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Goodyear Reports Higher Q4, Full-Year Results

17 Feb 14

  • Record fourth quarter segment operating income of $419 million, up 54%
  • Record full-year segment operating income of $1.6 billion, up 27%
  • North America sets earnings records for fourth quarter, full year
  • Free cash flow from operations of $1 billion for 2013, up 43%
  • Company achieves milestone, fully funds hourly U.S. pension plans
  • Company reaffirms 2014-2016 financial targets

AKRON, Ohio, February 13, 2014 – The Goodyear Tyre & Rubber Company today reported results for the fourth quarter and full-year of 2013.

“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 J. Kramer, chairman and chief executive officer. “Our North America business achieved record earnings in all four quarters of 2013.”

Subsequent to the year-end, and consistent with its previously announced pension strategy, Goodyear has taken steps to fully fund its hourly U.S. pension plans with $1.15 billion of available cash balances and has begun the process to freeze and de-risk the plans.

“Our 2013 performance has given us the confidence to fully fund our hourly U.S. pension plans,” Kramer said. “This is a major milestone in our history and will provide greater transparency to our underlying tyre business while improving earnings and cash flow. Moving past these legacy obligations is a new beginning for our company.”

Goodyear’s fourth quarter 2013 sales were $4.8 billion, down 5 percent from the year ago quarter. Fourth quarter 2013 sales reflect $64 million in higher tyre unit volumes; $178 million in lower sales in other tyre related businesses, most notably third party chemical sales in North America; $36 million in lower price/mix, principally due to lower raw material costs; and $102 million in unfavorable foreign currency translation. Tyre unit volumes totaled 40.7 million, up 2 percent from the fourth quarter of 2012.

“As industry volumes recover, we continue to see mixed growth rates globally, but there is strong growth in the high-value-added segments we are targeting,” Kramer said. “We remain disciplined in our approach, seeking growth where our brands and value proposition enhance our profitability.”

The company reported record segment operating income of $419 million in the fourth quarter of 2013. This was up 54 percent from the 2012 quarter, reflecting favorable price/mix net of raw materials of $98 million (excluding raw material cost savings), lower unabsorbed overhead of $55 million due to higher production levels and $11 million in higher tyre unit volumes, partially offset by $32 million in higher SAG expenses and $24 million in unfavorable foreign currency translation. See the note at the end of this release for further explanation and a segment operating income reconciliation table.

Goodyear’s fourth quarter 2013 net income available to common shareholders was $228 million (84 cents per share), a fourth quarter record and up from breakeven in the 2012 quarter. All per share amounts are diluted.

The 2013 fourth quarter included total charges of $17 million (6 cents per share) due to rationalizations, asset write-offs and accelerated depreciation; and gains of $41 million (15 cents per share) due to income and other discrete tax benefits and $2 million (1 cent per share) from asset sales. All amounts are after taxes and minority interest.

The 2012 fourth quarter included total charges of $85 million (34 cents per share) due to rationalizations, asset write-offs and accelerated depreciation, primarily related to the announced closure of the Amiens North factory in France; $9 million (4 cents per share) due to discrete tax charges; $6 million (2 cents per share) resulting from a strike in South Africa; and $5 million (2 cents per share) due to charges relating to labor claims with respect to a previously closed facility in Europe; and gains of $6 million (2 cents per share) in insurance recoveries related to flooding in Thailand and $2 million (1 cent per share) from asset sales. All amounts are after taxes and minority interest.

See the table at the end of this release for a list of significant items impacting the 2013 and 2012 quarters.

Full-Year Results

Goodyear’s 2013 annual sales were $19.5 billion, down 7 percent from 2012. Sales reflect $665 million in lower sales in other tyre-related businesses, most notably third party chemical sales in North America; $354 million in unfavorable foreign currency translation; $166 million in lower tyre unit volumes; and $206 million in lower price/mix. Tyre unit volumes totaled 162.3 million, down 1 percent from 2012.

The company’s segment operating income of $1.6 billion was up 27 percent from 2012. Compared to the prior year, 2013 segment operating income reflects favorable price/mix net of raw materials of $436 million (excluding raw material cost savings), which more than offset $52 million in higher unabsorbed overhead costs, $63 million in unfavorable foreign currency translation and $24 million in lower tyre volume.

Goodyear’s 2013 net income available to common shareholders of $600 million ($2.28 per share) is up from $183 million (74 cents per share) in 2012. All per share amounts are diluted.

The company generated more than $1 billion of free cash flow from operations, resulting from higher net income and a $415 million benefit from working capital. See the note at the end of this release for further explanation and a free cash flow from operations reconciliation table.

Business Segment Results

North America Sales

Fourth QuarterTwelve Months
(in millions)2013201220132012
Tyre Units16.315.861.762.6
Sales$2,131$2,314$8,684$9,666
Segment Operating Income199116691514
Segment Operating Margin9.3%5.0%8.0%5.3%

North America’s fourth quarter sales decreased 8 percent from 2012 to $2.1 billion. Sales reflect a $170 million decline in sales in other tyre-related businesses, most notably third-party chemical sales, and lower price/mix. These were partially offset by the impact of a 3 percent increase in tyre unit volumes. Original equipment unit volume was up 7 percent. Replacement tyre shipments were up 1 percent.

Fourth quarter segment operating income of $199 million was up 72 percent from the prior year, and a fourth quarter record. Segment operating income was positively impacted by favorable price/mix net of raw materials of $45 million, lower conversion costs of $31 million and increased tyre volume of $8 million.

Europe, Middle East and Africa

Fourth QuarterTwelve Months
(in millions)2013201220132012
Tyre Units14.414.260.862.7
Sales$1,631$1,602$6,567$6,884
Segment Operating Income10138298252
Segment Operating Margin6.2%2.4%4.5%3.7%

Europe, Middle East and Africa’s fourth quarter sales increased 2 percent from 2012. Sales reflect a 1 percent increase in tyre unit volume and favorable foreign currency translation of $27 million, which was partially offset by lower price/mix. Original equipment unit volume was up 4 percent. Replacement tyre shipments were flat.

Fourth quarter 2013 segment operating income of $101 million was $63 million above the prior year. Favorable price/mix net of raw materials of $40 million, lower conversion costs of $27 million, higher tyre unit volumes of $4 million and $3 million in favorable foreign currency translation positively impacted segment operating income.

The company has ceased production at its Amiens North plant in France, which produced consumer and farm tyres. The facility will close during the first quarter of 2014. The timing of the company’s exit from the Europe, Middle East and Africa farm tyre business will be determined later in the year. These actions will result in about $75 million of annual profit improvement, with approximately $40 million expected in 2014.

Latin America

Fourth QuarterTwelve Months
(in millions)2013201220132012
Tyre Units4.44.817.918.1
Sales$492$541$ 2,063$2,085
Segment Operating Income5261283223
Segment Operating Margin10.6%11.3%13.7%10.7%

Latin America’s fourth quarter sales decreased $49 million from the prior year to $492 million. Sales reflect $83 million in unfavorable foreign currency translation. Improved price/mix more than offset an 8 percent decrease in tyre unit volume. Original equipment unit volume was down 16 percent, primarily due to reduced vehicle production in Brazil. Replacement tyre shipments were down 4 percent, primarily in Venezuela.

Fourth quarter segment operating income of $52 million was down $9 million from 2012. Segment operating income was positively impacted by price/mix improvements of $48 million and lower raw material costs of $12 million. These were more than offset by $28 million in higher SAG expenses, primarily due to marketing activities in support of new product launches and the impact of inflation on wages and other costs; higher conversion costs of $22 million due to the impact of inflation on wages and other costs; $12 million in unfavorable currency translation; and $10 million in lower tyre unit volume.

Asia Pacific

Fourth QuarterTwelve Months
(in millions)2013201220132012
Tyre Units5.65.221.9>20.6
Sales$537$588$2,226$2,357
Segment Operating Income6757308259
Segment Operating Margin12.5%9.7%13.8%11.0%

Asia Pacific’s fourth quarter sales decreased 9 percent from 2012 to $537 million. Sales reflect an 8 percent increase in tyre unit volume, which was more than offset by reduced price/mix, $39 million in unfavorable foreign currency translation and $7 million in lower sales in other tyre-related businesses. Original equipment unit volume was up 6 percent. Replacement tyre shipments were up 9 percent.

Fourth quarter segment operating income of $67 million was up 18 percent from 2012. Segment operating income was positively impacted by favorable price/mix net of raw materials of $12 million, lower factory start-up costs of $14 million and $9 million in higher tyre unit volumes, which more than offset $14 million in unfavorable foreign currency translation and $4 million in higher SAG expenses.

Outlook

The company reaffirmed its 2014-2016 financial targets, which include:

  • Annual segment operating income growth of between 10 percent and 15 percent,
  • Annual positive free cash flow from operations and,
  • An adjusted debt to EBITDAP ratio of 2.5x.

Additionally, the company continues to expect about a 2 percent to 3 percent increase in unit volumes for 2014 over 2013.