Goodyear Sees Profitable Benefits From Price/Mix in 2Q
A strong global consumer replacement tire market, plus the acquisition of Cooper Tire & Rubber Co., both provided lots of fuel to amp up the second quarter results for Goodyear Tire & Rubber Co.
The tiremaker recorded net sales just shy of $4 billion for the period, and net income of $67 million.
Those results include about three weeks of Cooper sales and profits: figures from June 7 to June 30, 2021. In that timeframe, Goodyear says Cooper recorded sales of $256 million, meaning Goodyear sales were $3.7 million for the three months ended June 30.
But for the most part, Goodyear lumped the Cooper business into its own for the second quarter. It didn’t break out tire units for each company, as an example. Together, they sold 37.5 million tires in the second quarter.
The company similarly didn’t break out the effect of adding Cooper in its regional business highlights. Instead, it said in the Americas, for example, Goodyear reported net sales of about $2.3 billion, almost double for the same period a year ago.
But even without the addition of Cooper, that year-ago period also offers the worst comparisons for any tiremaker. The second quarter of 2020 bore the brunt of lockdowns and production shutdowns caused by COVID-19. So it’s expected that results from the second quarter of this year will beat that of the same period a year ago.
Still, with that in mind, here’s a look at Goodyear’s comparisons for the second quarter:
|June 30, 2021||June 30, 2020|
|Net sales||$3.979 billion||$2.144 billion|
|Net income||$67 million||-$696 million|
|Segment operating income SOI||$299 million||-$431 million|
Goodyear says its merger-adjusted segment operating income was $349 million. That includes “certain costs triggered by the Cooper Tire merger.” The company says it reflects “the impacts of higher volume, including increased factory utilization, improvements in price/mix, higher earnings from other tire-related businesses and the benefits of cost-saving actions.”
Those benefits were offset by some negatives, such as higher selling, administrative and general expenses (SAG), which are returning to more normal levels, plus higher raw material expenses.
And while SOI benefited from $69 million related to a Brazilian Supreme Court ruling, a negative impact of $24 million was felt from carryover effects of the winter storm that hit Texas earlier this year.
As it pertains to the Cooper acquisition, Goodyear says the results include an operating loss of $16 million for Cooper, which includes $40 million of amortization of Cooper Tire inventory step-up, a $4 million incremental amortization of Cooper’s intangible assets, plus $6 million in other transaction-related items.
Goodyear Chairman, CEO and President Rich Kramer said, "We delivered merger-adjusted segment operating income significantly above last year and nearly 60% higher than second quarter 2019. Our strong results reflect continued recovery in demand, including above-market growth across many of our businesses. In addition, the execution of our strategies helped deliver the highest quarterly contribution of price/mix in nine years."
A look at the regions
In the Americas, 19 million tire units were sold (including Cooper units for most of June), and net sales totaled $2.256 billion. Goodyear sold 8.6 million tires into the replacement channel in the quarter, and noted those results were helped by the return of more normal sales to Wal-Mart, as compared to a year ago when the mass-merchandiser temporarily had closed and was slow to reopen its auto and tire centers.
In the region that covers Europe, the Middle East and Africa, tire units totaled 12 million for the quarter, with net sales of $1.230 billion. Unlike in its other regions, Goodyear didn’t specify the Cooper acquisition as a factor in EMEA results.
For Asia Pacific, net sales of $493 million included 6.5 million tire units.
Goodyear recorded a $159 benefit from price/mix, offset by a $30 million increase in costs from raw materials during the period. Kramer said it was one of the best results in price-mix in nearly a decade.
"The execution of our strategies helped deliver the highest quarterly contribution of price/mix in nine years," he said.
And Goodyear expects that improvement to continue. He said the company this week announced its fourth price increase in less than a year. This next increase, on consumer tires in the U.S., will go into effect Sept. 1. It will be up to 8%, and will include both Goodyear and Cooper products.
Kramer said those increases are in line with what's happening in the U.S. tire market, and prices across the consumer tire market increased during the second quarter.
Market wide, those increases have ranged from 5% to 8%. Goodyear's consumer tire prices went up 5% on Dec 1, 2020, followed by 8% increases on April 1 and June 1. Kramer said Cooper increased consumer tire prices by up to 8% in January, April and June.
There have been similiar moves on the commercial side, with other tiremakers mostly imposing price hikes of 7% to 8%. In the last year Goodyear has increased prics by 6% on Nov. 1, 2020, followed by 6% in April and up to 12% in July.
Kramer said it's "reflective of what's happening out in the market."