Goodyear Tire & Rubber Co. today reported record sales for the fourth quarter and the full year of 2007. Goodyear's fourth quarter 2007 sales were $5.2 billion, an 11% increase compared with the 2006 quarter.
Lower volumes were offset by higher prices and a richer product mix, the company says. A 12-week strike at its North American facilities in 2006 reduced fourth quarter 2006 sales by $318 million, Goodyear estimates.
Improved pricing and product mix drove revenue per tire up 10% over the 2006 quarter. Lower volumes reflect weak winter tire sale demand in Europe and the company's exit from certain segments of the private label tire business in North America along with weak conditions in several key markets.
"Our fourth quarter results show significant gains as we drive sales of our higher-margin premium product lines," says Robert Keegan, chairman and chief executive officer.
"This is especially true in our emerging markets businesses in Eastern Europe, Asia and Latin America. In aggregate, these three businesses grew sales 20% and segment operating income 41% in the quarter," he says.
"Excluding the impact of the strike, North American Tire's focus on innovative new products helped it achieve its highest full-year segment operating income since 2000," he says. "Our new product engine will provide additional growth opportunities in 2008 and beyond."
Goodyear made further progress during the fourth 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 more than $1 billion in savings in 2006 and 2007 and clearly remain on target to reach our four-year goal," Keegan says.
"During 2007, we also made substantial progress on improving our balance sheet with net debt decreasing more than $2 billion," he says. "We remain on track to achieve our next stage financial metrics, which include an 8% segment operating income return on sales globally, a 5% segment operating income return on sales in North America and a target of 2.5 times debt-to-EBITDA."
Fourth quarter segment operating income was $313 million in 2007. This compares to a segment operating loss of $86 million in the strike-impacted 2006 period.
Segment operating income benefited from improved pricing and product mix of $119 million in the fourth quarter of 2007, which more than offset increased raw material costs of $8 million.
Favorable foreign currency translation positively impacted sales by $315 million and segment operating income by $45 million in the quarter.
Gross margin was 19.4% for the 2007 quarter compared to 11.3% in last year's strike-impacted quarter.
Fourth quarter 2007 income from continuing operations was $61 million. This compares to a loss of $310 million in the strike-impacted fourth quarter of 2006.
Including discontinued operations, Goodyear had fourth quarter net income of $52 million, compared to a net loss of $358 million last year. All per share amounts are diluted.
The 2007 fourth quarter included $26 million in after-tax rationalization and accelerated depreciation, after-tax losses on asset sales of $19 million, after-tax financing fees of $17 million related to debt conversion and reduced tax expense of $11 million due to a tax law change.
The 2006 fourth quarter included the strike impact of $313 million; $184 million in after-tax charges for rationalization, accelerated depreciation and asset write-offs principally related to plant closures; and a gain of $153 million related to the favorable resolution of a tax contingency.
All four of the company's tire businesses outside of North America achieved all-time record sales during the 2007 fourth quarter.
Segment operating income for the Latin America, Asia Pacific and Eastern Europe, Middle East and Africa units were fourth quarter records.
North American Tire
North American Tire's fourth quarter 2007 sales increased 10% over the strike-impacted 2006 period. The company estimates the United Steelworkers (USW) strike reduced sales in the 2006 quarter by $318 million.
In addition, 2007 fourth quarter sales reflect the company's exit from certain segments of the private label tire market and continued weakness in both the replacement and original equipment markets. This was offset by improved pricing and product mix as well as market share gains in Goodyear and Dunlop brand tires.
Fourth quarter segment operating income was significantly improved compared to the strike-impacted 2006 period. The company estimates the strike reduced segment operating income by $313 million in the 2006 quarter.
European Union Tire
European Union Tire's fourth quarter sales set a record for any quarter, increasing 5% over last year due to improved pricing and product mix and foreign currency translation, which more than offset the impact of lower volumes, primarily due to weak winter tire demand.
Fourth quarter segment operating income was flat versus last year, as $48 million in improved pricing and product mix and $10 million of favorable foreign currency translation were offset by volume declines and manufacturing inefficiencies in France. Raw material costs increased $1 million compared to the prior year.
Eastern Europe, Middle East and Africa Tire
Eastern Europe, Middle East and Africa Tire's fourth quarter sales reflected a record for any quarter and a 20% increase over the 2006 period primarily due to higher replacement tire volume and strong sales in Russia.
Segment operating income set a fourth quarter record and increased 34% due to improved pricing and product mix of $19 million. Raw material costs decreased approximately $5 million compared to the prior year.
Latin American Tire
Latin American Tire's fourth quarter sales reflected a record for any quarter and increased 24% compared to 2006, driven by higher volume in original equipment markets as well as improvements in pricing and product mix and foreign currency translation.
Segment operating income increased 44%, reflecting the volume increases, currency translation and $21 million in improved pricing and product mix. Raw material costs increased $9 million compared to the 2006 period.
Asia Pacific Tire
Asia Pacific Tire's fourth quarter sales were a record for any quarter, increasing 16% over 2006, driven by growth in China and India as well as improvements in pricing and product mix and higher volume.
Segment operating income was a fourth quarter record and 50% higher than 2006 due to pricing and product mix improvements of $13 million as well as foreign currency translation. Raw material costs decreased approximately $3 million compared to the prior year.
Full-year results
Goodyear's sales for 2007 were a record $19.6 billion, a 5% increase over 2006 despite a 6.2% decline in tire unit volume.
All four of the company's tire businesses outside of North America achieved all-time record annual sales during 2007.
Segment operating income was $1.2 billion, compared to $712 million in 2006.
Goodyear's income from continuing operations of $139 million in 2007 compares to a 2006 loss of $373 million.
Including discontinued operations, Goodyear had 2007 net income of $602 million compared to a loss of $330 million last year. All per share amounts are diluted.
Improvements in pricing and product mix of approximately $639 million offset higher raw material costs, which increased 3.5%, or approximately $195 million, compared to 2006. Revenue per tire increased 8% compared to 2006.
Goodyear will hold an investor conference call at 10 a.m. today. Participating in the call with Keegan will be W. Mark Schmitz, executive vice president and chief financial officer, and Darren Wells, senior vice president, finance and strategy.
Shareholders, members of the media and other interested persons may access the call on the investor relations Web site: http://investor.goodyear.com, or via telephone by calling (706) 634-5954 before 9:55 a.m. A taped 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.
