Goodyear posted a profit for the second consecutive quarter-an accomplishment that also is true for the tire maker's long embattled North American Tire (NAT) unit-but officials aren't claiming victory yet in the company's turnaround effort.
In the third quarter Goodyear reported net income of $36.5 million, reversing a $119.4 million loss last year and also up 45.4 percent from the $25.1 million profit Goodyear reported in 2004's second quarter. Net sales for the third quarter hit a record $4.71 billion, rising 20.7 percent from $3.91 billion a year ago and marginally better than the $4.5 billion reported in the second quarter.
Goodyear said the sales increase reflected improved pricing and product mix, higher unit volume and robust commercial tire sales. Tire unit volume grew 3.8 percent to 57.4 million units vs. the 2003 quarter.
``With two profitable quarters behind us, our progress from where we were two years ago is gratifying, but our focus and our intensity remain here on continuing to improve our market position, the economics of our business and our core financial results,'' said Robert Keegan, chairman and CEO, in a conference call with analysts.
For the first nine months of the year, Goodyear posted record sales of $13.5 billion, up 20.5 percent from $11.2 billion a year ago. Tire unit volume also grew, but more modestly, by 4.6 percent to 168.1 million units. Goodyear also trimmed its net loss during the period to $12.3 million from $372.3 million in 2003.
Total segment operating income doubled to $305.1 million from $151.4 million last year. All seven of Goodyear's business units were in the black.
In the third quarter, NAT reported segment operating income of $13.5 million, up from a loss of $36.6 million last year. The business unit also posted sales of $2.07 billion, up 15.6 percent from $1.79 billion a year ago. Tire unit volume was essentially unchanged at 26.7 million units as replacement volume rose 0.9 percent but original equipment shipments fell 2.2 percent.
Mr. Keegan added that the successful launch of the Assurance line earlier this year helped push revenue per tire up 11 percent. Three Dunlop tires introduced this month at the Specialty Equipment Market Association Show in Las Vegas are aimed at boosting the struggling Dunlop brand. Mr. Keegan said more product introductions-for both the Goodyear and Dunlop brands-will be showcased at the company's dealer meeting in Dallas in January.
``This flurry of product success in the market is only the beginning,'' he said.
But Stephen Girsky, an analyst at Morgan Stanley, noted in a report to investors that smaller business segments are contributing the lion's share of tire operating profits. For example, he noted, Latin America and Eastern Europe contributed 16 percent of tire revenue in the quarter yet comprised 55 percent of the operating income. North America, on the other hand, contributed 55 percent of the tire segment revenue yet accounted for only about 6 percent of the profits.
``We believe there is a risk that some of these strong markets...will post lower margins two or three years out as additional capacity comes on line,'' Mr. Girsky wrote. He maintained his equal-weight rating.
Mr. Keegan said Goodyear continues to face headwinds, especially raw materials, the costs of which are expected to climb 9 percent in the fourth quarter, followed by a 4-6 percent increase in 2005 on top of a 5-7 percent impact overall in 2004. He added that Goodyear has made ``significant'' progress in its turnaround.
Goodyear said it also will file an amended 2003 10-K that will include additional disclosures and restatements.
Mike McNulty, Crain News Service, contributed to this report.