Goodyear in North America: Income is down, sales are up and negotiations with the union take a turn for the better
Goodyear Tire & Rubber Co.'s North American Tire business segment posted operating income of $19 million on sales of $2.43 billion for the third quarter ended Sept. 30, 2006. That compares to operating income of $58 million on sales of $2.37 billion for the same period in 2005.
The comparative quarterly decrease in segment operating income reflects the following, according to Goodyear:
* lower volume resulting from reduced demand in the consumer replacement market (tire unit sales were down 11.6%, from 26.6 million to 23.5 million);
* the exit from the wholesale private label business;
* higher costs related to lower production.
Favorable price and product mix of $103 million partially offset approximately $108 million in higher raw material costs. Segment
operating income also benefited from lower SAG expenses and higher
operating income from other tire-related businesses.
North American Tire's sales were a record for any quarter. They increased 5% compared to the year-ago period, excluding the impact of
divestitures in 2005, as a result of strong sales in the chemical and
other tire related businesses, and favorable price and product mix, led by "high-value" Goodyear and Dunlop branded tires.
(Divestitures in 2005 reduced third quarter 2006 sales by approximately $61 million, segment operating income by $8 million, and volume by 200,000 units.)
For the first nine months of 2006, the North American Tire segment recorded operating income of $68 million on sales of $7 billion. That compares to income of $124 million on sales of $6.8 billion for the same period a year ago.
Tire unit sales for the first nine months were down 8.8%, from 77.2 million units in 2005 to 70.4 million this year.
"Although we are in the midst of a strike by the United Steelworkers (USW) in North America, we continue to work hard for a contract that is fair to all stakeholders and puts Goodyear on a level playing field with our competitors," said Chairman, CEO and President Robert Keegan.
Goodyear said it plans to publish the details of its latest union contract proposal on its negotiations Web site later today "in order to more clearly communicate with its hourly associates." Its bargaining team is returning to Cincinnati in the hopes USW representatives will return to discussions.
The proposal can be viewed at www.goodyearnegotiations.com. Included in this proposal are provisions to protect employment levels at all tire manufacturing plants other than Tyler, Texas, which the company has announced the intention to close.
Also included is a proposal to contribute $660 million to a Voluntary
Employees Beneficiary Association (VEBA), an independent trust fund that would provide retiree health care benefits to USW members and would eliminate the portion of Goodyear's post-retirement health care
obligations related to the USW workforce.
In its Form 8-K filed with the Securities and Exchange Commission on Nov. 2, 2006, Goodyear said it expects the closure of the Tyler, Texas, manufacturing facility to be completed in the second quarter of 2007, and estimates the charges associated with the closure to be between $155 million and $165 million. This estimate includes the following:
* non-cash charges of approximately $80 million related to pension and retiree medical costs,
* approximately $35 million related to accelerated depreciation and asset write-offs, and
* severance-related and other cash charges of between $40 million and $50 million.
Goodyear expects to record between $115 million to $120 million of the charges related to the closure in 2006 (between $100 million and $110 million was expected to be recorded in the third quarter, with the balance of the charges impacting 2007).
"When complete, the closure of the Tyler facility is expected to
generate annual cost savings of approximately $50 million," added the company.
Worldwide, Goodyear posted net income of $28 million on record sales of $15.3 billion for the first nine months of 2006. That compares to net income of $279 million on sales of $14.8 billion during the same period in 2005.