AKRON — Goodyear's plan to divest its rights to the venerable Dunlop brand — a part of the tire maker's North American and European portfolio since 1999 — is among several impending changes in wide-ranging transformation plan Goodyear announced Nov. 15.
The plan, dubbed "Goodyear Forward," is what Goodyear management is calling a comprehensive evaluation of the Strategic and Operational Review Committee of Goodyear's board of directors.
Goodyear secured the rights to the Dunlop brand in North America and Europe as part of the dissolution of its global alliance with Sumitomo Rubber Industries Inc. in 2015.
Goodyear Forward also calls for divesting the firm's off-the-road tire and chemicals businesses.
Goodyear Chairman, President and CEO Richard Kramer — who announced his retirement on the same day, separate from the operational changes — said the divestitures would result in more than $2 billion in gross proceeds.
In addition to the divestitures, Goodyear said it would:
- Drive $1 billion in annual run-rate benefit by year-end 2025 through cost-reduction actions including by optimizing plant operations, purchasing, supply chain, research and development, and selling general and administrative (SAG) expenses;
- Add $300 million in run-rate benefit by year-end 2025 with changes to brand-tier positioning, reduced SKUs, increased customer and channel profitability and the enhancement of Goodyear premium products; and
- Double segment operating income margin to 10% by year-end 2025, based on cost reductions, expected divestitures and other actions.
In August, the Akron-based tire maker celebrated its 125th anniversary.
"Our transformation plan represents a clear path to create a more profitable and focused Goodyear," Kramer said. "The review committee explored all value maximizing opportunities and identified specific, detailed initiatives to streamline our portfolio, expand margins and fortify our balance sheet, and do so with expediency."
Kramer said that by building on its strengths, Goodyear will be able "to enhance and expand our leadership position, deliver profitable growth across markets, create significant value for our shareholders and ultimately lay the foundation for success for the next 125 years."
In a call with investors, Kramer said the vast majority of Dunlop product sold today is in Europe. The brand's sales represent about $700 million annually.
"We concluded that a sale of the brand should bring significant value for shareholders, and at the same time, will enable us to focus on the future ... streamlining our manufacturing processes by narrowing our product portfolio to a reduction in the number SKUs," he said.
Kramer said Goodyear's OTR business, which consists of mining and construction tires, is significantly smaller than its largest competitors at roughly $700 million in annual sales. It has manufacturing capacity for OTR tires at plants in Topeka, Kan., and Tatsuno, Japan.
Titan International Inc. produces and sells Goodyear-branded agricultural tires in Europe and South America under license from Goodyear.
"The amount of capital it would take for us to achieve competitive scale is significant, and that's unlikely to be achievable in this foreseeable future," Kramer said. "As a result, we've decided to assess opportunity to potentially monetize this business as well."
The broad-based transformation plan comes six months after Elliott Investment Management L.P., a West Palm Beach, Fla.-based investment firm that holds a 10% stake in the tire maker, sent a letter to Kramer and Goodyear's board of directors, detailing the firm's dissatisfaction with what it called Goodyear's poor stock performance.
As a result, Goodyear added three to its board of directors and agreed to establish the review committee to "oversee and support the board and management's review of various strategic and operational alternatives to maximize sustainable shareholder-value creation and build upon a number of initiatives that Goodyear has been executing."
Elliott Investment's Marc Steinberg, senior portfolio manager, and Austin Camporin, portfolio manager, gave their stamp of approval of the moves.
"We believe the 'Goodyear Forward' transformation plan represents a significant set of steps toward a stronger and more profitable Goodyear," they said in a statement.
"We thank Rich for his leadership and the review committee for its collaborative engagement, and we look forward to continuing our dialogue with the company as it implements these initiatives and works to deliver the substantial upside value that we see for all Goodyear shareholders."
While Elliott recommended that Goodyear divest its retail operations as part of any reorganization plan, Kramer said the tire maker would retain that business (600-plus retail locations), citing that segment's profitability potential and its role in tire connectivity and future mobility.
"...The review committee concluded that at this point, retail has more value as part of Goodyear today, and it would likely create as sold, particularly given opportunities for near term upside and profitability," Goodyear CFO Christina Zamarro said.
"Our retail presence reinforces our strong brand and bolsters our leading industry position in the U.S. consumer replacement business, our most profitable. Additionally, our retail footprint represents an outlet for premium tire free services, and (business-to-business) e-commerce installations."
Zamarro also said as part of the plan, Goodyear will reduce non-branded Goodyear SKUs by 20% and increase Goodyear-branded SKUs by 10%. Cooper, acquired by Goodyear in 2021, will be positioned as a mid-tier product line.
"This approach will rationalize lower tier SKUs and capitalize on product strength to drive premium pricing and simplify our operation," she said, noting that capacity for premium, higher margin products will increase profitability.
She said Goodyear will discontinue product lines "when we don't see future earnings potential."
In addition, she said the tire maker will continue to emphasize the SUV and light-truck market as well as continue to capture "a disproportionate share" of the electric vehicle market."
The review committee consisted of five directors, including two new independent directors appointed in July. According to Goodyear, the review committee analyzed and deliberated these moves over the last 16 week, with assistance from financial advisers and consultants.
The review, Goodyear said, "culminated in a detailed and actionable plan to streamline the business, accelerate growth and enhance competitive positioning. "
The board of directors will oversee the plan and promised to provide regular updates to shareholders on its progress.
"This plan is the result of a comprehensive, bottom-up assessment of Goodyear's business, led by the review committee," said Laurette T. Koellner, independent lead director of Goodyear's board.
"The full board supports this plan and is confident it will deliver substantial and durable value creation for shareholders. We appreciate the constructive input of our shareholders throughout this process."
