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July 05, 2004 02:00 AM

Goodyear-results show 'proof' of progress

Lisa Aichlmayr
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    Goodyear's first quarter loss of $76.9 million is a 60.9-percent improvement over the $196.5 million loss in 2003's first quarter, but company officials still are tempering their outlook with caution.

    ``We're seeing many positives in our business going forward, but we're also very cognizant of the magnitude of the challenge that we face in terms of our debt and our unfunded pension obligations,'' said CFO Richard Kramer, chief financial officer.

    Still, Robert Keegan, chairman and CEO, said the quarter provided ``measurable proof'' of an evolving turnaround, and he expects that to continue into the second quarter.

    For the first quarter, Goodyear posted sales of $4.29 billion, up 20.8 percent from last year's $3.55 billion, primarily on stronger volume, higher pricing, favorable product mix and $200 million from positive currency translation. Tire unit volume was 55.7 million units, up 5.9 percent from the year before. Total segment operating income also was up to $216.1 million from $42 million in 2003.

    Improvements in operating results were somewhat offset by an increase of about $30 million in raw materials costs from the year-ago period. In North American Tire, segment operating results improved to a loss of $31.7 million from a deficit of $66.5 million in 2003. Tire unit volume in the segment was slightly down to 24.7 million units from 24.8 million units last year.

    Sales were up 10.7 percent to $1.76 billion from 2003. Goodyear said shipments to original equipment customers increased less than 1 percent, and replacement volume fell less than 1 percent. Revenue per tire in the segment was up 6 percent.

    Mr. Keegan declined to predict when NAT would return to profitability.

    ``Our goal is to make this a profitable business for us, and we're making progress toward that step,'' he said.

    But some analysts remain skeptical.

    ``Results showed signs of improvement, but we remain concerned about North American profitability, North American market share and the company's ability to generate free cash flow for the equity holder,'' wrote Stephen Girsky, an analyst at Morgan Stanley, in a note to investors.

    Mr. Girksy had forecast earnings of $8.6 million in NAT instead of the $31.7 million loss. He also pointed out that NAT's replacement shipments were down about 1 percent vs. a 7-percent increase in the U.S. replacement tire market, indicating market share losses.

    Mr. Keegan said though he expects ``solid'' industry growth for the year, he doesn't expect the first quarter growth in the industry to be sustainable.

    He said Goodyear had some share losses in the private label business, but that was from the tire maker being more ``selective,'' meaning profitability was actually helped.

    Also, he said Goodyear's second quarter will begin to show revenue generated from the launch of the two Assurance tires, the ComforTred and TripleTred. Shipments for those new products began in March and April. Increased advertising for these products added about $5 million to first quarter books, the tire maker reported.

    Mr. Keegan also said Goodyear has been able to maintain ``premium'' pricing for these tires.

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