Goodyear Tire & Rubber (GT)
Q3 2012 Earnings Call
October 26, 2012 8:30 am ET
Gregory A. Fritz - Vice President of Investor Relations
Richard J. Kramer - Chairman of The Board, Chief Executive Officer and President
Darren R. Wells - Chief Financial Officer and Executive Vice President
Rod Lache - Deutsche Bank AG, Research Division
Itay Michaeli - Citigroup Inc, Research Division
John M. Healy - Northcoast Research
Patrick Archambault - Goldman Sachs Group Inc., Research Division
Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division
Previous Statements by GT
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Gregory A. Fritz
Thank you, and good morning, everyone. Welcome to Goodyear's third quarter conference call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. Before we get started, there are a few items I would like to cover. To begin, the webcast of this morning's discussion and supporting slide presentation can be found on our website at investor.goodyear.com. Additionally, a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning.
If I can now direct your attention to the Safe Harbor statement on Slide 2. Our discussion this morning may contain forward-looking statements based on our current expectations and assumptions that are subject to risks and uncertainties. These risks and uncertainties, which can cause our actual results to differ materially, are outlined in Goodyear's filings with the SEC and in our earnings release. 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 overview, including perspective on our third quarter results and our progress towards Goodyear's key strategic objectives, as well as our view of the industry environment. After Rich's remarks, Darren will discuss the financial results and outlook before opening the call to your questions.
With that, I will now turn the call over to Rich.
Richard J. Kramer
Great, thank you, Greg, and good morning, everyone. During the third quarter, we continued to make significant progress in line with our strategic plan, highlighted by our outstanding results in our North American Tire business. That said, we also continue to experience the underlying uncertainty in the global economy, most evident in Europe, which remained a very difficult environment and where our business results were significantly lower versus the prior year. Today, I'll elaborate on the drivers of our third quarter results, put those results in the context of our strategy roadmap and finally, share with you an outlook of both our near-term targets and a view of the tire industry.
Now as I've often said, we're not running our business for 1 good quarter or 1 good year, but to create sustainable profitability, with consistent earnings and cash generation throughout the volatile demand cycle that characterizes the tire industry. I'm pleased with the choices we have made to better withstand this demand volatility, while delivering solid segment operating income compared to our past results during periods of similar industry volume levels.
Now looking at the positives in the quarter. Our success in North America is at the top of the list. The North America team delivered another outstanding quarter. The $130 million of segment operating income in Q3 brings North America's year-to-date earnings to nearly $400 million. On our second quarter call, we discussed the combination of operational improvements, product wins and many tough business choices that have led us to these consistent results in NAT. This progress enables us to achieve and exceed our 2013 goal of $450 million of segment operating income, a year early. Now these results are being earned at much lower volume levels and significantly less improvement in pension expense than we originally expected. This is a real win for the team. Most importantly, however, is that we continue to support our customers' profitable growth with products and services that help distinguish them in the marketplace.
Now during the third quarter, we continue to see the destocking we highlighted in the second quarter, with sell-in to the channels down more than sell-outs to consumers. The North American replacement industry remains at historic low levels. Our view continues to be that it is not a question of if, but when, industry volumes return to more normal levels. Now with channel inventories remaining low and U.S. miles driven being up in 7 of the past 9 reported months, we continue to see significant upside in our business as volume returns. Now as a side note, there's been a lot written recently about the expiration of the tariffs in the United States on Chinese-made consumer tires. While the tariff expiration seems to have created some erratic order patterns in September, the impact on our North America business was limited, as we've largely exited the segment served by these imports. Now driven by North America's performance, our overall level of segment operating income is in line with our expectations. We delivered nearly $350 million of segment operating income despite highly recessionary volumes. This reflects the structural changes and fixed cost reductions that we've implemented. Our price/mix execution remains strong, and has helped us run our business profitably even amidst the volatile economy. Our focus on price/mix relative to the value of our products and services, as well as raw material costs, remains a point of emphasis for our teams, as we believe that raw material costs will continue to increase over the long term. While certainly facing challenges in Europe and parts of Latin America, we are pleased that we've been able to deliver consistent segment operating income. Our success in price/mix is reflected in our global revenue per tire, which increased 5% from the same quarter a year ago. In line with our focus on innovation, we continue to mix up to a richer portfolio of innovative products that are winning with consumers.