‘Most Challenging Quarter’ in Goodyear History
Sales for the second quarter fell 41% at Goodyear Tire & Rubber Co., and tire volumes dropped 45% - but that’s actually better than what company executives expected in early June.
During the Deutsche Bank Global Auto Industry Conference on June 10 Darren Wells, executive vice president and chief financial officer, said the company was expecting tire volumes to be off 50% from 2019 levels. So the 45% decline actually beat expectations.
Still, Goodyear Chairman, CEO and President Rich Kramer called the second quarter “the most challenging quarter in Goodyear’s 122-year history.”
For the quarter, Goodyear recorded sales of $2.1 billion, down from $3.6 billion a year ago. The company recorded a loss of $696 million for the quarter, compared to income of $54 million for the same period in 2019.
Globally tire unit volumes totaled 20.4 million. As original equipment manufacturers shuttered and then have gradually reopened production lines, original equipment tire orders have dropped. That volume for Goodyear plummeted 62% in the second quarter, while replacement tire shipments declined 39%.
Year-to-date at a glance
Year-to-date, Goodyear’s sales were off 28%, at $5.2 billion compared to $7.2 billion for the first half of 2019. The company has recorded a loss of $1.3 billion so far in 2020, compared to a loss of 7 million at the end of six months in 2019.
Tire volumes for the first half of 2020 totaled 51.7 million, down 31% from 2019. Replacement tire shipments were off 28%, while OE volume declined 41%.
|2Q 2020||2Q 2019|
|Tire units||8.5 million||17.1 million|
|Net sales||$1.1 billion||$2.0 billion|
Goodyear says sales in the Americas were down 42% for the quarter, driven by lower tire volume and reduced sales from other tire-related businesses. Some of that loss was offset by improvements in price/mix.
Overall tire unit volume fell 50% — replacement shipments decreased 45%, while OE volume plummeted 68%.
The lower replacement units was driven by the overall weak market as well as “the impact of a significant consumer replacement customer temporarily closing its auto care facilities.” That customer is Walmart, which closed all of its auto care centers in March. Kramer told investors that about one-third of the centers have reopened. He called Goodyear the “category captain” at Walmart and said as a result their closure disproportionally affected the company’s replacement sales. When adjusting for Walmart’s portion of tire sales, Kramer says Goodyear beat the market and gained market share.
Europe, Middle East and Africa
|2Q 2020||2Q 2019|
|Tire units||7.3 million||13.3 million|
|Net sales||$676 million||$1.1 billion|
Sales in the European region fell 41% for the quarter, but lower volumes there were also partially offset by improvements in price/mix. Tire unit volume decreased 45% - with replacement shipments off 37% and OE volume down 63%.
|2Q 2020||2Q 2019|
|Tire units||4.6 million||7.0 million|
|Net sales||$334 million||$520 million|
Sales in Asia Pacific decreased 36% from the prior year period. Price/mix helped here, too, while overall tire unit volume dropped 36%. OE shipments fell 50%, driven by declines in India and China, while replacement tire units decreased 26%.
Goodyear says all of its factories have resumed production “and none have experienced any COVID-19 related disruption following their restart.”
Production levels for the quarter were approximately 26 million units below 2019, and inventory units were about 8.5 million below 2019 levels at the end of the second quarter.
“Production planning for the second half has been modified to focus on high customer service levels, while ensuring the company is able to continue to operate at lower inventory levels on an ongoing basis and to reduce its conversion cost per tire over time.”
More from Rich Kramer
“Although our first half results were greatly affected by difficult industry conditions as a result of the ongoing COVID-19 pandemic, the decisive actions we took to safeguard our business helped mitigate the impact on our results.
“While we are encouraged to see industry demand gradually recovering in most major markets, our plans for the second half consider the challenges and uncertainties that remain. We continue to focus on the wellbeing of our associates, servicing our customers and supporting our brands while appropriately managing our costs and working capital.
“We are also committed to supporting the strong growth we are seeing in our e-commerce and mobile installation businesses. These investments in distribution will strengthen our leadership position and support our long-term growth prospects as consumer buying behavior continues to evolve within the tire industry.”