Despite less-than-promising shipment data in May, Goodyear is raising its second-quarter earnings forecast to a range of 10 to 15 cents a share from an earlier projection of 5 to 10 cents.
The Akron-based tire maker is basing its higher forecast on the success of ongoing cost-reduction initiatives and improved results from international operations.
In North America, Goodyear's shipments of replacement tires continued to lag behind the industry's pace in May, although shipments to original equipment customers showed signs of life.
In May, industry shipments of passenger and light truck tires to replacement market customers were down 4 percent from May the previous year, while Goodyear's shipments were off even more, although the tire maker did not say by how much. In commercial tires, industry-wide replacement shipments were off 3 percent, and Goodyear's were down more than that.
Compounding the problem for Goodyear is the fact that purchases by its larger wholesalers, while improving, have not returned to 2001 levels, resulting in a less favorable brand and product mix, the company said.
Industry-wide, shipments to OE customers were up 1 percent for consumer tires and 14 percent for commercial tires, Goodyear said. The latter was up so much because vehicle makers have increased their build rates ahead of pending regulation changes. Goodyear's OE unit shipments were better than the industry for consumer tires but below the industry for commercial tires.
Elsewhere, Goodyear's shipments in the European Union were down more than the 6-percent industry decline, and sales also were down in Latin America and Asia.
Meanwhile, Goodyear's forecast came on the heels of a June 14 announcement by Moody's Investors Service that it had downgraded the tire maker's credit rating to ``junk'' status, based on expectations that Goodyear will continue to face near-term challenges in restoring its financial footing.
Moody's cited Goodyear's ``recent weak financial performance,'' which it forecast ``will continue through 2002 due to flat overall unit demand and an unfavorable shift in sales mix.''
Goodyear's ``sub-par'' operating performance in recent years, Moody's said, is ``largely due to inventory management problems, a decline in global tire volumes and a relatively high fixed-cost structure.''
On Feb. 21, New York-based Moody's placed Goodyear's debt ratings under review for possible downgrade, saying the move ``reflects Goodyear's lackluster financial performance in 2001 and the rating agency's concern that volumes in both the OEM and replacement market will remain depressed through the intermediate term, resulting in weaker cash flow generation and further delay in a meaningful reduction of debt.''
The June 14 downgrading by Moody's lowers Goodyear's ratings to ``Ba1'' from ``Baa3,'' affecting about $2.2 billion of senior unsecured debt, according to a statement released by the financial investment firm.
It said the rating ``could come under pressure'' if Goodyear is unable to achieve the full level of expected benefits from restructuring initiatives. ``Furthermore, the inability to generate top-line growth and increased revenue-per-tire, coupled with a rise in raw materials costs, could also place downward pressure on the Ba1 rating.'' Moody's said the negative outlook also reflects its concerns that ``increasing cash outlays could result from Goodyear's substantially under-funded pension plan. In addition, the company's potential exposure to ongoing asbestos and product liability litigation will be monitored.''
Moody's noted that Goodyear's under-funded pension obligation ``ballooned to over $1 billion on a consolidated basis at year-end 2001, up from an under-funded status of $302 million the prior year.'' The rating agency, it continued, ``believes that this liability could represent a significant, intermediate-term call on cash.''
A Goodyear spokesman noted that the move by Moody's was basically the same as Standard & Poor Corp.'s decision Jan. 18 to downgrade the tire maker's debt rating by two levels which, in that case, placed the company's senior unsecured debt into a category often referred to as ``junk.''
``We're disappointed but not surprised by Moody's rating action,'' he said. ``We have plans in place to improve our profitability throughout the year. There is little immediate impact from this action.''