Goodyear's plans include closing high-cost factories
Robert Keegan, chairman and CEO of the Goodyear Tire & Rubber Company, has outlined a three-pronged approach to continue the tiremaker's business turnaround.
In a general terms, he outlined the company's plans as follows:
* to accelerate the introduction of consumer-driven, innovative new tires;
* to reduce Goodyear's cost structure;
* to close high-cost factories and generating capital to support further investment in its core tire businesses worldwide.
"We successfully achieved many of the goals we set three years ago and look to further improve our performance as we move to the next stage of our turnaround," says Keegan.
Over the next three years, Goodyear anticipates incurring cash restructuring charges of approximately $150 million to $250 million to reduce its high-cost manufacturing capacity by between 8% and 12%, resulting in anticipated annual savings of between $100 million and $150 million.
The company will not identify how many plants it will close or the locations while it continues its evaluation, but indicated that reducing high-cost capacity will be a key component of the continued turnaround.
Other cost reduction actions anticipated include increased Asian sourcing and ongoing productivity improvements. Goodyear said it is targeting cost reductions totaling between $750 million and $1 billion by 2008; they will be accomplished through the restructuring and other cost savings initiatives.
Goodyear will continue to evaluate its business portfolio with the expectation of selling non-core assets and investing the proceeds to become a stronger competitor. Earlier this week, Goodyear announced it is exploring the sale of its Engineered Products business.
(The company already has completed the sale of its Wingtack adhesive resins business and its rubber plantation in Indonesia. Goodyear's sale of its North American farm tire business is pending a union agreement.)
Keegan will be joined by other Goodyear leaders at an investor meeting in New York at 8:30 a.m. EST today to discuss the plans, which are designed "to improve the company’s profitability, including that of its North American Tire business."
Goodyear believes through the implementation of these plans, it will improve segment operating margin to 8% for the total company and 5% for the North American Tire operating unit.
The company says it continues to face several challenges, including increasing raw material costs, uncertain global economic conditions, and pension funding obligations that are expected to peak in 2006. The pension obligations may vary depending on potential legislative reform.
"Our turnaround is on track and will continue to evolve," says Keegan. "We have a business model and a strategy that is working."
Goodyear also is assessing the impact of Hurricane Katrina on its property, inventory and the overall operations. The company has five retail stores that are expected to remain closed for an indefinite period of time.
The financial impact resulting from the closure of these stores is not expected to be material, according to the company. However, Goodyear is still in the process of assessing the potential overall financial impact.
Shareholders, members of the media and other interested persons may access the 8:30 a.m. meeting on Goodyear's Investor Relations Web site, investor.goodyear.com, or via telephone by calling (800) 362-0571.
A taped replay will be available at 2 p.m. by calling (800) 839-9305. A replay also will remain available on the Web site.
Goodyear's stock price on the New York Stock Exchange closed at $15 a share on Thursday, Sept. 22. That compares to a 52-week high and low of $18.59 and $9.15, respectively.