AKRON—Goodyear said efforts to complete a slew of projects prior to starting its alliance with Sumitomo Rubber Industries Ltd. in September will contribute to sharply lower earnings in the second quarter. In a press release previewing its quarterly results which will be announced July 21, the company said net income will fall to between $64 million and $80 million, as much as a 67.8 percent drop from the $199 million earned in the second quarter last year.
Sales were expected to fall by about 2 percent.
Goodyear said efforts to reduce inventories, realign production capacity in North America and Europe and weak economic conditions in Latin America and emerging European markets contributed to the disappointing showing.
Extra costs associated with trying to a complete a number of projects by September when the joint venture between Sumitomo and Goodyear is expected to begin operating also impacted results, a company spokesman said.
These projects, which the spokesman called ``one-time distractions,'' include phasing out tire production at the company's Gadsden, Ala., tire plant, moving to continuous production at plants in Union City, Tenn., and Fayetteville, N.C., and speeding up the integration of its Kelly-Springfield Tire Co. division into the Akron headquarters.
Goodyear and Sumitomo finalized their global alliance June 14, a deal that likely will make Goodyear the world's largest tire maker.
The company also has needed to reduce inventories of passenger and light truck tires in North America, the spokesman said.
Analyst Saul Ludwig of McDonald and Co. in Cleveland said he had projected about a 40 percent drop in second quarter earnings. ``I think the factors which caused this to occur were expected, but the magnitude is greater than expected,'' he said.
``The company is undergoing a major transformation of where it makes what tires,'' he added. Mr. Ludwig also cited the weak economic climate overseas—especially in Brazil, Turkey and South Africa—and upfront costs due to the ``rationalization'' of domestic production as negative factors.
``We didn't have enough high margin tires to sell and we ended up selling more low margin tires, and this affected the sales and earnings numbers,'' the Goodyear spokesman said. When all this is added up, ``we didn't do a good job of implementing all the programs on our plate this quarter,'' he added. ``It's disappointing.''
Still, the company's ``fundamentals are all sound,'' the spokesman said, and Goodyear expects to see an improvement in the third and fourth quarters.
``We're viewing this as a one-time bump in the road,'' he said.
Mr. Ludwig agreed. ``We certainly expect them to have a much better earnings stream in the third and fourth quarters,'' he said. But, he cautioned that Goodyear will provide more details when the second quarter results are officially released. ``Then we'll have more to go on.''
Tire Business Staff Reporter Chris Collins contributed to this report.