Goodyear's 1st Q: Sales and Income Down, Segment Operating Income Up
Goodyear Tire & Rubber Co.'s net sales and net income both dropped during the first quarter of 2016 compared to figures posted a year earlier.
Net sales were almost $3.7 billion, compared to $4 billion in 2015, and net income was $184 million, compared to $224 million in 2015.
The tire maker's net income-to-sales ratio for the quarter was 5%.
“We are very pleased with our strong first quarter performance,” said Richard Kramer, chairman, CEO and president. “Demand for our premium-branded, high-value-added products is robust and our product mix continues to grow richer, driving margin expansion."
The company’s first quarter segment operating margin of 11.4% was up from 9.6% a year ago.
Goodyear says the sales decline is "largely due to unfavorable foreign currency translation of $141 million and the deconsolidation of the company’s subsidiary in Venezuela."
The company says the 2015 first quarter net income figure included a one-time gain of $155 million for the recognition of deferred royalty income resulting from the termination of a licensing agreement, and excluding certain significant items, adjusted net income was $148 million.
Tire unit volumes totaled 41.5 million, up 2% from 2015, driven by growth in the Asia Pacific region, primarily in Japan and China. Replacement tire shipments and original equipment volume both were up 2%. Excluding the impact of the deconsolidation of Venezuela, unit volumes increased 3%.
Historically, Goodyear has reported sales and income figures for four segments: North America; Europe, Middle East and Africa; Asia Pacific; and Latin America. But the company announced in December 2015 that it was combining its North America and Latin America into one segment, the "Americas." The result is the company is no longer providing a focused snapshot of its North American business.
Kramer did tell investors, however, that in certain segments, North America had year-over-year growth.
Figures are in millions
Americas’ first quarter 2016 sales decreased 13% from last year to nearly $2.0 billion. Sales reflect a 6% decrease in tire unit volume, which Goodyear attributes to the deconsolidation of the Venezuelan subsidiary and the sale of the former Goodyear Dunlop Tires North America Ltd. business (GDTNA).
Replacement tire shipments were down 6%. Original equipment unit volume was down 7%.
Excluding Venezuela and GDTNA, tire unit volume was down 2%, driven primarily by the weak economic environment in Brazil.
First quarter 2016 segment operating income of $260 million was a 5% improvement over the prior year. The improvement was driven primarily by favorable price/mix net of raw materials, partially offset by the deconsolidation of the Venezuelan subsidiary and lower volume.
The deconsolidation of the Venezuelan subsidiary negatively impacted volumes by approximately 0.4 million units, sales by $94 million and segment operating income by $22 million.
The sale of GDTNA negatively impacted volumes by approximately 0.3 million units, sales by $64 million and segment operating income by $12 million.
Europe, Middle East and Africa
Figures are in millions
While Europe, Middle East and Africa’s first quarter tire unit volumes were up 2%, sales decreased 6% from last year to $1.3 billion, primarily due to unfavorable price/mix and foreign currency translation. Replacement tire shipments were flat. Original equipment unit volume was up 5%.
First quarter 2016 segment operating income of $80 million was 10% above the prior year due to favorable price/mix net of raw materials and lower conversion costs.
Figures are in millions
Asia Pacific’s first quarter 2016 sales increased 9% from last year to $489 million. Sales reflect a 28% increase in tire unit volume, primarily due to growth in Japan and China. This improvement was partially offset by unfavorable foreign currency translation. Replacement tire shipments were up 41%. Original equipment unit volume was up 14%.
First quarter 2016 segment operating income of $79 million was up 18% from last year, driven by higher volume and favorable price/mix net of raw materials.
The acquisition of a controlling interest in Nippon Goodyear Ltd. (NGY) in Japan positively impacted volumes by approximately 0.9 million units and sales by $41 million. The net unfavorable impact on segment operating income of the NGY acquisition and the sale of the company’s 25% interest in Dunlop Goodyear Tires Ltd. was $3 million.
“Our results are a reflection of our ability to successfully execute on our strategy,” said Kramer. “We will continue to focus on profitable growth in market segments where our innovation, brand and operational excellence capabilities provide a competitive advantage.”
The company reaffirmed its 2016 financial targets, which include:
- Core Segment Operating Income growth of between 10 percent and 15 percent (excludes Venezuela);
- Positive Free Cash Flow from Operations and
- An Adjusted Debt to EBITDAP ratio of 2.0x to 2.1x at year-end.
The company announced that it will hold an Investor Day on Sept. 15, 2016 in Boston. Additional details will be made available at a later date.