Goodyear’s 2Q: Profit Up, Sales Down
Sales for the second quarter at Goodyear Tire & Rubber Co. were down 7%, while the company’s net income for the period was up 5.2% compared to figures from 2015.
Net sales for the second quarter were close to $3.9 billion, down from almost $4.2 billion a year ago. Net income for the period was $202 million, up from $192 million in 2015. The company’s income-to-sales ratio was 5.2% for the second quarter, ended June 30, 2016.
Goodyear attributed the sales decrease to three factors: the deconsolidation of the company’s subsidiary in Venezuela; the sale of its North American motorcycle tire business; and unfavorable currency translation. The company says the improvement in net income was due to lower income taxes.
Tire unit volumes totaled 41.5 million, up 2% from 2015, driven by growth in the Asia Pacific and Europe, Middle East, and Africa regions. Replacement tire shipments were up 4%. Original equipment unit volume was down 4%.
“We delivered higher volumes and solid earnings in the quarter, achieving operating margins above 11% in all three business units,” said Richard Kramer, chairman and CEO. “Industry fundamentals remain favorable across many of our key markets and demand for our premium, high-value-added tires is strong. Our focus remains on the disciplined execution of our strategy and delivering on our financial targets.”
Segment operating income
The company reported second quarter segment operating income of $531 million in 2016, down from $550 million a year ago. It was negatively impacted by a $24 million out-of-period adjustment primarily attributable to 2012 and related to the elimination of intracompany profit in the Americas region. (Note, Goodyear has changed how it reports sales and income figures. It no longer provides a separate report for North America, and instead has combined North America and Latin America into a single segment it calls the “Americas.”)
The $24 million amount is included as a significant item in adjusted net income. The decrease in segment operating income also reflects a $36 million reduction resulting from the deconsolidation of Venezuela partially offset by cost reduction actions. Core segment operating income, which excludes Venezuela, was $514 million in the year-ago quarter.
Goodyear’s sales for the first six months of 2016 were $7.6 billion, down 7.6% from the 2015 period, reflecting unfavorable foreign currency translation of $225 million and the deconsolidation of Venezuela.
Tire unit volumes totaled 83 million, up 2% from 2015, driven by growth in the Asia Pacific region, primarily in Japan and China. Replacement tire shipments were up 3%. Original equipment unit volume was down 1%. Excluding the impact of the deconsolidation of Venezuela, unit volumes increased 3%.
Goodyear’s year-to-date net income of $386 million is down from $416 million in 2015’s first half. The decrease was due to a one-time gain of $155 million ($99 million after-tax) on the recognition of deferred royalty income in 2015.
The company reported first half segment operating income of $950 million in 2016, up from $938 million a year ago. The increase was driven by favorable price/mix net of raw materials and the impact of higher volume. These improvements were partially offset by the deconsolidation of Venezuela. Core segment operating income, which excludes Venezuela, was $880 million in the 2015 first half.