Goodyear Tire & Rubber Co.’s tire volumes were down by 4.8 million units in the second quarter, driven by downturns in both the Americas and Europe. The lower volumes resulted in the tiremaker recording a $208 million loss in the period.
It’s the third straight quarter where Goodyear has reported a loss.
The tiremaker said volume was down 10.7% in the second quarter, with 40.8 million units sold compared to 45.6 million units sold in 2022. In the Americas units were down by 2.5 million tires. In Europe, volume fell by 2.7 million tires.
Net sales totaled $4.86 billion, down from $5.21 billion a year ago.
With the $208 million loss this quarter, Goodyear so far in 2023 has posted a loss of $307 million.
Goodyear Chairman, CEO and President Rich Kramer called industry volumes in the second quarter “significantly more challenging than expected,” and noted that unit volumes were 16% below levels in 2019.
There was weakness in both the U.S. and Europe, and it affected both consumer tires and the market for commercial replacement tires.
But Kramer pointed to signs that the second half of 2023 will be better. “This is consistent with an environment where moderating inflation and falling raw material costs can drive meaningful margin expansion. Another positive sign is that June was the first month this year where the U.S. consumer replacement industry saw growth.”
And while Kramer said demand for travel in the U.S. is growing, he noted “inventory of Goodyear-branded consumer products across the channels declined 14% since the end of 2022, supporting a view for U.S. consumer tire sell-in growth during the second half of the year.”
The company said replacement channel inventories of Goodyear’s legacy brands were 6% below those measured at the end of the first quarter.
“Channel inventory at the end of the second quarter was healthy and we expect that the majority of the channel destocking for industry members is complete.”
Tupelo update
After an April 1 tornado damaged Goodyear’s tire plant in Tupelo, Miss., production was shut down.
“We were able to restart production during the second quarter of 2023 and neared full production by the end of July.” Goodyear says the storm and shutdown resulted in one million fewer tires in the company’s quarterly volumes.
Those one million tires are estimated to have resulted in $77 million in less sales, and $64 million less in earnings, including “$14 million of corporate expense for an insurance deductible.”
Goodyear notes it expects “a significant portion of the business interruption impacts will ultimately be reimbursed by our insurance after the claim is complete.”
The company is expecting about $50 million in insurance recoveries, though those aren’t likely to materialize until 2024.
The Americas report
In the Americas, replacement units were down by 2.5 million units, or 12.8%, while OE units were down by just less than 1%.
Goodyear says the decline is partially explained by a comparison to a strong second quarter in 2022. In the original equipment market, Goodyear says the industry remains below pre-pandemic levels, but the quarterly results reflect stabilizing production by auto vehicle manufacturers.
The tiremaker says U.S. market wide sellout was up about 2%, though “Goodyear volumes declined but were in line with USTMA members.”
View from Europe
Net sales in Europe fell 10.4%, from $1.49 billion to $1.34 billion in the second quarter. Overall unit volumes were down 19.1%, while commercial truck tire volumes fell by 22% — or 0.3 million units.
Goodyear says the results were driven by “persistently weak consumer replacement industry conditions as a result of a high comparable last year and continued channel destocking.”
Though the tiremaker noted the results included “continued benefits from strong price/mix, which exceeded raw material and other cost increases.”
OE units increased 9.2%, or by 0.3 million tires. Total replacement units fell by 3 million tires.
Asia-Pacific
The Asia-Pacific region was Goodyear’s lone bright spot, at least regionally. Net sales grew by $19 million, from $568 million to $587 million. The market in China is leading this growth, and Goodyear expects the region’s 2023 earnings to return to 2019 levels.
Tire volumes were up by 0.4 million units, or 5.8% over 2022 levels. And there were gains in both replacement — 3.6% — and OE — 9.2%.
Elliott Investment
In Kramer’s letter to investors, he didn’t mention Elliott Investment Management L.P. by name — though a separate note did, and talked about the board-led strategic and operational review that was prompted by “constructive engagement.”
Kramer instead referred to the “board-led review” of Goodyear’s cost structure, and said the review is expected to “drive both substantial efficiency and growth. The savings we have identified and will continue to identify are specific, significant and actionable.”
The group is expected to publish details of its public findings by November 15.
Outlook for the second half of 2023
Goodyear expects volumes to be aided by better comparables, and “we expect the third quarter to be the first this year where the net effect of price/mix, raw material costs and inflation will be positive.”
Still, Goodyear expects tire volumes to remain down, with replacement volumes down 3-4%, and OE volumes to be approximately flat compared to 2022.
“Lower production in the second quarter, excluding Tupelo, totaling 3.9 million units (of which 0.5 million are commercial) will negatively impact third quarter unabsorbed overhead. The impact of unabsorbed overhead in the fourth quarter from additional production cuts in the third quarter is expected to be (down) about $15 million.”
In the Americas, Goodyear expects consumer replacement weakness in North America with flat to slightly-up results, while Latin America is expected to see double-digit declines in the third quarter. “Americas consumer replacement industry expected to be approximately flat in the fourth quarter.” The commercial replacement market in the Americas is expected to be affected by continued destocking, “although less” than what was seen in the second quarter.
