Goodyear expects its largest unit-North American Tire (NAT)-to finally see some black ink when second quarter results are scheduled to be released Aug. 5.
The Akron-based tire maker said last month that it also expects to post an 18.4-percent rise in net sales to about $4.5 billion from $3.8 billion in last year's second quarter. The increase is primarily from higher volume, improved pricing and product mix and other factors. Segment operating income will be up more than 25 percent in the two European businesses and up at least 50 percent in Latin America, Engineered Products and Chemical, Goodyear said. The company did not disclose whether these figures would turn into an overall profit for the company.
Analyst Stephen Girsky at Morgan Stanley wrote in a note to investors that total segment operating income could be as high as $15 million over his initial $221 million estimate. If so, Goodyear as a whole could post a ``modest'' profit for the quarter.
``We caution that (Goodyear's) corporate expense has been growing rapidly, and corporate income could vary significantly from segment results,'' he wrote.
Goodyear said all seven of its business units are expected to report positive segment operating results for the quarter. A spokesman said that means NAT will post a profit after numerous quarters of red ink. He declined to say how big the profit might be. Company officials had said in June while reporting first quarter results that the second quarter would show revenue injections from Assurance sales. Shipments for those new products began in March and April.
Mr. Girsky, who has an ``equal weight'' valuation on the stock, expects NAT to post a segment operating profit of $18 million for the quarter.
Goodyear also said it will no longer seek to sell its chemical division. ``Given its improved earnings, we believe the cash flows and cost advantages Goodyear derives from the chemical business, as well as its positive contributions to the tire businesses, outweigh the benefits of a potential sale,'' said Chairman and CEO Robert Keegan.
``The current and projected raw material market reinforces this decision.''
Despite the potential milestone of a profitable NAT-the unit that is the primary focus of the company's ongoing turnaround-Goodyear officials still warn of obstacles, most considerably about $5 billion in debt.
``While we are pleased with our year-to-date operating results, challenges remain, including high levels of debt and unfunded pension obligations, which we are addressing with specific strategies,'' Mr. Keegan said in a statement.
Still, some company watchers seem to be gaining optimism. Fitch Ratings in February had downgraded Goodyear's senior unsecured rating and the senior secured bank facilities while keeping its outlook at ``negative.'' Last month, a day before Goodyear released its second quarter forecast, Fitch affirmed the credit ratings yet revised its outlook to ``stable.''
``Operationally, Goodyear showed some signs of making headway in its turnaround strategy,'' the Fitch analysts wrote, citing in particular sales gains, cost-reduction efforts and better capacity utilization.
Also earlier in July, analyst Himanshu Patel of JP Morgan upgraded Goodyear to ``overweight.''
``We see significant near-term upside potential in this out-of-favor name,'' he wrote.
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Crystal ball gazing
For the second quarter, Goodyear expects:
* An 18.4-percent rise in net sales to about $4.5 billion.
* All seven business units to post profits.
* Revenue injections from sales of its new Assurance tire line.