AKRONGoodyear's North American Tire segment hit a new record for third quarter earnings at $161 million, and the tire maker is predicting record segment operating income for the year, it reported.
We're very pleased with our results for Q3, and we're extremely confident that our team's continued execution will position us to exceed $1.5 billion in segment operating income this year and set us up for continued earnings growth in 2014, said Darren Wells, Goodyear's executive vice president and CFO during an Oct. 29 investor conference call. (Mr. Wells transition to the role of president of Goodyear's Europe, Middle East and Africa business unit effective Dec. 1.)
Goodyear saw year-over-year quarterly earnings improvements in all four of its regional businesses, and the Akron-based tire maker said its total third quarter segment operating income, at $431 million, was up 24 percent from the same 2012 period. Each of its business units achieved higher operating income in the quarter compared with the year-ago period, and all but the Latin America unit posted higher tire unit volumes.
While earnings were up for the quarter, total sales, at $5 billion, were down compared with the $5.3 billion the company reported during the same period last year.
Goodyear said third quarter sales reflect $82 million in higher tire unit volume, which totaled 42.6 million units, up 2 percent from 2012. The increase was more than offset by a $178 million decline in other tire-related businesses, most notably a decrease in the price and volume of third-party chemical sales, it said.
Third quarter 2013 net income available to common shareholders was $166 million62 cents per sharea third quarter record and a 51-percent increase from $110 million (41 cents per share) during the same quarter in 2012. All per-share amounts are diluted.
The company's sales for the first nine-months were at $14.8 billion, down 8 percent from the same period of 2012, but segment operating income of $1.2 billion for the period is up 19 percent. Richard Kramer, Goodyear's chairman and CEO, said the company is continuing to target 10-15 percent annual growth in segment operating income through 2016.
During the investor call, Mr. Kramer noted that over the past few years raw materials have fluctuated up and down, creating market volatility, but the company has compensated by pursing a very disciplined strategy around price and mix.
We look at this overall in terms of the value proposition that we bring to the market, he said. That's certainly partly price, but it's also service level, it's also our brand and it's also our customer relations that we have out there.... The way we look at it is we've got to insure that our value proposition, ultimately, is very competitive in the marketplace, and in some instances we need to react to that to make sure that value proposition is competitive.
According to Mr. Wells, raw material costs are generally expected to rise during the next three years given the increases we expect in global industry volume.
There will be some dependency on how quickly we see raw materials turning the other way, he said. We've seen some signs here the last couple of months of some raw materials coming out of the bottom and coming back up. What we've been able to do historically, over time, certainly is manage price/mix to offset and in some cases more than offsetraw material costs, and over the long run I can still say that is our expectation.
Specific segment results for the quarter are as follows:
c North AmericaThe tire maker saw record segment operating income of $161 million and an improvement in its operating margin to 7.4 percent from 5.4 percent. Despite this, Goodyear's North America sales declined 9 percent for the quarter to $2.19 billion, reflecting a $170 million drop in sales in other tire-related businesses.
Original equipment unit volume was up 5 percent for the quarter, Goodyear said, while replacement tire shipments were flat.
The company said its full year 2013 outlook for North America remains unchanged, as it continues to expect that consumer replacement, commercial replacement and commercial OE volumes will be at 2012 levels. The tire maker anticipates a 5-percent jump in consumer OE volume.
c Europe, Middle East and AfricaThird quarter sales climbed $4 million to $1.75 billion, Goodyear said, reflecting a 3-percent increase in tire unit volume and favorable foreign currency translation of $42 million. This was partially offset by lower price/mix.
Segment operating income for the quarter reached $115 million, a 10-percent increase from the same period last year.
Original equipment unit volume was up 11 percent, while replacement shipments remained flat.
c Latin AmericaThird quarter sales increased only 1 percent from last year to $527 million. Improved price/mix and higher sales in other tire-related businesses was offset by $75 million in unfavorable foreign currency translation and a 4-percent decrease in tire unit volume, Goodyear said.
Segment operating income for the quarter reached $89 million, an 82-percent increase from the same period in 2012. This reflects price/mix improvements of $79 million, including a favorable shift from OE (down 21 percent) to replacement volumes (up 6 percent), Goodyear said.
c Asia PacificThe unit saw third quarter sales decline $55 million from the same period last year to $537 million, reflecting reduced price/mix, $39 million in unfavorable foreign currency translation and $12 million in lower sales in other tire-related businesses. Those declines were partially offset by a 9-percent increase in tire unit volume.
OE unit volume for the quarter was up 11 percent and replacement tire shipments were up 5 percent.
Segment operating income reached $66 million, a 3-percent boost from the same period last year. It was positively impacted by favorable price/mix net of raw materials of $15 million, lower factory start-up costs of $13 million and $8 million in higher tire unit sales, Goodyear said.