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Goodyear Records $399 Million Profit Loss in 4Q 2019

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The final months of 2019 delivered a painful blow to Goodyear Tire & Rubber Co., as the tiremaker recorded a net loss of $399 million in the fourth quarter, and a loss of $297 million for the full year.

Here’s how the company explained the loss:

“The decrease was driven by discrete tax adjustments of $380 million during the fourth quarter of 2019, including a non-cash charge of $334 million related to an acceleration of royalty income in the U.S. from the sale of the next twelve years of European royalty payments to our Luxembourg business, and rationalization charges of $77 million.”

Goodyear broke down the quarter with lists of positives and negatives:

Positives:

  • Positive trend in price versus raw materials
  • Strong cash flow generation
  • U.S. consumer replacement business continues to perform well
  • Global commercial truck tire shipments outpace the industry
  • Replacement shipments in Brazil are up double digits
  • Solid consumer replacement growth in China
  • OE fitments outperform the industry

Negatives:

  • Weak global light vehicle production
  • Acceleration in downturn of commercial truck
  • Recessionary demand in European consumer replacement industry
  • Distribution challenges in Europe
  • Competitive pressures for OE in China
  • Weak demand for off-the-road tires
  • Strong U.S. dollar vs transactional foreign exchange

Rich Kramer, chairman, CEO and president of Goodyear, told analysts plainly he was not pleased with the results, particularly with those recorded in the company’s European, Middle Eastern and African business unit.

“We continue to face a challenging global environment, including recessionary demand trends in many international markets. To address these challenges, we remain focused on further improving our cost structure and working capital management, while continuing to build our capabilities to enable mobility, today and in the future.”

Here’s a look at the numbers for the fourth quarter and full year of 2019:

  4Q 2019 4Q 2018 2019 2018
Net sales $3.713 billion $3.876 billion $14.745 billion $15.475 billion
Net income -$399 million $110 million -$297 million $708 million

Tire units

Globally, tire units were down 2% for the final quarter of 2019, with 39.6 million units sold compared to 40.7 million in the final three months of last year. Goodyear says original equipment unit volume dropped 10%, driven by lower global vehicle production.

The bright side: Replacement tire shipments increased “slightly” in the fourth quarter.

For the full year, OE units decreased 8%. Replacement tire units were basically flat.

A regional look

In each of Goodyear’s three business regions, the results were down for the year. The only exception was in Asia Pacific, where the fourth quarter results were essentially flat.

Here’s a closer look at the Americas segment:

  4Q 2019 4Q 2018 2019 2018
Tire Units 18.7 million 19.1 million 70.4 million 70.9 million
Net Sales $2.026 billion $2.114 billion $7.922 billion $8.168 billion
Segment Operating Income 152 179 550 654
Segment Operating Margin 7.5% 8.5% 6.9% 8.0%

Sales in the Americas dropped 4% in the fourth quarter, and tire unit volume fell 2%. Replacement tire shipments increased 2%, led by growth in the U.S. and Brazil.

OE unit volume fell 18%, which reflects the affect of the General Motors strike in the fall. Goodyear says the drop was “driven by our U.S. business, reflecting lower vehicle production, including the impact of a strike at a major OE customer, and strategic fitment choices.”

Kramer said, “In the U.S., market conditions remained largely stable and our consumer and commercial replacement businesses delivered strong performances this year, as they benefited from the strength of our brand, new product introductions, and the steps we have taken to align our distribution.”

EMEA

  4Q 2019 4Q 2018 2019 2018
Tire Units 13.0 million 13.7 million 55.1 million 57.8 million
Net Sales $1.141 billion $1.210 billion $4,708 billion $5.090 billion
Segment Operating Income 38 74 202 363
Segment Operating Margin 3.3% 6.1% 4.3% 7.1%

EMEA sales fell 6% in the fourth quarter, which Goodyear attributed to lower volume and unfavorable foreign currency translation, though that was partially offset by improved price/mix. Overall tire unit volume dropped 4%, driven particularly by weakened demand for winter tires. OE units were down 12%.

Less volume and higher conversion costs resulted in a 49% drop in segment operating income for the final quarter of 2019.

Asia Pacific

  4Q 2019 4Q 2018 2019 2018
Tire Units 7.9 million 7.9 million 29.8 million 30.5 million
Net Sales $546 million $552 million $2.115 billion $2.217 billion
Segment Operating Income 52 54 193 257
Segment Operating Margin 9.5% 9.8% 9.1% 11.6%

In the Asia Pacific region, sales fell 1%, even though overall tire unit volume was unchanged. OE units were up 4% — driven by growth in China — while replacement tire shipments were down 3% in the region.

The drop in segment operating income was driven by "higher selling, administrative and general expenses, and lower price/mix," Goodyear says.

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