Citing ongoing weakness in retail tire demand in North America and other key markets, Goodyear posted a net loss of $63.2 million in the first quarter of 2002, but Chairman Samir Gibara predicted the company would be back in the black in the second quarter because of better pricing and lower costs.
The loss compares with a net loss of $46.7 million in the same period last year, and is the firm's fourth quarterly loss in the past six quarters. Sales slipped 3 percent to $3.31 billion despite a 0.7-percent increase in tire unit volume of 53 million units.
Goodyear said the quarter's results included a pre-tax charge of $10 million that was related primarily to the return of inventory following the April 6 closure of the 562 Penske Automotive Centers in the U.S. Penske's business with Goodyear amounted to about 1 million tires a year, Mr. Gibara told financial analysts in a conference call.
In addition, the quarter also was affected by approximately $95 million in costs resulting from significant production cutbacks in the fourth quarter of 2001 due to inventory reduction programs and lower demand. Foreign currency exchange issues impacted earnings negatively by $13 million, primarily due to currency devaluation in Argentina, the tire maker said.
Mr. Gibara said he was disappointed in reporting a loss but expects the company to make progress in the second quarter. ``Our commitment to cash generation continues to remain a priority,'' he said. ``Goodyear's working capital requirements at the end of the first quarter were over $1 billion below comparable levels a year ago.''
In North America, Goodyear reported an operating loss of $51.3 million resulting primarily from higher costs due to production cutbacks in last year's fourth quarter, the charge related to the Penske closure and a shift in channel and product mix.
Sales grew 1.7 percent in the region to $1.65 billion, despite a 2.5-percent drop in replacement tire volume. A portion of the shipment decline is attributed to major independent distributors stocking up in December last year ahead of scheduled price hikes Jan. 1, and then weak retail demand during the quarter has left wholesale distributors still well stocked.
Mr. Gibara said Goodyear expects these distributors to return to traditional buying volumes during the second quarter. The reduced shipments meant Goodyear's market share in North America slipped a percentage point or two to about 30 percent in January and February, he noted.
One analyst, Saul Rubin with UBS Warburg, questioned whether this decline is an anomaly, as Goodyear contends, or a trend. ``To us,'' Mr. Rubin said, ``the risk leaves Goodyear guilty until proven innocent.''
At the same time, shipments to original equipment customers grew 10.5 percent, resulting in an overall unit volume increase of 1.5 percent during the quarter to 26.2 million units.
Goodyear said the sales increase was due to the higher OE volume, the 500,000 tires it supplied in connection with Ford Motor Co.'s tire replacement program-which ended March 31-and price increases enacted during the period.
Goodyear executives said the aftermarket is honoring price increases thus far, but Mr. Rubin cautioned in a letter to investors that a recovering Bridgestone Corp.-which has deep reserves based on its strong domestic position in Japan-has signaled it intends to recover ground lost the past two years in the wake of the Firestone tire recall.