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Goodyear Expects 4Q Headwinds, but Posts Strong 3Q Results

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Goodyear Expects 4Q Headwinds, but Posts Strong 3Q Results

Goodyear Tire & Rubber Co. says it has revised its expectations for 2018 segment operating income following its third-quarter 2018 results "to reflect the increasingly challenging industry environment."

For the year, the company expects its segment operating income to exceed $1.3 billion, which reflects the following:

* the impact of higher raw material costs, "which includes the negative impact of transactional currency headwinds,"

* further industry weakness in China, and

* economic volatility in Brazil.

Despite the expected fourth-quarter challenges to its segment operating income, Goodyear posted net income of $351 million on net sales of $3.928 billion for the third quarter ended Sept. 30, 2018. That compares to income of $129 million on sales of $3.921 billion for the same period in 2017.

The company's income-to-sales ratio for the quarter was nearly 9%.

Goodyear also reported segment operating income of $362 million in 2018, virtually flat with the $367 million reported a year ago.

"We continued to improve the operating performance in our key mature markets, driven by strong volume growth, including significant increases in the more profitable 17-inch-and-greater rim sizes in the U.S. and Europe," said Richard Kramer, chairman, CEO and president. "These gains contributed to the improving momentum in our two largest segments, as EMEA (Europe, Middle East and Africa) delivered operating income growth of more than 20%, and Americas turned in its best year-over-year performance since 2016.

"We are pleased to see that in total, our operating performance was relatively stable in a period of increasing volatility. The issues that began to emerge in the second quarter have persisted – including a stronger U.S. dollar and deteriorating market conditions in China. Additionally, newly enacted emission standards in Europe, growing economic volatility in Latin America, and a changing global trade environment have added incremental challenges for the industry.

"We have successfully navigated through similar conditions in the past, and I am confident that our strategic plan and the investments we are making are improving our long-term competitive position," he added.

Goodyear’s third quarter 2018 sales were driven by higher volume, improved price/mix and higher sales in other tire-related businesses. These increases were substantially offset by unfavorable foreign currency translation.

Tire unit volumes totaled 40.5 million, up 2% from 2017. Goodyear said replacement tire shipments increased 4%, driven by strength in Americas and EMEA. Original equipment unit volume decreased 4%, primarily driven by lower consumer demand in China.

Goodyear’s third quarter 2018 net income was up 172% compared to 3Q 2017, primarily driven by a $287 million net gain resulting from the company’s TireHub transaction, which was completed during the quarter.

Year-to-date results

Goodyear’s net sales for the first nine months of 2018 were $11.6 billion, a 3% increase from the same period in 2017. The increase was primarily due to improvements in price/mix and higher unit volumes.

Tire unit volumes totaled 118.5 million, up 1% from 2017. Replacement tire shipments increased 2%, driven by stronger consumer replacement shipments in EMEA and Americas. OE tire volume decreased 1%, with declines in EMEA and Americas partially offset by increases in Asia Pacific during the first half of the year.

Goodyear’s year-to-date net income of $583 million is up from $442 million in the prior year’s nine-month period. Adjusted net income for the first nine months was $434 million, compared to $543 million in the prior year’s period.

The company reported segment operating income of $967 million for the first nine months of 2018, down from $1.1 billion a year ago. The decrease was largely attributable to the effect of higher raw material costs and reduced price/mix, partially offset by net cost savings and the impact of higher volumes.

Shareholder returns

The company announced a 14% increase in its quarterly dividend to 16 cents per share of common stock on Oct. 10, 2018, payable on Dec. 3, 2018, to shareholders of record on Nov. 1, 2018. The payout represents an annual rate of 58 cents per share for 2018 and 64 cents per share for 2019.

As a part of its previously announced $2.1 billion share repurchase program, the company repurchased 4.2 million shares of its common stock for $100 million during the third quarter. Since its inception, purchases under the program total 52 million shares for $1.5 billion.

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