Goodyear reports record third quarter results
The Goodyear Tire & Rubber Co. has reported record third quarter sales of $5.1 billion, up 3% from last year, offsetting lower volumes with higher prices and a richer product mix.
Improved pricing and product mix in all five business units drove revenue per tire up 7% over the 2006 quarter. Lower volumes reflect the strategic decision to exit certain segments of the private label tire business in North America, along with weak markets, the company says.
"Our outstanding third quarter is evidence of the success we are seeing in marketing our premium product lines while remaining focused on improving our cost structure," says Robert Keegan, chairman and chief executive officer. "Despite market challenges, our results are among the best ever achieved by Goodyear.
"Our product, brand, customer and geographic mix drove margin expansion," he says. The company achieved a gross margin of 20% in the quarter, up from 17.4% a year ago.
"North American Tire delivered dramatic earnings improvement despite lower volumes. This reflects its new product success, strong marketing initiatives and cost savings efforts."
Each of the five business units achieved double digit or better percentage growth in segment operating income for the quarter. The company's three emerging markets businesses increased sales 15% and segment operating income 24% over last year.
Keegan said the company made further progress during the third quarter on its plan to achieve $1.8 billion to $2 billion in gross cost savings by the end of 2009. "We have now achieved nearly $900 million in savings and remain on track to reach our four-year goal."
Third quarter 2007 income from continuing operations was $159 million. This compares to a third quarter 2006 loss from continuing operations of $76 million.
Segment operating income benefited from improved pricing and product mix of $179 million in the third quarter of 2007, which more than offset increased raw material costs of $23 million.
Favorable foreign currency translation positively impacted sales by $232 million and segment operating income by $33 million in the quarter.
The 2007 third quarter was also impacted by after-tax rationalization and accelerated depreciation costs of $6 million, tax expense related primarily to a tax law change of $12 million and a gain on asset sales of $10 million.
The third quarter of 2006 included $132 million in after-tax rationalization and accelerated depreciation costs.
Goodyear had third quarter 2007 net income of $668 million, which includes discontinued operations of $509 million. Included in discontinued operations was an after-tax gain of $517 million on the sale of the company's Engineered Products business. In the third quarter of 2006, the company had a net loss of $48 million.
Total segment operating income from continuing operations was $382 million in the third quarter of 2007, an all-time high and up 35% from the 2006 period.
Asia Pacific Tire, Latin American Tire, European Union Tire, and Eastern Europe, Middle East and Africa Tire achieved record sales.
All five business units had higher segment operating income compared to last year, with Asia Pacific Tire and Eastern Europe, Middle East and Africa Tire setting records for any quarter. Segment operating income for European Union Tire and Latin American Tire set third quarter records.
North American Tire third quarter sales were down 6% compared to the 2006 period, primarily due to lower volume resulting from the company's exit from certain segments of the private label tire business as well as weak original equipment and replacement markets. This was partially offset by market share gains in Goodyear brand tires and improved pricing and product mix.
Third quarter segment operating income is the highest since the third quarter of 2001. It was up 247% compared to the 2006 quarter due to improved pricing and product mix of $60 million, which more than offset increased raw material costs of $8 million.
European Union Tire third quarter sales increased 9% over last year as a result of improved pricing and product mix and a favorable impact from currency translation of $108 million, which more than offset lower volume.
Segment operating income for the third quarter increased 11% compared to 2006 as pricing and product mix improvements of $55 million more than offset $13 million in higher raw material costs. Also impacting results were favorable foreign currency translation of $7 million, increased conversion costs and lower unit volume.
Eastern Europe, Middle East and Africa Tire third quarter sales were up 13% compared to 2006. This resulted from improved pricing and product mix and a favorable impact from currency translation of $37 million that more than offset lower unit volume.
Segment operating income improved 12% for the third quarter due to improved pricing and product mix of $31 million that more than offset less than $2 million in higher raw material costs. Also impacting results were favorable foreign currency translation of $5 million as well as higher conversion costs, partially the result of a strike in South Africa, and lower volume.
Latin American Tire sales increased 20% from the third quarter of 2006 due to higher unit volume, improved pricing and product mix and a favorable impact from currency translation of $40 million.
Third quarter 2007 segment operating income increased 29% from last year due to higher unit volume and improved pricing and product mix of $20 million, which more than offset higher raw material costs of $5 million. Results also benefited from favorable currency translation of $18 million. Higher conversion costs were a partial offset.
Asia Pacific Tire third quarter sales were 12% higher than the 2006 period primarily due to improved pricing and product mix and a favorable impact from currency translation of $40 million, which offset lower volume.
Segment operating income increased 46% in the 2007 third quarter, primarily due to improved pricing and product mix of $13 million, reduced raw material costs of $4 million and $3 million of favorable foreign currency translation. Higher SAG costs were a partial offset.
Goodyear will hold an investor conference call at 11 a.m. EST today. Prior to the commencement of the call, the company will post the financial and other statistical information that will be presented on its investor relations Web site: investor.goodyear.com.
Participating in the call with Keegan will be W. Mark Schmitz, executive vice president and chief financial officer, and Darren R. Wells, senior vice president, finance and strategy.
Interested persons may access the call on the Web site or via telephone by calling (706) 634-5954 before 10:55 a.m. A replay of the call will be available at 3 p.m. by calling (706) 634-4556. The replay will also remain available on the Web site.