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Goodyear reinstates dividends, will buy back shares

By Jim Mackinnon
Beacon Journal business writer

Goodyear is paying dividends.

The Akron tire maker on Friday announced it will reinstate quarterly dividend payments, after a more than 10-year hiatus, starting in December.

Goodyear Tire & Rubber Co. suspended dividends in 2003 to preserve cash and cut costs when the company was struggling with heavy debt and other issues that had it flirting with bankruptcy. The company last paid a dividend in 2002.

Shares of Goodyear fell 2 cents to $22.22 on Friday. Shares since Jan. 1 are up 60.9 percent and are up 66 percent from a year ago.

The company now is much stronger financially, its top executive said at a conference.

“We’ve returned our company to a cash generating position,” Rich Kramer, chairman and chief executive officer, told industry analysts. The company also provided glimpses at upcoming changes and new product introductions.

Goodyear declared a quarterly dividend of 5 cents per share of common stock, or 20 cents annually, payable Dec. 1 to shareholders of record Nov. 1. Future dividends will be subject to approval from Goodyear’s board of directors. The company said the dividend will cost about $55 million a year.

Goodyear also said it will spend up to $100 million to buy back shares of its stock.

The announcement was made prior to the opening of Friday’s stock market trading.

Kramer and other Goodyear executives discussed the reinstated dividend and other financial information at an investor meeting in New York City.

Goodyear reconfirmed that it expects to have segment operating income of about $1.5 billion this year, and that segment income is expected to grow 10 to 15 percent from 2014 through 2016.

The company said it may fully fund and then freeze the pension plan of its 8,000-member United Steelworkers labor force in 2014 at the earliest, part of a plan to reduce pension volatility and Goodyear’s substantial debt burden. The new contract ratified earlier this year by the USW allows Goodyear to freeze the union pension plan if certain financial conditions are met.

“We’re certainly pleased with where we’re headed in 2013 and we’re also pleased and we’re happy to be a dividend-paying company,” Kramer said.

Reviving business

The company has made great progress in recent years, he said.

Darren Wells, executive vice president and chief financial officer, said that the years 2001 to 2003 involved finding ways to save the company.

“That was about Goodyear survival,” he said. “That was about finding enough financing to keep the company running and going out and finding some people who could start to turn around the business.”

The years 2004 through 2007 were what Wells dubbed the “turnaround” years, where Goodyear sold off assets, cut costs, introduced new products and more.

And then the Great Recession hit in 2008 and 2009, Wells said.

“What happened during the Great Recession unwound a lot of what we had done in the 2004 to 2007 time frame,” he said. “So, in a lot of ways we had to start again.”

The company’s subsequent actions resulted in record performance from 2010 to 2013, he said.

Upcoming years are projected to show consistent financial growth, Wells said. The company expects to reduce total debt from an estimated $8.3 billion this year to no more than $6.9 billion in 2016, while increasing income, Wells said.

Along the way, Goodyear will be investing in its business, including adding to research and development, Wells and Kramer said.

Strategies for future

Goodyear’s strategy involves selling what it calls high value-added, or HVA, tires to profitable market segments. Goodyear emphasizes consumer replacement tires over original equipment and no longer makes money-losing, low-end private-label tires.

Steve McClellan, president of North American Tire, which accounts for about half of Goodyear’s revenue, said the company is developing a high value-added tire for an as-yet-unannounced vehicle that will be introduced in 2015. The new tire will have Run on Flat technology — meaning no spare tire is needed — while aiding fuel economy, traction and a new tread compound, he said.

McClellan said the unidentified manufacturer specified it wanted a tire with reduced weight and an aggressive grip on wet and dry pavement while not needing a spare. In industry parlance, it needed “extended mobility.”

“We met that with the next generation HVA tire,” McClellan said.

Kramer said the company is guided by what it has identified as seven industry megatrends. One of those megatrends sees the highest growth coming from emerging markets such as in Asia, where Goodyear has built its largest-ever tire factory in China.

“We called it right,” Kramer said of the megatrends.

To keep on track, Goodyear must continue to innovate, target profitable segments, operate efficiently, use cash wisely and attract top talent, he said.

“The industry that we’re operating in remains very robust, highlighted by the megatrends, and it creates opportunities for profitable growth for us,” Kramer said. “We’re sticking to our strategy. We’re not changing it.”

Goodyear’s conference presentation is available online at http://investor.goodyear.com.

Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.



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