Goodyear Tire & Rubber Co. ended 2013 on a high note and looks to do well in 2014 and beyond.
The tire maker performed strongly, and profitably, last year.
The new global headquarters opened not quite a full year ago in Akron.
Shares are doing well and the company just resumed paying a dividend. Large pension obligations, once a drag on finances, are now fully funded. Its recent national tire dealers’ conference drew its largest attendance in 10 years.
Goodyear’s top executive, Richard Kramer, says he likes what he sees and where the company is going.
“I sort of bifurcate the year and put it into two categories,” Kramer said. “One is just the absolute results of the year, which were record results. ... The real benefit is, the progress that we made in setting up the company for long-term success.”
Outside of the 2013 financial results, it’s really about what the company-wide team did to improve the business, Kramer said.
“When you look at it, we hit our goal of segment operating earnings of $1.6 billion,” he said. “As much as the number, it’s the goal that we set out to hit three years ago when we introduced our previous strategy. And that’s very meaningful to us, to do what we said we would do.”
Kramer, a Northeast Ohio native, joined Goodyear in 2000 and soon established himself as a young, up-and-coming vice president in finance. He’s been CEO since 2010, succeeding Robert J. Keegan who had been chief executive since 2003.
Goodyear executives years ago created what they call their “strategy roadmap” to get the company to sustainable financial growth and to better ride out the cyclical nature of the tire industry. That roadmap, tweaked over the years, guided Goodyear through its near-death experience in the early 2000s when grand growth plans failed, sales stalled and high debt hindered the ability to make needed course corrections. And it helped Goodyear through the lean Great Recession period as well.
$1.1 billion to pension fund
That successful strategy was behind Goodyear’s announcement that it used more than $1.1 billion last month to fully fund the pension plan for its hourly workers.
Kramer agreed to an interview shortly after the company released its fourth-quarter and full-year financial results.
Goodyear’s now-sound finances generated about a billion dollars in cash flow last year, “which is what helped us to fund the pension,” Kramer said. “That’s really a historic moment for us, to fund the pension and [to have] done it the right way by meeting our obligations.”
This means that Goodyear now can take money it otherwise would have paid into the pension each year and put it into the business, Kramer said.
“As a 115-year-old American manufacturing company with legacy obligations and also an iconic brand name, for us to have managed ourselves to fully fund our pensions is a moment of great pride for our company, in the sense of meeting our obligations and doing what we said we would do,” Kramer said.
Goodyear has now fully funded what had been at one point unfunded U.S. hourly pension obligations of as much as $2.5 billion, and also fully funded retiree health insurance obligations, Kramer said. The company accomplished that by putting together plans in partnership with the United Steelworkers, he said.
For pension plan participants, that means the plan has money to pay them in retirement, Kramer said.
“Once money goes into the pension plan, it’s the assets of the plan. It’s no longer the assets of the company,” he said. “It’s a secured asset for them.”
Other good news is that the North American Tire division, its largest, has gone from losing $300 million in 2009 to setting record profits last year, he said.
More important than the earnings figures are the structural changes underneath that make the overall business more sound and speak to the quality of the earnings, Kramer said.
The changes that have taken place in the past year have made Goodyear a stronger business, he said.
“When I look back at that, I say 2013 is a great year structurally to help this company move forward. And we’re very proud of that,” he said. “The numbers speak to some of the results of the changes we’ve made. ... It’s about driving a sustainable business and the stock price will take care of itself.”
Goodyear on Thursday reported it had net income of $600 million, or $2.28 per share, on revenue of $19.5 billion for 2013. For fiscal 2012, Goodyear reported net income of $183 million, or 74 cents per share, on revenue of nearly $21 billion.
After a major rally on Thursday pushed Goodyear stock up 11.5 percent, shares on Friday sold off slightly, dropping 18 cents to $26.76. Shares are up 12.4 percent, including dividends, since Jan. 1 and are up 89.7 percent from a year ago.
Analysts are impressed
Industry analysts have liked what they have seen recently. Citigroup on Thursday issued a report where it removed Goodyear from its “High Risk” rating. It has a “buy” rating on Goodyear stock.
A Goldman Sachs analyst on Friday put out a report with a “buy” rating as well.
Both analysts wrote that they expect the replacement tire market to improve, which plays into Goodyear’s emphasis on what it calls “high value added” replacement tires.
Goodyear will return money to shareholders in part through share repurchases and also through its reinstated dividend, Kramer said. Goodyear in December paid its first dividend – 5 cents per share – since 2002. The company stopped paying a dividend in 2002 when it was in what executives termed “survival mode” and needed to preserve cash.
Because it has freed up cash through the fully paid pensions, Goodyear can spend more on capital investments where it expects high returns, such as in new technology and factory improvements, Kramer said. Goodyear now has better flexibility to more quickly pay down other debts and improve its balance sheet, he said.
“We still have restructurings to do,” Kramer said, including high-cost factories around the world.
Jim Mackinnon can be reached at 330-996-3544 or email@example.com.