Goodyear eyes income gains in 2013

AKRON (Feb. 13, 2013) — Goodyear is forecasting its consolidated segment operating earnings will increase by up to 20 percent this year despite only marginal growth in unit tire volume worldwide.

The Akron-based tire maker expects 2013 segment operating income to rise to $1.4 billion to $1.5 billion from $1.25 billion this past year on unit tire volume growth of low single-digit percentage, company executives told financial analysts Feb. 12 during the release of the firm's fiscal 2012 financial results.

The 2012 segment operating income represents an earnings ratio of nearly 6 percent.

Goodyear expects to realize a net bottom-line benefit this year from lower raw materials costs. That gain could be as much as $175 million in the first quarter; the company did not quantify the benefit over the full year, however, citing the volatility of that market in the recent past.

"…(T)his estimate could change significantly based on fluctuations in the cost of (natural and synthetic rubber) and other key raw materials," the company said.

In order to mitigate some of the impact of raw materials costs, Goodyear said it is focusing on price and product mix, on substituting lower-cost materials where possible, on reducing the amount of material required in each tire and pursuing alternative raw materials including innovative bio-based materials.

"However," the company said, "during periods of rapidly rising raw material costs, we may not be able to fully offset those raw material cost increases through the use of these strategies, although we remain confident in our ability to do so over the longer term."

Additionally, Goodyear said its decision to close its Amiens, France, farm and car tire plant and exit the farm tire business in Europe/Middle East/Africa will boost that segment's operating income by about $75 million annually.

"(While) recognizing these challenges and our overall outlook on Europe, we are implementing a profit improvement plan to return Europe, Middle East and Africa business to its historical margins," said Richard J. Kramer, chairman and CEO of Goodyear, during a conference call on Feb. 12.

"We're taking aggressive actions now to rebuild our earnings power rather than waiting for the pace of growth in the region to accelerate."

He said the company's plan in Europe is focused in three areas: increase in share in the targeted market segments—such as ultra-high-performance tires and run-flats, accelerated growth in emerging markets, and driving productivity improvements in the supply chain, including manufacturing facilities.

On the sales side, Goodyear said it expects long-term growth globally but at a slower pace near-term due primarily to continued economic weakness in Europe.

By market, Goodyear said it expects:

c The North America consumer replacement market to be flat to up 2 percent, consumer OE to be up approximately 5 percent and commercial replacement and OE to be flat.

c European consumer replacement to be flat to up 2 percent, consumer OE to be down approximately 5 percent, commercial replacement to be up approximately 5 percent and and commercial OE to be flat to up 5 percent.

Darren Wells, executive vice president and CFO, said, "In EMEA we expect to see the softness continue into 2013, and we expect industry shipments to decline another 5 percent."

He said the segment operating income expectation is at a record level for Goodyear—it represents a 12- to 20-percent increase over 2012 segment operating income—however, it is below its $1.6 billion target. This decision was driven by EMEA and a recently announced currency devaluation in Venezuela.

"When we implement our profit improvement plan for EMEA and work our way through the impact of the devaluatin of Venezuela, the $1.6 billion should be achievable, just not in 2013," Mr. Wells said.

Goodyear did not give specific forecasts for Latin America or Asia/Pacific.