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Goodyear shares rise on earnings, pension funding

By Jim Mackinnon
Beacon Journal business writer

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Goodyear reported higher profits and lower revenue Thursday for its fourth quarter and the full year of 2013.

The company also said it used more than $1.1 billion in cash to fully fund its hourly worker pension plan in North America and announced it is ending its once-landmark alliance with a Japanese tire maker.

Shares of the Akron tire maker rose sharply Thursday as the company’s profits soundly beat analyst estimates even as revenue figures fell short. Goodyear Tire & Rubber Co.’s critical North American Tire division had record earnings for the year.

Annual net income was $417 million higher than a year ago even as revenue was down from 2012, the Akron tire maker reported.

“Our outstanding fourth quarter and full-year earnings confirm that our strategy is working and demonstrate Goodyear’s ability to deliver sustainable earnings growth and strong free cash flow,” said Richard Kramer, chairman and chief executive officer, in a statement. “I believe it’s more important to view this as evidence of the soundness of our strategy, our ability to execute against that strategy and outstanding performance by our team across the globe.”

Goodyear said it used $1.15 billion in cash in early January to fully fund its hourly worker pension plan.

Fully funding and freezing the pension plan for the North American unionized workforce will free up cash for other uses and improve earnings, the company said.

Goodyear and the United Steelworkers agreed to the pension funding plan in contract talks last year. The company fully funded its salaried pension plan last year.

The full pension funding means employees do not have to worry about the plan’s financial health, Kramer said in an interview following Thursday’s announcements.

“You now have money in the plan,” he said.

The pension money is no longer an asset of Goodyear, he said.

“This is a major milestone in Goodyear’s 115-year history,” Kramer told industry analysts in a conference call.

Goodyear also announced it is seeking to end its once-ballyhooed relationship with Japanese tire maker Sumitomo Rubber Industries, also known as SRI. The two companies are in joint ventures with Goodyear Dunlop in North America and in Europe; Goodyear owns 75 percent of both ventures — the European company owns and operates most of Goodyear’s tire businesses in Western Europe. Dunlop is the high performance and luxury sport tire brand that Goodyear acquired from Sumitomo in 1999.

“We have learned that SRI has engaged in anticompetitive conduct in violation of applicable antitrust laws. We concluded that warrants the dissolution of this global alliance,” Laura Thompson, chief financial officer, said in a conference call Thursday with analysts. “On Jan. 10 of this year, we began arbitration proceedings seeking the dissolution of that global alliance, damages and other relief that goes along with it. We don’t believe the dissolution will have any material adverse impact on our customers, our operations or our liquidity.”

Thompson said Goodyear could not say any more beyond what was included in the company’s annual 10-K document filed Thursday with the Securities and Exchange Commission.

The partnership was announced with great fanfare in 1999; it was called the biggest deal in Goodyear history back then and briefly pushed Goodyear back to being the top tire sales company with about 22 percent of the global market. The alliance gave Goodyear the ability to sell its tires in Japan. But the partnership went sour as Goodyear began hemorrhaging money in the early 2000s.

Goodyear has sold off most of its ownership in Sumitomo over the years. As of Dec. 31, Goodyear said it owned 3,421,306 shares in Sumitomo valued then at about $49 million and that it classified its Sumitomo investment “as available for sale.”

Goodyear’s SEC filing said that in Japan, it owns 25 percent, with SRI the remainder, of two companies. One company sells Goodyear brand replacement passenger and truck tires and the other sells Goodyear and Dunlop brand original equipment tires to Japan vehicle makers. The two have other business ventures in Japan as well.

Sumitomo has the right to make Goodyear purchase the remaining stake in the North American and European businesses “subject to the arbitration proceedings,” Goodyear said in its filing.

On another issue, Goodyear said it has stopped making tires at its Amiens, France, factory, where it has had serious labor issues, and will close it by March. The company said it expects to save $75 million a year with the closure.

Goodyear reaffirmed its earnings and revenue outlook for 2014.

The company reported net income of $228 million, or 84 cents per share, on revenue of nearly $4.8 billion for the fourth quarter. A year ago Goodyear reported zero net income on revenue of $5.05 billion. For the full year, Goodyear had net income of $600 million, or $2.28 a share, on revenue of more than $19.5 billion. That compares to net income of $183 million, or 74 cents per share, on revenue of nearly $21 billion for 2012. The company sold 162.3 million tires, down 1 percent from 2012.

North American Tire sold 16.3 million tires in the fourth quarter, up from 15.8 million a year ago. Revenue was $2.1 billion, down from $2.3 billion; segment operating income was $199 million, up from $116 million for the fourth quarter of 2012.

For the full year, North American Tire sold 61.7 million tires, down from 62.6 million in 2012. Sales totaled nearly $8.7 billion, down from $9.7 billion in 2012. Operating income was $691 million, up from $514 million.Shares rose $2.77, or 11.5 percent, to $26.94. Shares are up 13.2 percent, including dividends, since Jan. 1 and are up 92.2 percent from a year ago.

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


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