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Goodyear's NAT sees record operating earnings in 4th qtr.

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AKRON—Goodyear's North American Tire unit reported record operating earnings in the fourth quarter and fiscal year ended Dec. 31, but overall Goodyear's segment operating income fell 9.1 percent for the year while net income slipped to break-even in the quarter and dropped 43 percent for the year.

Goodyear reported respectable operating results despite lower sales revenue in the quarter and year, particularly in Europe, where revenue was off 16.2 percent for the quarter and 14.4 percent for the year.

Corporatewide revenue dropped 11.2 percent in the quarter to $5.05 billion and 7.8 percent for the year to $21 billion as tire unit volume fell 7.9 and 10.5 percent, respectively, in the two periods. Revenue generated per tire, on the other hand, grew 1 percent in the quarter.

Chairman and CEO Richard Kramer said in a conference call that he was “particularly pleased” with the results and execution of the firm's strategy, while pointing out the plight of the European business unit, where the “lackluster economy” continues to worsen, “despite some recent financial stability.”

Mr. Kramer noted that the North America, Latin America and Asia Pacific units reported successful financial performances, but the highlight of the year was in the North American business, where a record-setting fourth quarter pushed its full year operating earnings to $514 million, beating the company's 2013 target of $450 million a year ahead of schedule.

“In addition, the business delivered a margin of 5.3 percent, marking the first time in more than 10 years that North America has achieved that level,” he added. “Also, we're covering our cost of capital. So not only are we generating profits, but we are creating economic value.”

North American sales fell 10 percent in the quarter to $2.31 billion and 2 percent for the year to $9.67 billion.

To deal with the weak European situation, Goodyear is putting a focus on summer season sales, working to leverage the advantage the firm has in mandated tire labeling scores. Other European focus changes include closing the Amiens, France, factory, increasing targeted market segment share, growing in emerging markets and implementing productivity measures that are expected to yield $75 million to $100 million in savings over the coming three years.

Goodyear's segment operating income grew 39 percent in the fourth quarter to $272 million but full-year segment operating earnings of $1.2 billion fell about 9 percent shy of 2011. Nonetheless it marks the second consecutive year and third time in the company's history that it has reached that level of performance.

“In addition, we delivered strong cash results for the year,” Mr. Kramer said. “Our progress on working capital helped generate $700 million of free cash flow from operations. These positive results were driven by strong performance in three of our four businesses.”

Mr. Kramer said the company delivered solid fourth quarter results in Latin America, which reflected stabilizing business.

“Our operations in Brazil are helping re-energize the business in our most important market in the region,” he said.

“Our businesses outside Brazil delivered historically strong results. Our focus on asset utilization and investment to increase our production capabilities in the region is aligned with our strategy to mix up in the faster growing premium market segments, where our brand, our technology and our innovation have the most value.”

Goodyear also saw solid performance in Asia Pacific, although weakness in Australia —the largest business in the region by revenue—created a challenge for the top line and for earnings. Offsetting this was the growth in China.

“We're beginning to see the benefits of our strategic investments in China, which supports our focus on premium segments where we can continue to increase share by growing faster than the industry,” Mr. Kramer said.

Mr. Kramer said besides regional success, one area Goodyear excelled in for 2012 is its focus on market-back innovation. This includes the rejuvenation of the Assurance, Eagle and Wrangler product lines throughout the past four years.

“We target profitable segments by making choices on where to play, supported by deep analytics, we identify those segments of the market that offer profitable volume growth and where our value proposition is at competitive advantage,” Mr. Kramer said. “As a result, we achieved improved price mix and grew share in these key segments.”

He said Goodyear is also putting focus on original equipment and its partners there.

“We partner with key OE partners, rather than pushing volume for volume sake,” he added. “Today, Goodyear is not only on seven of the 10 top selling vehicles in the United States, but also has a profitable OE business.

“In 2012, we delivered record earnings, but more importantly built the foundation of sustainable economic value creation in line with our strategy.”



To reach this reporter: jkarpus@crain.com; 330-865-6143.
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