Goodyear Income Continues Growth Trend
16 July 1998
Goodyear Income Continues Growth Trend
AKRON, Ohio, July 16 -_ The Goodyear Tire & Rubber Company
reported today that its second-quarter income from continuing operations
exceeded the comparable 1997 period by 9.5 percent with earnings per share
growing to $1.25 versus $1.16 last year. This new second-quarter record
occurred despite continued competitive pressures worldwide and several other
significant events. All earnings per share figures are on a diluted basis.
Income from continuing operations for the 1998 second quarter was
$199 million compared with last year's income of $181.7 million. Net income
for the 1997 second quarter included income of $10.5 million for the
discontinued oil transportation segment, which is being sold in connection
with a transaction that should close in the third quarter.
Goodyear's 1998 second quarter worldwide sales were $3.1 billion compared
with $3.3 billion in 1997. The lower sales were due to the stronger dollar,
economic conditions in Asia and Latin America, competitive pricing worldwide
and the GM strikes in the United States. Translation of foreign currencies
into a stronger U.S. dollar are estimated to have decreased reported sales by
more than $120 million.
The company's second quarter income was adversely affected by economic and
operating conditions that occurred around the world. The stronger dollar
resulted in an estimated reduction of $20 million pre-tax operating income
compared with last year's second period.
Operationally, a tire recall and settlement of lawsuits in Latin America
affected the quarter's pre-tax income by $22.4 million. In addition, costs
associated with moving several facilities to seven-day work schedules in the
United States and the United Kingdom and strikes against General Motors in
North America have had an estimated impact on second-quarter pre-tax income of
$25 million.
The company also recorded a reversal of $29.7 million of rationalization
charges related to Formula 1 and North American Tire operations. This
resulted from the favorable experiences in the implementation of several of
the company's cost control initiatives.
Also offsetting these negative items were lower raw material costs and
ongoing cost containment efforts. Cost of goods sold was down in both dollars
and as a percent to sales producing gross margin improvements to 23.7 percent
versus 23.3 percent in 1997. Selling, administrative and general expense was
lower at $451.9 million in 1998 compared with $ 462.4 million in 1997.
Results were positively affected by a reduction in the effective tax rate
to 30.3 percent, which is in line with the 1997 full-year rate, as the company
continued to benefit from strategies which allowed it to manage its global
cash flows and thereby minimize its tax expense.
Goodyear's consolidated worldwide tire unit sales were up 1.7 percent from
the 1997 second quarter. In the mature markets of Europe and North America,
replacement sales increased by 6.6 percent while original equipment sales were
down 2.8 percent, primarily due to the impact of the GM strikes in North
America. In the emerging markets of Latin America and Asia, replacement sales
increased by one percent and OE sales were down 20.6 percent. Consequently,
domestic tire unit volume increased 2.4 percent, while international units
increased one percent.
"Once again, Goodyear associates worldwide performed very well to continue
the company's earnings growth while overcoming a number of particularly
challenging issues during the quarter," said Chairman and Chief Executive
Officer Samir G. Gibara.
Sales for the 1998 six months were $6.2 billion compared with $6.5 billion
in 1997. Income from continuing operations was $410.5 million or $2.58 per
share compared with $341.9 million or $2.17 per share in the 1997 period. Net
income for the six months of 1998, which included the loss on the discontinued
Celeron operations of $34.7 million was $375.8 million or $2.36 per share.
Six-month net income in 1997 was $362.6 million or $2.30 per share.
Global capital expenditures in the quarter were $172.4 million compared
with $136.3 million in the 1997 quarter. For the six months the comparable
numbers were $290.7 million and $230.7 million, respectively.
Depreciation expense was $116.1 million for the quarter compared with
$117 million in 1997. For the six months the comparable numbers were
$230.4 million and $228.8 million, respectively.
Debt-to-debt-plus-equity was 35.6 percent at June 30, compared with
31.6 percent the prior year.
BUSINESS SEGMENTS
Consolidated segment operating income was $324 million in the 1998 second
quarter compared with $323.6 million in 1997. Segment operating margin was
10.3 percent compared with 9.8 percent in the year-ago second period. The
1998 quarter included a gain of $29.7 million from the reversal of certain
costs related to the exit from Formula 1 racing, and North American Tire
operations, a $17.4 million charge for the settlement of labor lawsuits in
Latin America and a $5 million charge related to a tire recall.
Consolidated segment operating income was $713.1 million for the 1998 six
months compared with $636.8 million in the 1997 period. Margins were 11.4
percent for 1998 and 9.8 percent for 1997. The 1998 six-month results also
included a pre-tax gain from the first quarter of $61.1 million for the sale
of the company's latex plant at Calhoun, Ga.
TIRES SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 2,703.3 $ 2,829.1 $5,362.0 $ 5,581.2
Operating Income 270.7 265.1 549.9 532.0
Margin 10% 9.4% 10.3% 9.5%
Both 1998 periods reflected increases in tire unit volume in North America
and Europe, however, revenues decreased due to the unfavorable translation of
international currencies, continued pricing pressures worldwide, the effect of
the GM strikes, significantly lower unit volume in Asia as the region
continues to suffer economic turmoil and lower unit volume in Latin America
during the second quarter. The tire recall reduced operating income $5
million and the employment settlements in Latin America reduced income by
$15.6 million.
Lower raw material costs, the effects of ongoing cost containment
measures, and the $29.7 million of the reversal of prior-period charges
benefited tire segment operating income.
GENERAL PRODUCTS SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 434.2 $460.8 $ 869.5 $ 917.4
Operating Income 53.3 58.5 163.2 104.8
Margin 12.3% 12.7% 18.8% 11.4%
General products revenues in 1997 included $30.8 million and $58.5 million
for the quarter and six months, respectively, from the Jackson, Ohio, and
Calhoun plants, which have since been sold.
Engineered products operating income decreased in the quarter but was up
year-to-date due to improved margins resulting from increased volume in North
America and the effects of cost containment measures. The labor settlement in
Latin America reduced operating income by $1.8 million.
Sales and operating income in chemical products decreased in the quarter
and sales were lower in the six months, reflecting reduced unit volume and
lower selling prices. Operating income increased in the six months due to the
gain on the sale of the Calhoun facility.
GEOGRAPHIC SEGMENTS
UNITED STATES SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 1,694.3 $ 1,694.8 $ 3,363.7 $3,382.5
Operating Income 135.9 123.0 343.0 249.4
Margin 8% 7.3% 10.2% 7.4%
Although higher tire unit sales were recorded, revenues were flat in both
periods as a result of competitive tire pricing pressures and reduced volume
in chemical products.
Operating income increased in both 1998 periods, reflecting lower raw
material costs, improved productivity and the effects of cost containment
measures. The 1998 six months also includes the $61.1 million gain on the
sale of the Calhoun facility, the $5 million charge related to the tire recall
and a $7.7 million gain as a result of the lower-than-anticipated cost of
rationalization programs.
EUROPE SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 767.8 $ 805.3 $1,501.4 $1,569.8
Operating Income 108.4 91.7 198.5 171.3
Margin 14.1% 11.4% 13.2% 10.9%
Sales decreased in both 1998 periods due to the effects of currency
translation and competitive pricing, although tire unit sales were higher.
Operating income increased in both periods due to lower raw material costs
and the inclusion of the $15.1 million gain relating to the previously
mentioned settlement of Formula 1 racing obligations.
LATIN AMERICA SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 365.8 $ 401.9 $ 741.5 $ 785.0
Operating Income 46.7 71.8 115.2 140.1
Margin 12.8% 17.9% 15.5% 17.8%
Sales and operating income in both periods decreased due to the effects of
currency translations, competitive pricing pressures and lower sales of
engineered products. Tire unit volume was up for the six months but down in
the second quarter.
Operating income in the second quarter included the previously mentioned
charge of $17.4 million for the settlement of employment-related lawsuits and
a $2.8 million gain from the settlement of the Formula 1 obligations.
ASIA SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 141.7 $ 209.4 $ 279.2 $ 408.7
Operating Income 15.9 22.8 25.6 50.3
Margin 11.2% 10.9% 9.2% 12.3%
Sales and operating income decreased in both periods due primarily to the
effects of currency translation and lower tire unit sales resulting from
severe economic turmoil and competitive conditions in the region. Operating
income in the quarter included a $2.8 million gain from the settlement of
Formula 1 obligations.
CANADA SECOND QUARTER SIX MONTHS
(in millions) 1998 1997 1998 1997
Sales $ 167.9 $ 178.5 $ 345.7 $ 352.6
Operating Income 17.1 14.3 30.8 25.7
Margin 10.2% 8% 8.9% 7.3%
Sales decreased in both 1998 periods on competitive pricing and lower tire
units in the second quarter. Operating income increased in both periods on
lower raw material costs and tight cost controls. Operating income in the
quarter included a $1.3 million gain from the settlement of Formula 1
obligations.