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Weak North American sales offset globally as tire maker brings in $5.2 billion
By Jim Mackinnon
Beacon Journal business writer
Published on Friday, Aug 01, 2008
Tire sales in the slow economy of North America were not terribly kind to Goodyear Tire & Rubber Co. for the three months that ended June 30.
Fortunately for the Akron company, much of the rest of the world picked up the slack.
And as a result, Goodyear on Thursday reported record revenue of $5.2 billion for its second quarter of the year, with earnings beating analysts' expectations in some cases.
Net income increased to $75 million, or 31 cents a share, compared to $56 million, or 26 cents, for the second quarter of 2007. Earnings measured another way were 66 cents a share, above analyst estimates of 60 cents a share. The $5.2 billion in sales was a 6.5 percent increase from a year ago.
Revenue per tire increased 9 percent from the second quarter a year ago — and revenue per tire has increased in each of the last 15 quarters, Goodyear said. The company has focused on shutting high-cost factories while investing in building and selling what it calls high-value-added tires worldwide.
International sales jumped 18 percent, despite a slowdown in Europe, the company reported.
Shares rose 7 cents to $19.63. Shares are down 30.4 percent since Jan. 1 and are down 31.7 percent from a year ago.
''Robust revenue growth in our international operations, especially in emerging markets, more than offset the continuing weakness of the North American market,'' Robert Keegan, chairman and chief executive officer, told investors in a conference call. ''Revenue contribution
from the international businesses was approximately 60 percent of our global total for both the second quarter and the first half.''
Keegan and other executives said they expect that the financial performance of the company's North American Tire division, which historically has provided about half of Goodyear's revenue, will improve in upcoming years and reach a corporate profitability target of 5 percent from a current margin of about 1 percent.
Tire sales in North America fell 12.1 percent to 18.3 million units in the second quarter, compared to 20.8 million for the same period a year ago. Net sales were $2.1 billion, down 6.4 percent from nearly $2.3 billion in 2007. Operating income fell to $24 million, a 54.7 percent drop from $53 million in the 2007 second quarter.
The North American tire division was hurt by weakened consumer and car manufacturer demand, transitional manufacturing costs and higher energy and transportation costs, the company reported.
Goodyear said it was able to more than offset higher raw material costs with price increases in North America and around the globe.
Even with the slower sales and reduced profit, Goodyear said North American Tire showed strong revenue growth per tire, increased its share of Goodyear-brand replacement tires, and improved its mix of high-value-added tires.
Sales were also slow in Europe.
Tires sales fell 5 percent to 18.8 million units in Goodyear's Europe, Middle East and Africa market. Revenue was a little over $2 billion, up 15 percent from a year ago.
Goodyear tire sales in Asia Pacific increased 13 percent to 5.4 million units. Division sales rose 20 percent to $513 million.
Latin American Tire revenue rose 24.9 percent to $572 million, even as tire sales fell 2.1 percent to 5.4 million units.
''Turnaround success depends on margin improvement in North America,'' industry analyst Ita Michaeli of Citi wrote in a report Thursday.
Goodyear should be able to sustain earnings even without contributions from North American Tire, wrote analyst Rod Lache of Deutsche Bank.
Merrill Lynch analyst John Murphy said North American Tire's revenue came in higher than he expected, while income was lower than he had initially estimated.
''The single biggest driver of Goodyear's improved results has been their ability to shift their mix to higher price points and take advantage of the growth outside of North America,'' Kirk Ludtke, an analyst at Stamford, Conn.-based CRT Capital Group, told Bloomberg News. He said higher fuel prices will continue to temper Goodyear's growth and boost material costs.
''North America was weak but largely in line'' with expectations, Himanshu Patel, a New York-based analyst at JPMorgan Securities Inc., said in a note to investors, according to Bloomberg News.
There are ''growing signs of weakness in [the] Europe tire market,'' Patel said.
Goodyear said it expects North America consumer replacement demand to fall by 2 percent to 3 percent for the year, and that original equipment tire sales will drop by 15 percent. In Europe, consumer replacement and original equipment tire sales are each expected to fall 1 percent to 3 percent for the full year.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
Tire sales in the slow economy of North America were not terribly kind to Goodyear Tire & Rubber Co. for the three months that ended June 30.
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