TireHub Information Overshadows Goodyear's 1Q 2018 Results
Goodyear Tire & Rubber Co. released its first-quarter 2018 financial results on April 25. Sales were up compared to the same period in 2016. Net income was down, as was unit volume. Operating income was down as well.
It was the information about TireHub LLC, however, that made this report unique. TireHub is the recently announced 50-50 joint venture wholesale distribution company created by Goodyear and Bridgestone Americas Inc. It is made up of 45 Goodyear company-owned wholesale distribution warehouses and 38 Bridgestone TWW warehouses. Both parties say the entity will be run independently.
In its 1Q 2018 press release, Goodyear said the transaction is expected to close in June 2018, subject to customary closing conditions and regulatory approvals.Although the U.S. government still has to OK the joint venture, Goodyear has already told American Tire Distributors Inc. it will be phased out as one of the tire manufacturer's aligned distribution partners in anticipation of its approval.
Goodyear also said the following: "In conjunction with this transaction, the company expects to transition volume representing approximately 10 million units of annual sales -- primarily to TireHub, but to other aligned distributors as well -- beginning during the second quarter of 2018. Given the temporary disruption associated with the start-up of TireHub, the company expects a near-term reduction in volume of up to 1.5 million units in 2018."
Goodyear said it expects to benefit from the establishment of TireHub. "The new venture will allow the company to work more closely with its customers in the future and deliver an enhanced brand experience for consumers as buying habits continue to evolve."
Goodyear Chairman, CEO and President Rich Kramer had this to say:
“TireHub will deliver best-in-class service for our retail and fleet customers and will be the cornerstone of our aligned distribution network, including our company-owned retail stores. TireHub will strengthen our ability to promote our premium brands, our industry-leading e-commerce solution and our strategy of targeting the industry’s most profitable, large rim size segments. This agreement increases our confidence in delivering on our long-term targets.”
There’s risk in standing still, Kramer said in a conference call discussing the financial results. The creation of TireHub “puts us in a better position going forward.
“We’ve been working on this transaction with Bridgestone for over a year. We have to reposition about 10 million units, and that creates a lot of complexity as we move ahead.
“Relationships change over time. We had an aligned distribution network that worked very well for many years," Kramer said. "Over time that relationship changes, priorities change, and that’s why we’re doing this.”
Goodyear posted net income of $75 million on net sales of $3.8 billion for the first quarter ended March 31, 2018.. That compares to income of $166 million on sales of nearly $3.7 billion in the first quarter of fiscal 2016. The company's income-to-sales ratio for 1Q 2018 was 2%.
Segment operating income was down 28%, from $390 million to $281 million. Tire unit volume was down 2.5% worldwide.
In the Americas Business Unit, first-quarter 2018 tire unit volume was down 3%, broken down as follows:
* Original equipment unit volume was down 3%, driven by production declines in the U.S.
* Consumer replacement tire shipments in the U.S. were down 3%, which Goodyear said outperformed USTMA (U.S. Tire Manufacturers Association) industry members, who were collectively down 5%.
Sales in the Americas totaled $1.9 billion, down 2% primarily due to lower unit volume.
Segment operating income totaled $127 million, down 41% from the prior year. The decline was driven by increased raw material costs, lower price/mix and the effect of lower volume, said Goodyear.
"We are pleased with our first-quarter results given higher raw material costs and weaker demand than we expected in the quarter,” said Kramer. “These results were highlighted by our performance in the 17-inch-and-larger segment in consumer replacement, which delivered more than double the industry growth in the U.S. and Europe."