Goodyear Reports Record Sales, Positive Net Income in 2005 First Quarter
- Record first quarter sales of $4.8 billion, up 11 percent
- Fourth consecutive quarter of positive net income, $68 million, 35 cents per share
- Segment operating income improves 61 percent
- North American Tire earnings increase by $35 million
- North American Tire replacement volume up nearly 8 percent
AKRON, Ohio, May 4 -- The Goodyear Tire & Rubber Company today reported first quarter results reflecting its continued momentum and focus on profitable growth. The company achieved positive net income for the fourth consecutive quarter, as well as stronger year-over-year segment operating income for the sixth consecutive quarter.
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Goodyear reported net income of $68 million (35 cents per share) compared to a net loss of $78 million (45 cents per share) in the first quarter of 2004. Net income was driven by stronger operating income in all of the company's tire businesses, which offset an increase in raw material costs of approximately $119 million compared to the first quarter of 2004. All per share amounts are diluted.
Sales were $4.8 billion, a first-quarter record, reflecting an 11 percent increase from $4.3 billion in the prior-year period. Sales increased compared to the 2004 period due to higher pricing, a more-favorable product mix and favorable currency translation of approximately $126 million.
Tire unit volume in the first quarter of 2005 was 55.9 million units, up 200,000 from 2004. The change was driven by a 7.9 percent increase in the key North American replacement markets, offset by lower consumer original equipment volumes of 8.7 percent in North America and the European Union.
"By continuing to focus our resources on driving improvements in targeted markets, we see the benefits in both increasing competitiveness and earnings," said Robert J. Keegan, chairman and chief executive officer. "Our first quarter earnings improvement was driven by the European Union, North American, Latin American and Asia/Pacific tire businesses, and our growth took place in a difficult environment of rapidly rising raw material costs."
The 2005 quarter includes net after-tax gains of $7 million (3 cents per share) from reversals of rationalization charges. The quarter also includes net after-tax charges of $12 million (6 cents per share) related to general and product liability -- discontinued products.
The 2004 quarter included after-tax rationalization charges of $20 million (11 cents per share); an after-tax charge of $15 million (9 cents per share) related to external professional fees associated with the previously disclosed accounting investigation; and net after-tax charges of $12 million (7 cents per share) relating primarily to a fire at a European tire manufacturing facility, and $9 million (5 cents per share) related to general and product liability -- discontinued products.
"I have confidence in our future as a result of the changes we have made to Goodyear's business structure and our demonstrated ability to execute against stated objectives," Keegan said.
While the company anticipates that its operating performance for the balance of the year will exceed its performance in the comparable period of 2004, the rate of gain is expected to be less than in the first quarter.
Business Segments
Total segment operating income was $292 million, a 61 percent increase compared to $181 million in the 2004 period. See the note at the end of this release for further explanation and a reconciliation table.
Goodyear's Chemicals business segment was consolidated into the company's North American Tire business segment starting January 1, 2005. Total segment operating income no longer includes the impact of income from inter-company Chemical business transactions. Results for 2004 have been revised to reflect the consolidation.
All five of Goodyear's tire business units achieved improved segment operating income compared to the 2004 first quarter. Higher selling prices, improved product mix, the positive impact of currency translation and cost reduction actions drove the gain.
North American Tire First Quarter
(in millions) 2005 2004
Tire Units 25.4 24.8
Sales $2,138 $1,938
Segment Operating Income (Loss) 11 (24)
Segment Operating Margin 0.5% (1.2)%
North American Tire sales increased 10 percent compared to the first quarter of 2004. Volume increases and favorable pricing and product mix drove the sales increase, particularly in the consumer replacement business, where units increased 7.9 percent, and in the commercial replacement and original equipment businesses, where volume was up 14.9 percent.
North American Tire achieved its fourth consecutive quarter of positive operating income through improved pricing and product mix, higher volume, and cost reduction activities. Raw material costs increased approximately $64 million in the quarter.
European Union Tire First Quarter
(in millions) 2005 2004
Tire Units 16.0 16.3
Sales $1,198 $1,111
Segment Operating Income 107 70
Segment Operating Margin 8.9% 6.3%
European Union Tire's 8 percent sales growth was driven by the favorable impact of currency translation of about $61 million, as well as improved price and product mix. Volume decreased primarily due to weakness in the consumer original equipment market.
Segment operating income increased 53 percent during the quarter due to improved pricing and product mix, as well as lower selling and distribution expense. Raw material costs increased approximately $16 million in the quarter.
Eastern Europe, Middle East and Africa Tire First Quarter
(in millions) 2005 2004
Tire Units 4.8 4.6
Sales $340 $283
Segment Operating Income 47 43
Segment Operating Margin 13.8% 15.2%
Eastern Europe, Middle East and Africa Tire's sales increased 20 percent from 2004 due to the positive impact of currency translation, improved pricing, product mix and volume. Currency movements favorably affected sales by about $30 million during the quarter.
Segment operating income increased 9 percent in the quarter as a result of pricing and mix improvements and stronger volume. Both sales and income benefited from strong replacement market volume, price increases in emerging markets and continued growth in premium brands. Raw material costs increased approximately $9 million in the quarter.
Latin American Tire First Quarter
(in millions) 2005 2004
Tire Units 5.0 4.9
Sales $348 $303
Segment Operating Income 87 62
Segment Operating Margin 25.0% 20.5%
Latin American Tire's sales increased 15 percent in the first quarter as a result of improved pricing and product mix, and the favorable effect of currency translation of about $15 million.
Segment operating income increased 40 percent in the quarter due to improved pricing and product mix, and positive currency translation of approximately $8 million. Raw material costs increased about $16 million in the quarter.
Asia/Pacific Tire First Quarter
(in millions) 2005 2004
Tire Units 4.7 5.1
Sales $341 $323
Segment Operating Income 19 8
Segment Operating Margin 5.6% 2.5%
Asia/Pacific Tire achieved a 6 percent sales increase in the first quarter due to improved pricing and product mix. Volume decreased primarily due to the South Pacific Tyres joint venture in Australia.
Segment operating income more than doubled compared to 2004 primarily due to pricing and product mix improvements. Raw material costs increased approximately $8 million in the quarter.
Engineered Products First Quarter
(in millions) 2005 2004
Sales $402 $344
Segment Operating Income 21 22
Segment Operating Margin 5.2% 6.4%
Engineered Products' sales in 2005's first quarter increased 17 percent largely due to improved volume, mainly in the industrial and military channels, and favorable currency translation of approximately $8 million. These factors were partially offset by weakness in North American original equipment automotive markets of approximately $2 million.
Segment operating income decreased 5 percent compared to the 2004 period primarily due to higher manufacturing costs, raw material cost increases of about $7 million and higher administrative costs, offset somewhat by stronger volume and product mix.
Goodyear is the world's largest tire company. The company manufactures tires, engineered rubber products and chemicals in more than 90 facilities in 28 countries around the world. Goodyear employs about 80,000 people worldwide.
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statement of Income
(In millions, except per share) First Quarter
Ended March 31
2005 2004
(unaudited)
Net Sales $4,767 $4,302
Cost of Goods Sold 3,819 3,477
Selling, Administrative and General Expense 686 682
Rationalizations (8) 24
Interest Expense 102 84
Other (Income) and Expense 12 50
Minority Interest in Net Income (Loss)
of Subsidiaries 21 6
Income (Loss) before Income Taxes 135 (21)
United States and Foreign Taxes on
Income (Loss) 67 57
Net Income (Loss) $68 $(78)
Per Share of Common Stock - Basic
Net Income (Loss) $0.39 $(0.45)
Average Shares Outstanding 176 175
Per Share of Common Stock - Diluted
Net Income (Loss) $0.35 $(0.45)
Average Shares Outstanding 208 175
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheet
(In millions) March 31 Dec. 31
2005 2004
Assets (unaudited)
Current Assets:
Cash and Cash Equivalents $1,732 $1,968
Restricted Cash 163 152
Accounts and Notes Receivable, less allowance
- $142 ($144 in 2004) 3,698 3,427
Inventories
Raw Materials 617 543
Work in Progress 145 144
Finished Products 2,084 2,098
2,846 2,785
Prepaid Expenses and Other Current Assets 300 300
Total Current Assets 8,739 8,632
Long Term Accounts and Notes Receivable 188 289
Investments in Affiliates 29 35
Other Assets 72 78
Goodwill 698 720
Other Intangible Assets 158 163
Deferred Income Taxes 83 83
Deferred Pension Costs 804 830
Deferred Charges 225 248
Properties and Plants, Less Accumulated
Depreciation - $7,872 ($7,836 in 2004) 5,289 5,455
Total Assets $16,285 $16,533
Liabilities
Current Liabilities:
Accounts Payable - Trade $1,854 $1,979
Compensation and Benefits 1,095 1,042
Other Current Liabilities 511 590
United States and Foreign Taxes 296 271
Notes Payable 258 221
Long Term Debt and Capital Leases Due
Within One Year 744 1,010
Total Current Liabilities 4,758 5,113
Long Term Debt and Capital Leases 4,662 4,449
Compensation and Benefits 5,057 5,064
Deferred and Other Non Current Taxes 399 406
Other Long Term Liabilities 532 582
Minority Equity in Subsidiaries 833 846
Total Liabilities 16,241 16,460
Commitment and Contingent Liabilities
Shareholders' Equity
Preferred Stock, no par value:
Authorized 50 shares, unissued -- --
Common Stock, no par value:
Authorized 300 shares
Outstanding Shares - 176 (176 in 2004)
After Deducting 20 Treasury Shares
(20 in 2004) 176 176
Capital Surplus 1,394 1,392
Retained Earnings 1,138 1,070
Accumulated Other Comprehensive Income (Loss) (2,664) (2,565)
Total Shareholders' Equity 44 73
Total Liabilities and Shareholders' Equity $16,285 $16,533
Total Segment Operating Income Reconciliation Table
(In millions) First Quarter
Ended March 31
2005 2004
(unaudited)
Total Segment Operating Income $292 $181
Rationalizations and asset sales 21 (21)
Interest Expense (102) (84)
Foreign Currency Exchange (6) (6)
Minority Interest in Net Income of Subsidiaries (21) (6)
Financing fees and financial instruments (26) (33)
General and product liability, discontinued
products (12) (9)
Recovery (expense) for insurance fire loss
deductibles 2 (12)
Professional fees associated with restatement (1) (15)
Other (12) (16)
Income (Loss) Before Income Taxes $135 $(21)
US and Foreign taxes on income 67 57
Net Income (Loss) $68 $(78)
Management believes that total segment operating income is useful because
it represents the aggregate value of income created by the company's
strategic business units ("SBUs") and excludes items not directly related
to the SBUs for performance evaluation purposes. Total segment operating
income is the sum of the individual SBUs segment operating income as
determined in accordance with Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information."