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Goodyear's 1Q Net Income Drops on Lower Volumes

Posted on April 28, 2017

Goodyear Tire & Rubber Co.’s net sales were flat while net income was nearly 10% lower in the first quarter of 2017 compared to the year-ago period.

Net sales were $3.7 billion. Net income was $166 million versus $184 million in 2016’s first quarter.

The tire maker's net income-to-sales ratio for the quarter was 4.5%.

The company reported tire unit volume in its Americas business segment (which includes North America and Latin America) fell 5% to 17.2 million in the first quarter from 18 million in the year-ago period. Replacement tire shipments were down 2%. Original equipment unit volume was down 12% in the Americas segment.

Goodyear said its first quarter 2017 sales were $3.7 billion, about even with a year ago, largely due to improved price/mix and higher pricing of third-party chemical sales partially offset by lower tire unit volume.

Goodyear Chairman, Chief Executive Officer and President Richard Kramer told investors that consumer replacement sellout trends were somewhat weaker than expected due to declines in U.S. domestic auto production.

“Americas total unit volume declined 5% driven by our U.S. consumer OE business. The Americas consumer OE unit volume declined by 13% driven in part by lower U.S. auto production during the quarter. In addition, our OE performance this year is related to this year’s very strong comparable where we saw first quarter 2016 U.S. consumer OE shipments up 11% while the market was up just 2%."

The overall OE volume performance in the first quarter is generally consistent with Goodyear's expectations, according to Kramer. The company expects continued softness in U.S. OE production, especially in the second and third quarter of 2017.

Kramer said the auto industry has favorable macro tailwinds and mix is shifting toward light trucks and SUVs. “This mix plays to our strengths in OE where we have fitments on popular vehicles such as the Ford F150 and drives pull through in the high margin replacement segment.”

In the U.S. consumer replacement industry, sales and demand were up about 1%. “We saw growth in the 17-inch and larger segment of the industry at 8%, which is driving continued mix-up in our business. Total industry sell-out in the quarter was softer than expected. We believe the weakness in sell-out is related to warmer weather trends in the northeast and Midwest as well as delayed tax refunds affecting the U.S. consumer,” Kramer said.

Tire sales

Worldwide, Goodyear’s tire unit volumes totaled 40.0 million, down 4% from 2016. Original equipment unit volume was down 8%, primarily driven by lower U.S. auto production in the first quarter of 2017 and very strong volumes in the U.S. and China during the first quarter of 2016. Replacement tire shipments were down 2%.

The company reported first quarter segment operating income of $385 million in 2017, down from $419 million a year ago. The decrease was driven by the impact of lower volume and unabsorbed overhead, which were partially offset by favorable price/mix net of raw material costs and net cost saving actions.

The results by segment follow.

Americas

(figures in millions)1Q 20171Q 2016
Tire units17.218.0
Sales$1,958$1,951
Segment operating income214216
Segment operating margin10.9%13.3%

Americas’ first quarter 2017 tire unit volume was down 5%. Sales of $2.0 billion were flat as higher chemical and tire pricing as well as favorable foreign currency translation were partially offset by lower tire unit volume. Replacement tire shipments were down 2%. Original equipment unit volume was down 12%.

First quarter 2017 segment operating income of $214 million was down 18% from the prior year. The decline was driven by the impact of unabsorbed overhead and lower volume, which were partially offset by favorable price/mix and lower raw material costs.

Europe, Middle East and Africa

(figures in millions)1Q 20171Q 2016
Tire units15.516.2
Sales$1,239$1,251
Segment operating income9880
Segment operating margin7.9%6.4%

Europe, Middle East and Africa’s first quarter 2017 sales decreased 1% from last year to $1.2 billion, which reflects a 4% decrease in tire unit volume and unfavorable foreign currency translation partially offset by improved price/mix. Replacement tire shipments were down 5 percent. Original equipment unit volume was down 1%.

First quarter 2017 segment operating income of $98 million was 23% above the prior year due to favorable price/mix net of raw material costs and lower selling, administrative and general expense partially offset by the impact of lower volume.

Asia Pacific

(figures in millions)1Q 20171Q 2016
Tire units7.37.3
Sales$502$489
Segment operating income7379
Segment operating margin14.5%16.2%

Asia Pacific’s first quarter 2017 sales increased 3% from last year to $502 million primarily due to improved price/mix. Tire unit volumes were flat. Replacement tire shipments were up 7%. Original equipment unit volume was down 9%.

First quarter 2017 segment operating income of $73 million was down 8% from last year as lower income in other tire-related businesses and unfavorable foreign currency translation offset favorable price/mix net of raw materials.

“These results are a great outcome given an environment of rising raw material costs and weaker demand,” said Kramer. “This solid performance is a result of the disciplined execution of our strategy. While raw material inflation has moderated in recent weeks, we continue to expect a significant year-over-year headwind in 2017. We remain confident in our ability to offset raw material cost inflation over time.”

Outlook

The company confirmed its 2017 segment operating income guidance of approximately $2.0 billion and its 2020 financial targets and capital allocation plan.

Related Topics: Goodyear financials, Richard Kramer

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