Goodyear: Pandemic hurt demand in first quarter

AKRON — The COVID-19 pandemic quickly changed industry demand, and because of this, Goodyear's first quarter sales were down 15% from a year ago and the company fell into the red on an operating and net basis.

"Our first quarter results were affected significantly by the sharp declines in demand in the wake of the COVID-19 pandemic," Richard J. Kramer, chairman, chief executive officer and president of Goodyear, said.

For the three months ended March 31, Goodyear reported a segment operating loss of $47 million, down from an operating profit of $190 million in 2019, and showed a net loss of $619 million ($2.65 per share), versus a net loss of $61 million (26 cents per share) from a year ago

The company said sales were $3.1 billion, down 15% from 2019. The decline, it said, "was driven by lower industry volume and unfavorable foreign currency translation."

The increase in net loss was driven by discrete tax charges, a decline in segment operating income, and a non-cash goodwill impairment charge, partially offset by lower rationalization charges, the company said.

Tire volume totaled 31.3 million units, down 18% from the prior year's period.

Replacement tire shipments declined 16%, driven by "a severe contraction in industry demand following shelter-in-place mandates and sharp declines in consumer confidence," the company said.

"While this unprecedented crisis continues to disrupt our business and the broader automotive industry, I am confident we will emerge from this crisis in a strong position," Mr. Kramer said.

"We have taken swift actions to aggressively reduce expenses and investment levels, while at the same time continuing to focus on our strategic priorities."

In the Americas, Goodyear was break-even versus operating income of $89 million a year ago, while sales fell nearly 11% to $1.67 billion.

Elsewhere, sales in Asia/Pacific fell 23% to $388 million and 19% in Europe/Middle East to $995 million. Asia/Pacific's operating income fell 87% to $6 million, while Europe/Middle East posted a $53 million operating loss.

 

 

Part of Goodyear's pandemic response included idling manufacturing plants across the globe. U.S. plants were idled March 18 and slowly are restarting, the company said.

Mr. Kramer said Goodyear has begun the steps of a "phased restart" of manufacturing plants in the U.S., but the decision to resume production will be based on market demand signals, inventory and supply levels, as well as its ability to keep its associates safe in light of the COVID-19 pandemic.

Idling plants, Mr. Kramer said, "ensures we can protect our associates and help mitigate the effects in the steep drop in industry demand."

Mr. Kramer said key raw material suppliers were operating, and Goodyear is prepared to have the inventory it needs when production ramps back up.

Goodyear implemented a number of cost-cutting initiatives during the quarter in response to the decline in sales. Among them, the company furloughed a number of employees, cut its marketing budget, reduced capital expenditures by more than $100 million and leveraged government assistance.

Goodyear also closed its 90-year-old passenger and light truck tire plant in Gadsden, Ala. Over the last few years, the company had decreased production at the plant and reduced the number of employees from 1,600 to 411.

Goodyear said previously that scaling back at the Gadsden plant was part of its strategy to strengthen the competitiveness of its manufacturing footprint by curtailing production of tires for declining, less profitable segments of the tire market.

Goodyear said it has seen a significant increase in online sales in the U.S. at both Goodyear.com and TireHub.com, the online tire retail joint-venture with Bridgestone Tire Americas.

"COVID-19 has solidified this growing trend," Mr. Kramer said. He added that supply and delivery are an especially important aspect to see growth in the e-commerce

"It's about having the right tire in the right place at the right time, now more than ever," he said.

Original equipment unit volume decreased 21%, driven by declines in OE demand after global auto manufacturers suspended vehicle production in response to the rapid spread of COVID-19.

Discrete tax items include a charge of $295 million related to a valuation allowance on certain deferred tax assets for foreign tax credits. The company also recorded a non-cash impairment charge of $182 million to reduce the carrying value of goodwill in its EMEA business unit as a result of weaker industry conditions resulting from the ongoing COVID-19 pandemic.

First quarter 2020 adjusted net loss was $140 million (60 cents per share), compared to adjusted net income of $45 million (19 cents per share) in 2019. Per share amounts are diluted.

The company reported a segment operating loss of $47 million in the first quarter of 2020, down $237 million from a year ago. The decline primarily reflects lower volume and lower factory utilization. Segment operating income includes an unfavorable impact of approximately $65 million due to lower factory utilization and other period costs related to suspending production at its manufacturing facilities.