Goodyear executives are sticking to their game plan, which they call the “Strategy Roadmap,” to revitalize and strengthen the company.
And they credit that road map — analyzing and capitalizing on customer and industry “megatrends” — for the better-than-expected first-quarter earnings under tough economic circumstances that the Akron tire maker reported Friday.
Shares in Goodyear Tire & Rubber Co. initially rose after the company said it earned $26 million, or 10 cents per share, on revenue of $4.85 billion. A year ago, Goodyear lost $11 million, or 5 cents a share, on higher revenue of $5.53 billion. Earnings beat analyst expectations while revenue fell short. Global tire sales were also down from a year ago.
Executives also said they expect tire sales this year won’t rise and will essentially match 2012 levels because of weak industry conditions, particularly in Europe. They reaffirmed their financial outlook.
Bank of America/Merrill Lynch reduced its rating of Goodyear to “underperform” from “neutral.” (Murphy also downgraded Findlay’s Cooper Tire & Rubber Co. from “buy” to “neutral.”) Other industry analysts rated Goodyear at “buy,” “fairly valued” and “peer perform.”
Shares of Goodyear closed down 43 cents to $12.51. Shares were up 3.6 percent in early trading. Shares are down 9.4 percent since Jan. 1 and are up 4.9 percent from a year ago.
The North American Tire division had first record quarterly operating income of $127 million on sales of $2.17 billion. A year ago, the division — Goodyear’s largest — had operating income of $80 million on revenue of nearly $2.5 billion.
North American Tire sales fell to 14.8 million in the quarter from 15.8 million a year ago. Replacement tire sales fell 9 percent while original equipment tire sales were flat compared to a year ago.
“I am pleased with our results in our first quarter,” Rich Kramer, chairman and chief executive officer, said in comments to industry analysts. “We are delivering operationally.”
Kramer noted that North American Tire reported its 15th straight quarter of earnings improvement.
Besides North American Tire, the Asia Pacific Tire unit also had record operating income for the quarter. Latin America Tire income also rose.
But Goodyear is facing headwinds from the weak Europe economy. Its Europe, Middle East and Africa Tire division operating income fell to $30 million from $90 million a year ago. Sales fell to $1.6 billion from nearly $1.94 billion last year.
Kramer also said Goodyear faces financial headwinds from its unfunded pension obligations that have grown because of the low interest rate policy in the U.S. Goodyear took steps earlier this year to issue $900 million in new debt to fully “pre-fund” its already-frozen salaried employee pensions.
Chief Financial Officer Darren Wells told analysts that the company is looking to freezing all remaining pension plans and shifting employees to 401(k) retirement plans.
Because of Europe’s poor performance, Goodyear executives say they are implementing a three-part plan to cut costs and improve profitability. Goodyear said it intends to increase share in targeted tire market segments, grow in emerging markets and make $75 million to $100 million in productivity improvements in the region over three years. The plan calls for shuttering a tire factory in France and exiting the farm tire business in Europe.
Overall tire sales in the first quarter fell to 39.5 million tires, down 8.1 percent from 43 million tires in the first quarter of 2012. Most of the decrease in tire sales was due to weakness in Europe.
Kramer said Goodyear executives remain confident in their full-year outlook. They expect the company will have record global segment operating income of $1.4 billion to $1.5 billion in 2013, up more than 12 percent from 2012, he said.
“We’re off to a good start in 2013,” he said.
Jim Mackinnon can be reached at 330-996-3544 or email@example.com