Goodyear Announces Earnings Improvement
13 October 1998
Goodyear Announces Earnings Improvement
AKRON, Ohio, Oct. 13 -- The Goodyear Tire & Rubber Company
reported today that its third-quarter income from continuing operations was
$185 million or $1.17 per share compared with $184.8 million or $1.16 per
share in the year-ago period.
The earnings improvement resulted despite economic downturns in Asia and
Latin America. Unit sales in the mature markets of North America and Europe
increased 6.1 percent over last year's third period. Weak original equipment
sales, principally in Latin America and Asia, held the overall improvement to
2.5 percent over the third quarter of 1997.
"Despite regional instabilities worldwide, our results confirm that
Goodyear's growth and productivity strategies remain strong and viable. Our
challenge is to accelerate these programs and, thereby, the benefits that are
expected to accrue," said Samir G. Gibara, Goodyear chairman, chief executive
officer and president.
"Throughout the year, we have continually monitored and adjusted all
elements within our control to help offset various international economic
factors," he said, citing acceleration of global manufacturing rationalization
and distribution activities along with third-quarter employment reductions.
Also during the quarter, the company moved forward with its growth
strategy and acquired controlling interests in Sava Tire, Nippon Giant and
South Asia Tyres and concluded an agreement to make Goodyear tires available
at Sam's Club outlets.
Goodyear's 1998 third-quarter worldwide sales were $3.2 billion compared
with $3.3 billion in 1997. The company estimated that the stronger U.S.
dollar lowered reported sales by approximately $110 million.
Net income for the 1997 period of $194.1 million or $1.22 per share,
included $9.3 million from the discontinued Celeron operations, the sale of
which was completed in the 1998 third quarter. All earnings per share figures
are on a diluted basis.
Cost of goods sold as a percentage of sales was 77.4 percent compared with
76.9 percent in the year-ago period in spite of lower raw-material costs and
ongoing cost-containment efforts. Selling, administrative and general expense
was up in dollars and as a percentage of sales due in part to acquisitions and
expenses related to software reengineering efforts.
As part of its asset redeployment and distribution rationalization
strategies, the company recorded gains from dispositions of real estate in the
third quarter totaling $53.2 million ($32 million after tax or 20 cents per
share). Results also were positively affected by a reduction in the effective
tax rate as the company continued to benefit from strategies allowing it to
manage its global cash flows and thereby minimize its tax expense. Over the
past six years the company has brought its annual tax rate down from
40.2 percent to a projected rate of 27.6 percent for 1998.
Goodyear's consolidated worldwide tire unit sales were up 2.5 percent from
the 1997 third quarter and 1.7 percent in the nine months. Domestic tire unit
volume increased 2.4 percent while international units increased 2.6 percent
in the quarter. For the nine-month period, domestic units were up 2.3 percent
while international units were up 1 percent.
In the mature markets of Europe and North America, replacement sales
increased by 9.8 percent while original equipment sales were down 3 percent in
the third period. In the emerging markets of Latin America and Asia,
replacement sales decreased by 7.8 percent and OE sales were down 28 percent
in the quarter as a result of poor economic conditions in those regions.
Sales for the 1998 nine months were $9.4 billion compared with
$9.8 billion in 1997. The company estimated that the stronger U.S. dollar
lowered sales approximately $385 million during this period. Income from
continuing operations was $595.5 million or $3.75 per share compared with
$526.7 million or $3.33 per share in the 1997 period.
Net income for the nine months of 1998, which included the loss on the
discontinued Celeron operations of $34.7 million, was $560.8 million or $3.53
per share. Nine-month net income in 1997, including $30 million of income
related to the discontinued Celeron operations, was $556.7 million or $3.52
per share.
Global capital expenditures in the quarter were $199.9 million compared
with $146.9 million in the 1997 quarter. For the nine months, capital
expenditures were $490.6 million and $377.6 million, respectively.
Depreciation expense was $121.4 million for the quarter compared with
$114.8 million in 1997. For the nine months, depreciation expense was
$351.8 million and $343.6 million, respectively.
BUSINESS SEGMENTS
Consolidated segment operating income in the third quarter of 1998 was
$320.5 million compared with $318.7 million in the year-ago period. Segment
operating margin rose to 10 percent to sales versus 9.7 percent in the 1997
quarter. Segment income in the 1998 third quarter included $53.2 million of
gains on asset sales.
In the nine months, consolidated segment operating income was
$1.03 billion compared with $955.5 million in the 1997 nine months. Segment
operating margin was 11 percent to sales in the 1998 nine months versus
9.8 percent last year.
In addition to third-quarter gains on asset dispositions, the 1998 nine
months also include a first-quarter gain of $61.1 million on the sale of the
Calhoun, Ga., latex processing plant; the reversal of $29.7 million of accrued
costs related to Formula 1 racing and production rationalization in North
America in the second quarter; and a $17.4 million second-quarter charge
related to the settlement of lawsuits in Latin America.
TIRES THIRD QUARTER NINE MONTHS
(in millions) 1998 1997 1998 1997
Sales $2,780.1 $2,849.3 $8,142.1 $8,430.5
Operating Income 281.4 264.0 831.3 796.0
Margin 10.1% 9.3% 10.2% 9.4%
Revenues decreased in both 1998 periods despite higher unit sales in North
America and Europe. Revenues were impacted adversely by the strengthening of
the U.S. dollar versus international currencies, continued competitive pricing
pressures and lower tire unit sales in Latin America and Asia. In addition,
strikes in the U.S. against General Motors adversely affected revenues.
Operating income was up in both periods, benefiting from lower raw
material costs, improved productivity and ongoing cost containment measures.
Operating income increased in both 1998 periods due to the inclusion of gains
on asset sales and the reversal of accrued Formula 1 and other costs. During
the 1998 third quarter, gains from the disposition of real estate of
$52.2 million were recorded.
GENERAL PRODUCTS THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $411.6 $449.4 $1,281.1 $1,366.8
Operating Income 39.1 54.7 202.3 159.5
Margin 9.5% 12.2% 15.8% 11.7%
Revenues decreased in both periods reflecting the absence of both the
Jackson, Ohio, automotive molded plastics plant, which was sold in the third
quarter of 1997, and the Calhoun facility. These businesses accounted for
$14.1 million and $72.2 million of sales for the 1997 third quarter and nine-
month periods, respectively.
Operating income was down in the quarter but up for the nine months. The
1998 third quarter included a gain from asset sales of $1 million. Operating
income in both 1998 periods reflects the absence of the Jackson and Calhoun
facilities, which jointly contributed operating income in the 1997 period of
$1.4 million in the quarter and $7.8 million in the nine months.
Revenues and operating income in engineered products decreased in both
periods due to adverse economic conditions in Latin America, lower sales
volume and competitive pricing.
Sales in chemical products decreased in both periods and operating income
was lower in the quarter. Results reflected reduced unit volume and
competitive pricing. Nine-month operating income reflects the gain on the
sale of the Calhoun facility.
GEOGRAPHIC SEGMENTS
UNITED STATES THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $1,742.1 $1,774.1 $5,105.8 $5,156.6
Operating Income 156.3 154.7 499.3 404.1
Margin 9.0% 8.7% 9.8% 7.8%
Revenues were down in both periods despite higher tire unit sales each
period due to competitive pricing pressures, reduced volume in chemical
products, the GM strike and the absence of the Jackson and Calhoun facilities.
Operating income increased in both periods due to gains on asset sales, lower
raw material costs and productivity improvements. The 1998 third period
included a gain from asset sales of $40 million.
EUROPE THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $802.5 $750.5 $2,303.9 $2,320.3
Operating Income 78.1 62.4 276.6 233.7
Margin 9.7% 8.3% 12.0% 10.1%
Revenues in the 1998 third quarter increased on higher tire unit sales
resulting from acquisitions although currency translation and competitive
pricing adversely affected revenues in both 1998 periods. Operating income in
both periods reflected higher tire unit volume and lower raw material costs.
LATIN AMERICA THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $337.3 $403.2 $1,078.8 $1,188.2
Operating Income 52.4 65.4 167.6 205.5
Margin 15.5% 16.2% 15.5% 17.3%
Sales and operating income decreased in both periods on lower unit sales
of tires and engineered products, the effects of currency translation and
competitive pricing conditions. The region is experiencing a significant
decline in its economies and consumer-borrowing rates have increased putting
pressure on sales. The 1998 third quarter operating income reflects a gain
from an asset sale of $3.6 million.
ASIA THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $146.8 $201.6 $426.0 $610.3
Operating Income 18.1 21.6 43.7 71.9
Margin 12.3% 10.7% 10.3% 11.8%
Revenues and operating income decreased in both 1998 periods reflecting
the adverse effect of currency translation, lower tire unit sales resulting
from the economic downturn and competitive pricing. Operating income in the
1998 third quarter reflected a gain from an asset sale of $9.6 million.
CANADA THIRD QUARTER NINE MONTHS
(In millions) 1998 1997 1998 1997
Sales $163.0 $169.3 $508.7 $521.9
Operating Income 15.6 14.6 46.4 40.3
Margin 9.6% 8.6% 9.1% 7.7%
Although tire unit sales increased in both periods, revenues were down in
the quarter and nine months of 1998 due primarily to the effects of currency
translation. Operating income increased in both periods reflecting lower raw
material costs and ongoing cost-containment measures.