Goodyear Tire & Rubber Company reported net income of $69 million on record sales of $5 billion for the second quarter ended June 30, 2005. That compares to income of $30 million on sales of $4.5 billion during the same period last year.
Net income was 1.4% of sales. The quarterly sales total, an 11% increase over last year, reached the $5 billion mark for the first time, according to Goodyear.
The increase reflects improved pricing, product mix and volume. It also was favorably impacted by currency translation (the company estimates the effects of currency translation had a positive net impact on 2005 second quarter sales of approximately $108 million).
Tire unit volume in the second quarter of 2005 compared to 2004 was up 2.5%, from 55 million units to 56.4 million units. Goodyear says volume increases were driven by gains in the European, Latin American and Asia/Pacific markets.
Total segment operating income was $316 million, an increase of
24% compared to $254 million in 2Q 2004. All of Goodyear's tire businesses reported higher 2Q segment operating income compared to the previous year.
"Five of our businesses had record second quarter sales, and margins improved in our North American and European Union tire businesses," says Robert Keegan, Goodyear's chairman, CEO and president. "This success is further evidence that our strategies are working, and that our unwavering focus on key products, customers and markets is paying off."
Keegan says the company has successfully offset the impact of record high raw material costs through strategic pricing actions and by driving product mix enhancement. "We will continue to concentrate on these areas to address the inevitable raw material cost increases that we expect in the second half of 2005."
Goodyear's raw material costs increased by approximately $133 million during the quarter, compared to a year ago. The company said it expects raw material costs to grow by approximately 10% for the full year compared to 2004.
The second quarter results include the following:
* a net after-tax charge of $47 million related to financing fees.
* a net after-tax charge of $7 million primarily related to the settlement of prior-years tax liabilities.
* a net after-tax gain of $19 million from a previously disclosed environmental insurance settlement.
* a net after-tax gain of $6 million related to fire loss recoveries.
* a net after-tax gain of $5 million in net rationalization reversals.
* a net after-tax gain of $8 million related to general and product liability -- discontinued products.
The results also take into account an after-tax expense of $8 million relating to prior periods.
Sales for the first six months of 2005 were a record $9.8 billion, an increase of 11% from $8.8 billion in 2Q 2004. Tire unit volume was 112.3 million units, up from 110.7 million units a year ago.
Net income for the first six months of 2005 was $137 million compared to a first-half loss of $48 million last year.
Total segment operating income was $608 million in the first half of 2005, an increase of 40% from $435 million in the first six months of 2004.
First-half 2005 raw material costs increased approximately $252 million compared to the year-ago period.
The company says it anticipates "continued year-over-year gains in operating performance during the second half of 2005." However the rate of those gains is expected to be less than they were in the first half.
Here are the quarterly results by business segment.
North American Tire: Segment operating income, $55 million; sales, $2.29 billion; tire units sold, 25.3 million.
North American Tire sales reached a record for any quarter, increasing 6% compared to same period in 2004. The increase was driven by improved pricing and product mix, plus higher volume in the consumer replacement and commercial original equipment markets.
These increases were offset by an 8% decrease in shipments to consumer OE customers, reflecting a slowdown in the United States automotive industry and Goodyear's selective fitment strategy in this market.
Second quarter segment operating income increased 34% compared to 2Q 2004 due to improved pricing and product mix, lower manufacturing costs and higher chemical and off-highway sales partially offset by higher raw material costs of approximately $75 million.
European Union Tire: Segment operating income, $85 million; sales, $1.17 billion; tire units sold, 15.9 million.
European Union Tire sales were a second-quarter record and increased 11% over last year as a result of strong price and product mix, volume increases driven by the consumer replacement and commercial OE markets. There also was a favorable impact of approximately $26 million from currency translation.
Segment operating income increased 49% to a second-quarter record primarily due to improved pricing and product mix, which offset higher raw material costs of approximately $11 million compared to the same period a year ago.
Eastern Europe, Middle East, Africa Tire: Segment operating income, $49 million; sales, $342 million; tire units sold, 4.7 million.
Eastern Europe, Middle East and Africa Tire's sales, a second-quarter record, were up 14%. The increase resulted from the favorable impact of currency translation, estimated at $12 million; improved volume and price and product mix related to growth in replacement markets; price increases in emerging markets; and continued growth in premium brands.
Segment operating income improved 9%, reaching a second-quarter record due to improved pricing and product mix, foreign currency translation of approximately $7 million, and strong volume. Higher raw material costs of approximately $7 million had a negative impact on results.
Latin American Tire: Segment operating income, $77 million; sales, $381 million; tire units sold, 5.4 million.
Latin American Tire sales increased 31% from the second quarter of 2004 due to higher volume, price increases and improved product mix, as well as the favorable impact of currency translation of approximately $37 million. Sales were the highest for any second quarter in the last seven years.
Segment operating income was a second quarter record, and a 26% increase from 2004 due to improved pricing and product mix; volume; and approximately $15 million in favorable currency translation resulting from certain currency revaluations. Higher raw material costs of approximately $20 million had a negative impact on segment operating income.
Asia/Pacific Tire: Segment operating income, $20 million; sales, $368 million; tire units sold, 5.1 million.
Asia/Pacific Tire sales were a record for any quarter and 12% higher than the same quarter in 2004 primarily due to a favorable currency translation of approximately $21 million, and higher volume (particularly in OE markets).
Segment operating income increased 18%, reaching a record for any quarter due to improved pricing and product mix, which partially offset raw material cost increases of $13 million.
Engineered Products: Segment operating income, $30 million; sales, $427 million.
Sales in the Engineered Products business unit were a record for any quarter and increased 16% compared to the same 2004 period. Goodyear credited higher volume, mainly in the industrial channel, and the favorable effect of currency translation of approximately $11 million for the positive results.
Segment operating income decreased 9% due primarily to raw material costs of approximately $6 million, and higher administrative and manufacturing costs.
On the eve of the release of its second-quarter results, Goodyear's stock price closed at $17.45 per share on the New York Stock Exchange. That compares to a 52-week high and low of $17.84 and $9.15, respectively.
