Price parity program, raw material costs and flexible manufacturing increase Goodyear's net income

July 23, 2002

Goodyear Tire & Rubber Co. plans to continue its strategies and pursue them aggressively through the year and into 2003, said Sam Gibara, Goodyear's chairman and CEO, at a morning press conference to discuss the company's second quarter results.

The company recorded net income of $28.9 million for the second quarter, vs. net income of $7.8 million in the second quarter of 2001 (see other Web item).

These strategies include sticking with its price parity program, including holding its price increases and not participating in markets that the company felt were unprofitable.

Fill rates were also improving, he noted, and inventory levels are coming down.

As to unit sales, Goodyear stayed within a couple of points to what overall industry numbers came in as, Gibara said.

The company has also profited from its flexible manufacturing program. Goodyear now has agreements with its plants' unions to be able to adjust supply to meet demand. This turns labor into a variable cost instead of a fixed one, Gibara said. Labor is typically one-third of the total cost, he noted. He added that if the company has to take plants out, it will. But it has no plans for this in the immediate future.

While not willing to speculate on third quarter numbers, Gibara feels hopeful that numbers will continue to rise thanks to higher sales levels to large distributors, a better product mix and sticking to price increases.

He said sales to large distributors were at 25% of normal levels in the first quarter, due to advanced buying before Goodyear's price increases went into affect in January. (The company's competitors held off raising prices until March and April).

Purchasing levels were 50% of normal in the second quarter. The company expects levels to be back to 75% to 80% of normal by the third quarter, and to be at 100% normal levels in the fourth quarter.

The company sees raw material prices, which were lower and helped with the second quarter results, rising in the second half of the year, but remain flat compared with a year ago. The company will stay ahead of raw material price increases by "cost containment and whatever else we can do to protect our margins," Gibara said.