. Tire unit volumes fell 2%
while original equipment unit volume rose 7%. Replacement tire
shipments went down 3% reflecting lower industry demand.
Sales were positively impacted by $118 million from higher sales in
other tire-related businesses, primarily third-party chemical
Operating income in the segment almost doubled to $21 million
due to improved price/mix of $289 million that more than offset
$241 million of higher raw material costs. Further, operating
income was boosted by fixed cost recovery of $15 million due to
higher utilization rates, $21 million reduction in selling, general
and administrative (SG&A) expenses, offset by costs resulting
from manufacturing inefficiencies related to the closure of a plant
It was also negatively impacted by $20 million in lower profits
from other tire-related businesses, primarily third-party chemical
sales, and $15 million in higher USW profit sharing
Sales in the Europe, Middle East and Africa Tire segment went up
11% to $1.9 billion reflecting improved price/mix. Tire unit
volumes dipped 5% while original equipment unit volume increased
6%. Replacement tire shipments went down 8%, reflecting lower
Segment operating income rose 47% to $88 million due to improved
price/mix of $280 million that more than offset $201 million of
higher raw material costs. Further, fixed cost recovery due
to higher production levels contributed $16 million to segment
operating income, partially offset by higher SG&A expenses and
poor productivity at the company's factories in France.
Sales in the Latin American Tire segment inched up 2% to $596
million reflecting better price/mix. Tire unit volumes decreased
8%, original equipment unit volume went down 6% and replacement
tire shipments fell 9%. Sales were also negatively impacted by $25
million due to unfavorable foreign currency translation and $19
million resulting from the sale of the farm tire
Segment operating income ebbed 48% to $48 million due to raw
material cost increases of $82 million that more than offset
price/mix improvements of $66 million. It was also negatively
impacted by $16 million resulting from lower volume and $9 million
due to the sale of the farm tire business.
Sales in the Asia-Pacific Tire segment grew 5% to $591 million
reflecting strong price/mix and favorable foreign currency
translation. Tire unit volumes fell 10%, original equipment
unit volume decreased 11% and replacement tire shipments dipped
10%, reflecting lower industry demand in Australia and flooding in
Segment operating income decreased 35% to $39 million due to $59
million of higher raw material costs and $10 million in higher
costs related to the start up of a new factory in China that more
than offset the improved price/mix of $67 million. Further,
business disruptions in Thailand reduced segment operating income
by $12 million.
Goodyear posted a profit of $321 million or $1.26 per share in
full year 2011 compared with a loss of $216 million or 89 cents per
share in 2010. Sales in the quarter appreciated 21% to $22.8
billion from $18.8 billion in 2010, reflecting strong price/mix,
positive impact from increase in sales in other tire-related
businesses, primarily third-party chemical sales in North America,
favorable foreign currency translation effects.
Operating income increased 49% to $1.4 billion in 2011,
reflecting strong sales in all the company's business units.
Segment operating income was also benefited from $2.4 billion in
improved price/mix, which more than offset $1.8 billion in higher
raw material costs.
Goodyear had cash and cash equivalents of $2.8 billion as of
December 31, 2011, an improvement from $2.0 billion as of December
31, 2010. Long-term debt and capital leases were $4.9 billion as of
December 31, 2011 compared with $4.5 billion as of December 31,
Goodyear expects full-year tire unit volume to be flat in 2012
compared with 2011. In North America, the company expects the
consumer replacement market to be flat to down 2%, consumer
original equipment flat to be up 3%, commercial replacement up
between 2% and 6% and commercial original equipment up between 10%
In Europe, the company expects consumer replacement industry to
be flat to down 2%, consumer original equipment down between 5% and
9%, commercial replacement down between 3% and 8% and commercial
original equipment to fall between 20% and 25%.
Goodyear anticipates raw material costs to increase between 20%
and 25% for the first quarter of 2012 from the prior year while
smaller increases are expected for the second quarter of
2012. It also expects raw material costs to decrease in the
second half of 2012 compared with the second half of 2011 and
increase 5% in full year 2012 compared with 2011.
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" brands as well as private-label brands.
On a worldwide basis, there are two major competitors for
Goodyear - Bridgestone, Japan, and Michelin, France, who 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. The
company has targeted $1 billion of gross savings by 2012. In
addition, the company expects to benefit from its focus in the
emerging markets of Latin America, Eastern Europe and Asia.
However, Goodyear faces pricing pressure from original equipment
manufacturers due to weak industry demand. Further, its highly
leveraged balance sheet is worrisome. These factors have led the
company retain a Zacks #3 Rank, which translates to a rating of
"Hold" for the short term (1 to 3 months) and we reiterate our
"Neutral" recommendation for the long term (more than 6
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): Free Stock Analysis Report
GOODYEAR TIRE (
): Free Stock Analysis Report
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