Goodyear Tire & Rubber Co. says it is “pursuing strategic alternatives for its chemical business, the Dunlop brand and off-the-road equipment tire business.”
The Akron, Ohio-based tiremaker says its Goodyear Forward plan, which was unveiled on Nov. 15 and calls for more than $1 billion in cuts, will deliver:
- “Gross proceeds in excess of $2 billion from portfolio optimization. Following a comprehensive assessment of all assets, Goodyear has determined to actively pursue strategic alternatives for its chemical business, the Dunlop brand and the off-the-road equipment tire business."
In its hope of divesting these three businesses, Goodyear Chairman, CEO and President Rich Kramer and Chief Financial Officer Christina Zamarro shared some details with analysts. The five-person operational review committee also considered the severability of the company's assets — how easy or difficult it might be to pull a certain brand or type of tire out of production, for instance. And in the end, that's a factor that helped determine to seek buyers for the chemical and OTR tire businesses, as well as the Dunlop brand.
Zamarro noted the Dunlop brand includes about 7 million units sold, with five million of those sold in the Europe/Middle East region (EMEA), and another half-million units sold in commercial truck applications. Kramer called the brand "very attractive" and said there is interest in buying it. An analyst specifically asked if Sumitomo Rubber Industries Ltd. would be a likely buyer, given the two tiremakers up until 2015 had an alliance, which ultimately led to Sumitomo acquiring its manufacturing plant near Buffalo, N.Y.
Kramer said when thinking of EMEA, selling the Dunlop brand would then allow Goodyear to focus on sales of the Goodyear brand in that market, which in turn would allow for a focus on the higher segments with the larger profits. He believes "this will make our business stronger."
In the OTR tire business, Zamarro said Goodyear has two standalone production facilities — one in Japan, and another in the U.S. She said it is much more severable than other assets. Kramer also noted that in the OTR tire market, Goodyear's competitors have much larger scale, and that ramping up to that size would require "significant" investment, which Zamarro noted would not be achievable in the near future.
As for chemicals, Zamarro said about half of the business' sales are to third parties, while the other half is sold back to Goodyear and used internally.
- "Cost reduction actions driving an annual, run-rate benefit of $1 billion by the end of 2025. The company has initiated a cost reduction plan encompassing footprint actions and plant optimization; purchasing; SAG; supply chain; and R&D."
- "Top-line actions driving an annual, run-rate benefit of $300 million by the end of 2025. The company has identified opportunities in North America to optimize brand and tier positioning; rationalize SKUs; increase customer and channel profitability; and enhance coverage in premium product lines."
The brand and tier positioning also plays into Goodyear's ongoing work to combine the Cooper Tire & Rubber Co. business into the fold. Initially that work focused on internal and back-end savings, but moving forward Zamarro said the company will also work on the brand and tier strategy. It will clearly position the Goodyear brand as the top-tier product, with Cooper as a mid-tier product.
And knowing that the top-tier tires offer the highest profitability, SKU rationalization will be part of the mix. Zamarro said the company will reduce non-Goodyear-brand SKUs by 20%, and increase Goodyear-brand SKUs by 10%. This will also help simplify the company's operations, she said.
- "Segment operating income margin doubling to 10% by the end of 2025. With the benefits of cost reduction and top-line actions and net of the impact of expected asset sales and inflation, the company expects segment operating margin to double from approximately 5% in 2023 to 10% by the fourth quarter of 2025."
- "Net leverage of 2.0x to 2.5x by the end of 2025. Goodyear will strengthen its financial profile through enhanced earnings, cash flow generation and debt reduction, moving the company closer toward an investment-grade rating. The company expects a debt reduction of approximately $1.5 billion, net of approximately $1.1 billion for restructuring.”
Repeatedly, Kramer and Zamarro told analysts that work on all of these initiatives "is well underway."
On Nov. 15, Goodyear also announced that Rich Kramer, its longtime chairman, CEO and president, will retire in 2024.
On behalf of Elliott Investment Management, one of Goodyear’s largest investors, Senior Portfolio Manager Marc Steinberg and Portfolio Manager Austin Camporin said, “We believe the Goodyear Forward transformation plan represents a significant set of steps toward a stronger and more profitable Goodyear.
"We thank Rich for his leadership and the (company's) review committee for its collaborative engagement and we look forward to continuing our dialogue with the Company as it implements these initiatives and works to deliver the substantial upside value that we see for all Goodyear shareholders.”
Evercore, Lazard and Goldman Sachs acted as financial advisors to Goodyear.