Goodyear's Earnings Fall by Double Digits in 2017
Although sales were up, Goodyear Tire & Rubber Co.’s year-over-year earnings dropped 72% in 2017 and segment operating income fell 23%. The company attributed a net loss in 2017's fourth quarter to tax reform.
Sales were $15.4 billion in 2017, up 1% from the prior year’s sales of $15.2 billion.
Overall tire unit volumes dropped 4% to 159.2 million. Replacement tire shipments were down 3%, and original equipment unit volume was down 6 %.
The company says sales in 2017 reflect an increase in price/mix, favorable foreign currency translation and higher sales in other tire-related businesses, which were partially offset by lower volume.
Goodyear reported net income of $346 million, down 72% from $1.3 billion a year ago. Goodyear’s income-to-sales ratio in 2017 was 2.2%.
The company attributed the drop in earnings to increased income tax expense, which was primarily due to the recognition of a one-time, non-cash tax charge related to U.S. tax reform in 2017, and lower segment operating income. In addition, the company says it recognized discrete tax benefits in 2016, primarily due to the release of foreign valuation allowances.
Full-year adjusted earnings per share for 2017 was $3.12, compared to $4.00 a year ago.
The company reported 2017 segment operating income of $1.5 billion in 2017, down 23% from $2 billion a year ago. The decrease was primarily due to increased raw material costs and the effect of lower volume, which were partially offset by price/mix improvements.
Fourth quarter results
Goodyear’s fourth quarter 2017 sales were $4.1 billion, up 9% from $3.7 billion a year ago. The increase was driven by improved price/mix, favorable currency translation and volume. Excluding currency translation, global revenue per tire increased 5%.
Tire unit volumes totaled 42 million, up 2% from 2016. Replacement tire shipments were up 3%. Original equipment unit volume was down 1%.
Goodyear reported a net loss of $96 million in the fourth quarter of 2017 compared to net income of $561 million in the year-ago quarter. The fourth quarter loss was driven by a $299 million one-time, non-cash tax charge related to U.S. tax reform.
In addition, the company recognized discrete tax benefits of $331 million in 2016 primarily due to the release of foreign valuation allowances. Fourth quarter 2017 adjusted earnings per share was 99 cents, compared to 95 cents in 2016. Per share amounts are diluted.
The company reported fourth quarter segment operating income of $419 million in 2017, down from $479 million a year ago. The decrease reflects higher raw material costs and the unfavorable impact of lower production on cost, which were partially offset by improved price/mix, net cost savings and higher volume.
Americas Business Segment
|4Q 2017||4Q 2016||2017||2016|
|Segment operating income||209||295||825||1,151|
|Segment operating margin||9.6%||14.3%||10.0%||14.1%|
Americas’ fourth quarter 2017 sales increased 6% from last year to $2.2 billion. Sales reflect a 4% increase in tire unit volume and favorable price/mix. Replacement tire shipments were up 5%, driven by an increase of 8 percent in U.S. consumer replacement. Original equipment unit volume was flat.
Fourth quarter 2017 segment operating income of $209 million was down 29% from the prior year. The decrease was driven by higher raw material costs and increased costs due to lower production, which were partially offset by improved price/mix and higher volume.
“Our fourth-quarter results were highlighted by our performance in the 17-inch-and-larger segment in consumer replacement, which delivered nearly double the industry growth in the U.S. and Europe,” said Richard Kramer, chairman, chief executive officer and president. “Our strong volume recovery in the quarter gives us positive momentum as we head into 2018.”
“These results reflect the power of the Goodyear brand across all of our regions,” Kramer added. “Our strong global brand is integral to Goodyear’s connected business model which combines innovation and technology leadership, industry-leading products, aligned wholesale and retail distribution and provides us with a competitive advantage.”
“Looking ahead to 2020, I am very confident in our capability to execute our long-term strategy to capture profitable growth in key market segments and deliver significant growth in earnings,” he added.
The company expects its full-year 2018 segment operating income to be between $1.8 and $1.9 billion. The company also has updated its 2020 segment operating income target and capital allocation plan:
Segment operating income target in 2020 of $2.0 to $2.4 billion.The company’s capital allocation plan includes growth capital, restructuring, debt/pension payments and a shareholder return program.
Shareholder Return Program
The company paid a quarterly dividend of 14 cents per share of common stock on December 1, 2017. The Board of Directors has declared a quarterly dividend of 14 cents per share payable March 1, 2018, to shareholders of record on February 1, 2018.
As a part of its previously announced $2.1 billion share repurchase program, the company repurchased 6.3 million shares of its common stock for $195 million during the fourth quarter. For the full year, the company repurchased 12.8 million shares for $400 million.
Since 2013, purchases under the program total 44 million shares for $1.3 billion. There is $0.8 billion remaining under the outstanding authorization through 2019.