Goodyear First Quarter Results Provide Platform for Growth, Cost Savings
* Faster-Than-Expected Strike Recovery, Sales Up 1%
* Cost Savings Ahead of Plan, Target Increased
* Accelerating Investment in Growth Initiatives
* Engineered Products Classified as a Discontinued Operation
AKRON, Ohio,– The Goodyear Tire & Rubber Company today reported first quarter sales from continuing operations of $4.5 billion, up 1 percent from 2006 despite the impact of a fourth quarter strike last year in North America.
The improvement in global sales was driven by Goodyear’s three emerging market tire businesses, which were up 11 percent from last year. Each of these businesses had record first quarter sales. The sales improvement was also supported by a faster-than-expected recovery from the United Steelworkers strike in North America.
This growth offset a 10 percent decline in sales for Goodyear’s North American Tire business, which were impacted by the strike and an exit from certain segments of the private label tire business, which together reduced sales by about $200 million.
“Our first quarter represented a strong start to the year, with revenue per tire up 8 percent. This reflected strong pricing and product mix, which exceeded raw material cost increases in the quarter. Our focus on speed and the pace of change at Goodyear is having a meaningful impact,” said Robert J. Keegan, chairman and chief executive officer.
“Our recovery from the strike is going much better than expected. We restored production faster than anticipated and weaker consumer OE demand enabled us to sell more high-value-added tires into the replacement market,” he said.
As a result of improved profitability from increased replacement market sales, the company has reduced its estimated impact of the USW strike on North American Tire to between $100 million and $120 million for the year. The previous estimate was $200 million to $230 million.
Including an estimated $34 million impact from the strike, Goodyear’s first quarter segment operating income from continuing operations was $226 million in 2007. This compares to income of $282 million last year, which included $30 million in settlements from suppliers.
For the 2007 first quarter, Goodyear reported a loss from continuing operations of $110 million (61 cents per share). The company posted income from continuing operations of $46 million (23 cents per share) during the 2006 period. All per share amounts are diluted.
In addition to the strike, the loss in the 2007 quarter was also impacted by after-tax curtailment charges of $64 million (35 cents per share) due to salaried benefit plan changes and $31 million (17 cents per share) for rationalizations, including accelerated depreciation related to previously announced plant closures.
Improved pricing and product mix of approximately $165 million more than offset increased raw material costs of approximately $120 million.
Income from continuing operations in the 2006 quarter benefited from after-tax items including supplier settlements of $26 million (13 cents per share), a pension plan change of $13 million (6 cents per share) and a legal settlement of $10 million (5 cents per share). Negatively impacting the quarter was an after-tax charge of $29 million (14 cents per share) for rationalizations, including accelerated depreciation and asset write-offs.
Including discontinued operations and charges related to classifying the Engineered Products business as “held for sale,” Goodyear had a first quarter net loss of $174 million (96 cents per share), compared to net income of $74 million (37 cents per share) last year. All per share amounts are diluted.
See the table at the end of this release for a list of significant items impacting continuing operations from the 2007 and 2006 quarters.
4-Point Cost Savings Plan Target
“Based on the significant progress we made in 2006 against our four-point cost-savings plan, I am confident we will exceed our 2008 target of more than $1 billion,” Keegan said. “We are aggressively targeting additional cost savings in 2009 and raising our gross cost savings goal over this four-year period to between $1.8 billion and $2 billion.”
Goodyear had been targeting more than $1 billion in savings through 2008 and previously indicated that it was revisiting the target. The new target incorporates the original target, captures savings of $300 million from a new USW labor contract and increases savings targets in each of the four categories.
“This revised savings target, with strong activity in each of our four focus areas, demonstrates our momentum and our commitment to improve our competitive position and deliver on our Next Stage Performance Metrics,” Keegan said.
Investment in Growth Initiatives
Goodyear’s success the past four years has created platforms it can now leverage to grow its core consumer and commercial tire businesses, Keegan said. “Given the expected improvements in our capital structure, we now can increase our investments in growth initiatives.”
Over the next five years, the company plans significant investments in both its capability to produce high-value-added tires and in its low-cost manufacturing capacity.
Keegan said Goodyear intends to increase its production capacity for high-value-added tires by 40 percent over the next five years to support the company’s new product pipeline and to further capitalize on favorable market trends.
Concurrently, the company plans investments in existing facilities that will increase its production capacity in low-cost countries by one-third to support growth in emerging markets.
“These investments are part of our strategy to have approximately half of our production capacity in low cost manufacturing within five years,” Keegan said. “Our global manufacturing capacity will be well-aligned with demand, and able to support our outstanding new product engine.”
As a result of its agreement on March 23, 2007 to sell substantially all of its Engineered Products business, Goodyear now reports these results as a discontinued operation.
Sales from discontinued operations in the first quarter of 2007 totaled $383 million, down from $394 million the previous year. The company recorded a loss from discontinued operations of $64 million (35 cents per share) in the first quarter of 2007, compared to income from discontinued operations of $28 million (14 cents per share) in the 2006 period.
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