The Goodyear Tire & Rubber Company (GT)

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The Goodyear Tire & Rubber Company (GT)

Q3 2010 Earnings Call Transcript

October 28, 2010 10:00 am ET

Executives

Pat Stobb – Director, IR

Rich Kramer – Chairman, President and CEO

Darren Wells – EVP and CFO

Analysts

Rod Lache – Deutsche Bank

Patrick Archambault – Goldman Sachs

Himanshu Patel – J.P. Morgan

Ravi Shanker – Morgan Stanley

Presentation

Operator

Good morning and welcome to the Goodyear third quarter 2010 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

I’ll now hand the floor to Pat Stobb, Director of Investor Relations. Please go ahead, sir.

Pat Stobb

Good morning, everyone, and welcome to Goodyear’s third quarter conference call. With me today are Rich Kramer, President and CEO; and Darren Wells, Executive Vice President and CFO.

Before we get started, there are a few items I would like to cover. To begin, the webcast of this morning’s discussion and the supporting slide presentation can be found on our Web site, at investor.goodyear.com. A replay of this call will be accessible later today. Replay instructions were included in our earnings release issued earlier this morning. The last item, we plan to file our 10-Q later today.

If I can now direct your attention to the Safe Harbor statement on Slide 2 of the presentation. Our discussion this morning may contain forward-looking statements based on our current expectations and assumptions that are subject to risks and uncertainties that can cause actual results to differ materially.

These risks and uncertainties are outlined in Goodyear’s filings with the SEC and in the news release we issued this morning. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Turning now to the agenda. On today’s call, Rich will provide a business review. After Rich’s remarks, Darren will discuss the financial results and outlook before opening the call to your questions.

That finishes my comments. I’ll now turn the call over to Rich.

Rich Kramer

Thanks, Pat, and good morning, everyone. We appreciate you being with us today. Now before I talk about Goodyear’s third quarter results, which I would say I’m very pleased with overall, I first want to share with you some observations about the tire industry and where we are in a recovery.

While cautious, I certainly feel much better about what we have recently been seeing in the economy and in our industry, especially in the context of what our forward-looking views were two years ago when we saw volumes drop by almost 20%.

We’re seeing the associated benefits of economic growth as global markets begin to recover. Our industry and industry, in general, is on an upward tick. We’re seeing evidence of investments in essentially every region of the globe, and tire unit volumes, even in truck, are trending back to higher levels at a faster pace than anyone had anticipated.

I’d like to note that we have raised our industry outlook throughout the year in Europe and North America, and in emerging markets, particularly Brazil and China, industry volumes are continuing to grow and have already exceeded volume levels reached before the great recession.

So what does all this mean for Goodyear? Demand for our products is strong, volumes are growing on a path to pre-recession levels and our mix strategy is succeeding.

Our plant capacity utilization is improving and we have benefited from the ability to offer a strong value proposition with our premium award-winning products. The bottom line is that as we look to the future we feel good about the direction of the tire industry and we feel even better about the direction as a company.

If I think specifically about our third quarter performance with the industry recovery as a backdrop, it was a very good operational quarter for us. We made progress in every one of our areas of significant focus. Together, these successes provide me a level of confidence that our third quarter performance is another positive step toward our Next Stage Metrics.

As we specifically look at some of the Q3 highlight, our unit sales continued to grow, reflecting not only the industry growth, but also share gains in targeted markets driven by demand for our premium products.

Our revenue was up 13% or a couple of points higher if you exclude the adverse impact of currency. The growth reflects higher unit volumes and increased revenue per tire with our North America business leading the way with a 17% growth.

Our revenue per tire globally increased by 8% versus a year ago, reflecting our pricing actions as well as a continuation of our planned shift in mix towards higher margin segments. Our price mix overall totaled more than $250 million for the quarter, an 8% increase in commercial truck tire volumes globally. We had higher levels of factory utilization and higher productivity flowing to the bottom line and our year-to-date cost savings now total approximately $350 million.

Segment operating income in the quarter was $234 million. While this is down from last year, it is higher than the second quarter, in part reflecting our success in offsetting most of sequentially higher raw materials of $157 million with strong price and mix. Also in the quarter, we continued to improve our balance sheet, completing $1 billion debt issuance and redemption that extended our maturities out to 2020.

Now looking at SBU performance for the quarter, I’ll specifically comment on two of our businesses, and that’s Latin America and North America. In our Latin America business we had a great quarter, particularly in Brazil, although we need to disaggregate the numbers to fully appreciate our progress.

Darren will review the results in more detail, but our Latin America business is essentially flat year-over-year despite a significant reduction in our Venezuelan operating income resulting from a currency devaluation there. The difference was made up by the remainder of the region, where our Brazilian business led the way.

Brazil continues to be a common bright spot for many companies this earning season. For Goodyear, our Brazilian business has been a long time industry leader with the leading distribution channel, world class, low cost manufacturing and a dedicated customer base looking to grow profitably together with us. We remain well positioned to take advantage of the stability in Brazil and we see a path to continued profitable growth in the future.

Last quarter, I laid out the path to a 5% segment operating income margin in our North America business. I’m very pleased with both our third quarter results, and more importantly, the actions that drove them as the impact of those actions goes well beyond the quarter. Year-to-date, North American Tire is slightly above breakeven and its third quarter segment operating income surpassed the prior year despite significant raw material headwinds.

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