Goodyear Records Another Loss, But It's a Sign of Improvement
Goodyear Tire & Rubber Co. recorded a net loss of $2 million in the third quarter — its fourth straight period with a loss. But yet this is a vast improvement over the first half of 2020, and Rich Kramer says industry conditions have recovered faster than the tiremaker expected.
Kramer, chairman, CEO and president of Goodyear, told investors the results “position us well as we look beyond the crisis.
“Our results reflect increasing momentum as the global tire industry recovered more quickly than we expected during the quarter, led by the Americas. We are taking every opportunity to continue building our business for the long term, while generating significant cost savings and free cash flow.”
For the quarter ended Sept. 30, Goodyear recorded sales of nearly $3.5 billion, down 9% from the $3.8 billion in 2019. The $2 million loss compared to a profit of $88 million recorded in the third quarter of 2019.
Globally, Goodyear’s tire unit volume was down 9% — at 36.6 million units compared to 40.3 million a year ago.
When broken apart by region, each of the three regions Goodyear reports figures for showed about a 9% drop in volume.
It’s notable that the Americas, Goodyear’s largest region, sold 16.2 million tires in the third quarter. That’s a drop of 9.6% compared to the same period a year ago. But look at it compared to what the company recorded three months earlier.
In the previous quarter — which Kramer had called “the most challenging quarter in Goodyear’s 122-year history,” the company’s global unit sales totaled 20.4 million tires.
Net sales in the Americas were down 11%, at $1.8 billion, compared to $2.0 billion a year ago.
Here’s a look at a few factors Goodyear says affected its Americas business:
- Clearly, the results continue to reflect the impact of COVID-19, though Darren Wells, executive vice president and chief financial officer, said the company entered the third quarter feeling cautious due to the virus. “The rising cases clearly didn’t have the impact” the company anticipated, and volumes were better than expected.
- Goodyear says its U.S. consumer original equipment business outperformed the industry.
- The company’s consumer replacement sales were down 12%, and are still affected by the lingering closure of some Walmart Auto Care Centers. Walmart is Goodyear’s largest retailer, and Kramer said about 15% of the company’s automotive facilities remain closed. (At the end of the second quarter, two-thirds of Walmart Auto Care Centers were still shuttered due to the pandemic.)
- Kramer says the company hopes the remaining Walmart stores will reopen in the fourth quarter.
- Goodyear’s cash flow during the period, which Kramer described as “simply outstanding” was aided by cost savings associated with the permanent closure of its Gadsden, Ala. plant. Those savings totaled $34 million in the quarter.
- The company says its segment operating income decline of 39.4% was “driven by lower volume, reduced factory utilization (and) prize/mix positive.”
Europe, Middle East and Africa
Sales in EMEA were down 4.1%, $1.1 billion compared to $1.2 billion for the period a year ago. Units were off by 8.9%, 13.2 million compared to 14.5 million.
The region’s operating income dropped 66.7%, $22 million compared to $66 million.
As was the case elsewhere, tire units continue to reflect the impact of COVID-19. Units were down 8.7% in the region, 7.2 million tires compared to 7.9 million a year ago. But a bright spot was Goodyear’s performance in the consumer replacement business, where units were up 19%, outpacing the industry. The OE business in China continues to be disrupted by “discontinued fitments” in the market. Net sales fell 11.3%, $486 million compared to $548 million in 2019.
The region’s operating income drop of 35.8% was driven by the overall decline in lower volume.
Tire production and inventory
While Goodyear’s tire plants are essentially running at full speed, Kramer says the company’s inventory levels “are lower than normal.”
“That does mean that service levels are not where we prefer them to be. We do see demand ahead of supply. We said in Q2 we planned to increase production in Q3. What we saw in Q3 was demand exceeded our expectations — everyone’s expectations.
“We’ll continue to run our plants at full capacity. Certainly we’ll rebuild inventory and focus on the right SKUs.”
With three quarters on the record, Goodyear has reported 2020 sales of $8.7 billion, down 21% from 2019.
Tire volumes are down 24% so far for the year, with 88.3 million total units sold. Replacement shipments are down 21%, while OE unit volume has dropped 31%.
Goodyear's net loss for the first nine months of 2020 totals $1.3 billion, compared to a net income of $81 million for the same period in 2019.