Goodyear posted a 5-percent gain in sales in the third quarter to $5.28 billion-a record for any quarter-yet earnings dropped dramatically both companywide and in the firm's North American Tire (NAT) unit.
Goodyear posted a net loss in the quarter of $48 million, down from a profit of $142 million for the same period a year ago. In NAT, segment operating income fell 67.2 percent to $19 million from $58 million.
Overshadowing the results, however, was the return of the tire maker and the United Steelworkers (USW) to the bargaining table in Cincinnati for the first time since the union called a strike Oct. 5 at 16 of Goodyear's North American plants.
The two sides resumed formal negotiations Nov. 14, less than a week after Goodyear disclosed its third quarter results and also posted a copy of its last offer to the union on a Web site.
``Our goal quite simply remains getting a contract that is fair to Goodyear and fair to workers,'' he said.
Goodyear's stock price rose 15.6 percent to $17.54 on Nov. 9-the day Goodyear reported its results-probably on investors' optimism about the return to talks with the union, analysts suggested. By Nov. 13, the price continued to rise to $18.24.
The tire maker also announced it will offer about $1 billion in three- and five-year senior notes to repay $515 million of maturing notes due Dec. 1 and March 1.
Remaining proceeds from the offering will be used for corporate expenses including costs from the ongoing United Steelworkers strike.
The quarterly financial results do not include any impact from the strike as the third quarter ended Sept. 30, but company executives did say the strike was costing the firm about $30 million to $35 million a week in lost operating income. Executives also said Goodyear has been able to keep production at nearly 50 percent of pre-strike levels.
Chairman and CEO Robert Keegan said Goodyear posted the contract offer at www.goodyearnegotiations.com to make sure the ``contents are crystal clear.''
The third quarter results do include a charge of $107 million relating to Goodyear's plans to close its Tyler, Texas, tire plant, which the Akron-based tire maker announced Oct. 30.
The closing would impact 1,100 employees. Executives said the charge was recorded in the third quarter because the decision to close Tyler is related to the firm's June decision to exit parts of its private label business.
The Tyler closing, however, has been a major sticking point in the strike, as the union initially said it would return to talks when the tire maker ``is prepared to make a proposal that provides security to all Steelworkers factories''-including Tyler-union representatives said in a letter to Goodyear's negotiator, James Allen.
Before returning to Cincinnati, Tom Conway, a USW International vice president said, ``We stand ready to bargain a fair labor agreement, as we always have, and assume by this announcement that the company has abandoned its destructive position on closing plants and slashing health care.''
Goodyear executives said the firm proposed putting $660 million into a trust fund in exchange for relief on union retiree health care liability. The union, however, did not seem receptive to the concept when it said, in a Nov. 3 letter, that the fund ``will run out of money in a few years, leaving people who worked a lifetime building the company with nothing.''
Analyst Jonathan Steinmetz of Morgan Stanley Research North America doubted the union would ultimately agree to the trust fund proposal.
``Given that the union is not likely to see financial distress near-term for the company, we wonder why they would give up significant health care benefits now,'' he wrote in a note to investors.
Indeed, Goodyear officials pointed out positives in the third quarter results despite the net loss. Discounting certain one-time charges, the tire maker would have posted a profit of $75 million.
Other factors impacting earnings besides the Tyler charge include:
* A 4.5-percent decline in tire volume and higher raw material costs of $249 million that were offset somewhat by $225 million of improved price and mix;
* An after-tax gain of $10 million from a supplier settlement; and
* An after-tax expense of $7 million related to accelerated depreciation for a plant closure in New Zealand.
The tire unit volume decrease to 55.8 million units was attributed primarily to Goodyear's exit of certain segments in the private label tire business.
``Despite ongoing market weakness in North America and record high raw material costs, we continue to demonstrate the strength of our business model changes and successful product portfolio,'' Mr. Keegan said in a statement.
In NAT, sales rose 2.6 percent to $2.43 billion though tire unit volume fell 11.7 percent to 23.5 million units.
For the nine months ended Sept. 30, Goodyear posted net sales of $15.3 billion, a 3.3-percent increase from $14.8 billion a year ago. Net income in the period fell 90 percent to $28 million from $279 million in 2005.
In NAT in the nine months, sales rose 3 percent to $7.01 billion though tire unit volume fell 8.8 percent to 70.4 million units. Segment operating income in the period fell 45.2 percent to $68 million.
For updates on the strike, visit www.tirebusiness.com.