Goodyear Tire & Rubber Company (GT) reported a profit of $161 million or 60 cents per share in the third quarter of 2011 in sharp contrast to a loss of $20 million or 8 cents per share in the same quarter of 2010.
Excluding special items, profits leapt to $195 million or 72 cents per share from $32 million or 13 cents per share in 2010 quarter. It was significantly higher than the Zacks Consensus Estimate of 25 cents per share. The increase in profit was attributable to improved price/mix and the sale of the company’s new and innovative products.
Sales went up 22% to $6.1 billion on flat tire unit volumes of 47.7 million. However, it was lower than the Zacks Consensus Estimate of $6.2 billion. Sales and profits (non-adjusted) were highest ever achieved by the company in any quarter.
Sales in the quarter were positively impacted by strong price/mix, increase in sales in other tire-related businesses (primarily chemical sales in North America), and favorable foreign currency translation of $175 million.
Segment operating income was $463 million in the third quarter, up $229 million from $234 million in the year-ago period. It was favorably impacted by improved price/mix of $739 million, which more than offset by $506 million in higher raw material costs (net of raw material cost reduction actions).
Segment Details
Sales in the North American Tire segment appreciated 18% to $2.6 billion, led by improved price/mix, excluding the impact of foreign currency translation. Sales were also favorably impacted by $171 million due to higher sales in other tire-related businesses, primarily third-party chemical sales, and by $13 million in favorable foreign currency translation.
Segment operating income jumped by $73 million to $78 million, owing to improved price/product mix that more than offset $214 million of higher raw material costs, and $17 million reduction in selling, general and administrative expenses.
Sales in the Europe, Middle East and Africa Tire segment escalated 31% to $2.2 billion on the back of an 8% rise in tire unit volume, strong price/mix performance and favorable foreign currency translation of $101 million.
Operating income in the segment increased significantly by $183 to $260 million. The improvement was driven by better price/mix of $327 million (that more than offset $169 million of higher raw material costs) and favorable foreign currency translation.
Sales in the Latin American Tire segment escalated 14% to $651 million driven by strong price/mix, favorable foreign currency translation and higher sales in other tire-related businesses.
Operating income in the segment dipped $33 million to $ $62 million due to the sale of the farm tire business, negative impact due to inflation on wages and other costs, lower volume in Brazil and unfavorable foreign currency translation.
Sales in the Asia-Pacific Tire segment rose 21% to $628 million. The improvement reflected strong price/mix performance and favorable foreign currency translation. Operating income in the segment rose $6 million to $63 million due to better price/mix of $83 million (which more than offset $59 million of higher raw material costs) and favorable foreign currency translation.
Financials
Goodyear had cash and cash equivalents of $2.1 billion as of September 30, 2011, a marginal rise from $2.0 billion as of December 31, 2010. Long-term debt and capital leases were $5.8 billion as of September 30, 2011 compared with $4.5 billion as of December 31, 2010.
Long-term debt (including capital leases)-to-capitalization ratio stood at 79% as of September 30, 2011, a decline from 87.5% as of December 31, 2010.
Company Outlook
Goodyear expects the global tire industry to continue to grow in full year 2011. In North America, the company expects the consumer replacement industry to be flat, consumer original equipment to grow 6%, commercial replacement to go up 13% and commercial original equipment to surge 50%.
In Europe, the consumer replacement industry is expected to grow 4%, consumer original equipment to rise 5%, commercial replacement to increase 1% and commercial original equipment to soar 50%.
Goodyear anticipates raw material costs for the fourth quarter of 2011 to increase more than 30% percent compared with the prior year; With this, raw material costs for the full year is expected to increase by 30% over 2010.
Our Call
Goodyear Tire & Rubber Company is one of the largest tire manufacturing companies worldwide, selling its products under the Goodyear, Kelly, Dunlop, Fulda, Debica, Sava and various other “house” brands as well as private-label brands.
On a worldwide basis, there are two major competitors for Goodyear – Bridgestone, Japan, and Michelin, France, who command about 55% of the global market together. Other significant competitors include Cooper Tire & Rubber Co. (CTB), Continental Tires, Pirelli, Toyo Tires, Yokohama Tire, Kumho Tires, Hankook Tire, and various regional tire manufacturers.
The company retains a Zacks #2 Rank, which translates to a rating of Buy for the short term (1 to 3 months).
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