Goodyear Q1 earnings plummet as raw materials costs rise

AKRON — Goodyear's net income plummeted 54.8 percent to $75 million despite a 3.5-percent increase in net sales of $3.83 billion in the first quarter, ended March 31, compared with the year-ago period.

Tire unit volume totaled 39 million, down 2.5 percent from 2017. OE unit volume fell 4 percent, primarily driven by declines in the smaller than 17-inch rim size segment in the Europe/Middle East/Africa (EMEA) region. Replacement tire shipments slid 2 percent, largely due to reduced industry demand for consumer tires in the U.S. and Europe, Goodyear reported.

The segment operating income dropped 27.9 percent to $281 million in the first quarter due mainly to higher raw material costs, Goodyear said.

"We are pleased with our first-quarter results given higher raw material costs and weaker demand than we expected in the quarter," said Richard J. Kramer, chairman, CEO and president. "These results were highlighted by our performance in the 17-inch-and-larger segment in consumer replacement, which delivered more than double the industry growth in the U.S. and Europe," he added.

The Americas segment's operating income declined 41.2 percent to $127 million as sales dipped 1.5 percent to $1.93 billion due to increased raw material costs, lower price/mix and the effect of 2.9 percent lower volume to 16.7 million units.

Original equipment unit volume fell 3 percent driven by production declines in the U.S. while consumer replacement tire shipments slid 3 percent — still outperforming U.S. Tire Manufacturers Association industry members, who experienced a 5-percent decrease in tire shipments.

EMEA segment sales increased 7 percent to $1.3 billion, due to favorable foreign currency translation and improved price/mix, partially offset by reduced tire volume. Original equipment unit volume fell 14 percent, primarily driven by declines in the less-than-17-inch rim size segment. Replacement tire shipments slid 2 percent, driven by decreased industry demand in the consumer business.

Meanwhile, the segment's operating income dropped 23 percent to $78 million because of higher raw material costs, which more than offset improvements in price/mix, and lower volume, Goodyear said.

The Asia Pacific segment's sales increased 14 percent to $571 million primarily because of improved price/mix, favorable foreign currency translation and higher tire volumes, which increased 4 percent. OE unit volume jumped 11 percent while replacement tire shipments were flat.

Segment operating income climbed 4 percent to $76 million.

Goodyear said it expects to benefit from its recently announced plan to establish TireHub L.L.C., a national tire distribution joint venture with Bridgestone Americas Inc.

The 50/50 joint venture that will combine Goodyear's company-owned wholesale distribution business and Bridgestone's tire wholesale warehouse business. The transaction is expected to close in June 2018, subject to customary closing conditions and regulatory approvals.

Goodyear said it expects to transition volume representing about 10 million units of annual sales primarily to TireHub as well as to other aligned distributors during the second quarter.

Due to an expected temporary disruption during the start-up of TireHub, Goodyear said it expects a near-term reduction in volume of up to 1.5 million units in 2018.

Mr. Kramer said the new venture will allow the tire maker to work more closely with its customers in the future and deliver an enhanced brand experience for consumers.

"TireHub will deliver best-in-class service for our retail and fleet customers and will be the cornerstone of our aligned distribution network, including our company-owned retail stores," said Mr. Kramer. "TireHub will strengthen our ability to promote our premium brands, our industry-leading e-commerce solution and our strategy of targeting the industry's most profitable, large rim size segments. This agreement increases our confidence in delivering on our long-term targets."

The company reaffirmed its 2018 segment operating income guidance of $1.8 billion to $1.9 billion, excluding the TireHub transition, and confirmed its 2020 segment operating income target of $2 billion to $2.4 billion.