Goodyear posts Q2 net loss on 8.6% lower sales

AKRON — Goodyear suffered a 65.9% drop in operating income for the quarter ended June 30 on 8.6% lower sales, results that drove company into the red on a net basis to the tune of $208 million.

Segment operating income fell to $124 million on revenue of $4.87 billion, cutting the operating ratio 4 ½ points to 2.5%. Goodyear cited the negative effects of lower sales volume and higher expenses for the drop into the red.

Tire unit sales volume fell 10.7% in the quarter from a year earlier to 40.8 million units, Goodyear said, with replacement volume down 15.1%, which more than offset a 5.4% improvement in OE supplies.

It's the third straight quarter with lower operating income and a net loss. In the first quarter, Goodyear suffered a 49.8% drop in segment operating income and a net loss of $101 million.

For the first six months of the year, Goodyear reported a net loss of $308 million on 12% lower revenue of $9.81 billion. In fiscal 2022, the first half net was a profit of $262 million.

Based on the first-half results and current market trends, Goodyear has downgraded its industry outlook for the second half for both consumer replacement and commercial replacement.

For the third quarter, Goodyear is projecting unit volumes to be down about 3% to 4% worldwide, a forecast that assumes 3% and 5% drops, respectively, in Americas and European consumer aftermarket sales. OE volumes should be flat compared with the 2022 quarter.

In addition, lower production of nearly 4 million units in the second quarter — excluding the tornado-damaged plant in Tupelo, Miss.—- will negatively impact third quarter unabsorbed overhead. The impact of unabsorbed overhead in the fourth quarter from additional production cuts in the third quarter is expected to be roughly $15 million.

At the same time, the company said it expects lower costs in the second half than previously projected, leading management to declare they expect to achieve segment operating margin in the second half that should bring results closer to the near-term target of 8%.

Additionally, Goodyear said it expects its Americas and Asia/Pacific business units to record "meaningful improvements" in margin and end the year with solid earnings heading into 2024.

Operating income in the Americas business unit plunged 65.8% to $103 million on 6.6% lower sales of $2.9 billion, dropping the operating ratio nearly 6 points to 3.5%.

The revenue decline was driven by 10.9% lower tire volume, partially offset by a 5% increase in revenue per tire (excluding foreign currency).

The drop in earnings reflects the impact of lower volume, including $43 million of lower sales volume and $43 million of unabsorbed overhead from lower production in the first quarter.

Goodyear estimates having the Tupelo plant off-line for several weeks cost it $77 million in lost sales and $64 million to the bottom line ($50 million Americas segment operating income and $14 million of corporate expense for an insurance deductible).