Goodyear Revises Second Half Earnings Outlook
21 September 2000
Goodyear Revises Second Half Earnings Outlook
AKRON, Ohio, Sept. 21 The Goodyear Tire & Rubber Company
today revised its earnings outlook for the second half of 2000, based on
continued deterioration of global economic and industry-wide conditions.
The company, which had expected limited improvement over the first half of
2000, cited escalating raw material and energy costs, the continued
deterioration of the euro's value versus the U.S. dollar, weak pricing
conditions in markets around the world and lower-than-expected tire industry
volumes in North America and Europe.
Goodyear said its best estimate is that net income in the third quarter of
2000 will be breakeven or a small loss. Assuming economic and market
conditions remain unchanged, the company anticipates similar results in the
fourth quarter.
"The economic outlook for the tire industry is difficult at best," said
Samir G. Gibara, chairman, chief executive officer and president. "Against
this environment, we have taken several initiatives including the announcement
last week of Robert J. Keegan as president and chief operating officer, as
well as placing new leaders in four of our businesses in recent months.
"In response to the continuing price/cost squeeze, corporate-driven
initiatives, supported by external resources, are being initiated to realize
improved revenue, margin and working capital performance. The company also is
continuing its efforts to redeploy selected assets," he added.
Net income in the third quarter of 1999 was 69 cents per share ($109.1
million), including various adjustments, most notably an after-tax gain of 90
cents per share ($143.7 million) resulting from the completion of the
company's Sumitomo joint ventures.
The company's North American Tire business is realizing benefits from the
Bridgestone/Firestone recall as consumers select Goodyear tires as
replacements. Global economic and industry conditions, however, have
deteriorated even beyond Goodyear's most-pessimistic assumptions, preventing
the benefits from flowing to the bottom line.
Goodyear anticipated raw material and energy costs would stabilize in the
second half of this year, when in fact they continue to escalate. The
company's raw material costs have increased more than 3 percent since June and
approximately 10 percent for the year. Oil-derived products, which can make
up about 25 percent of the cost of a tire, are at 10-year highs. Energy
costs, especially natural gas, are up 20 percent since the beginning of the
year and expected to increase further. These increases have also severely
impacted results in the company's Chemical business.
Compounding these higher costs are currency movements in Europe, where the
euro fell to an historic low of 84 cents. The euro's value versus the U.S.
dollar has dropped 16 percent this year and 28 percent since its inception in
1999. The company had expected a euro-dollar exchange rate of 94 cents for
the second half of 2000.
Further, Goodyear had planned for sales volumes to outpace an expected
industry growth rate of between 2 and 3 percent in the second half. The tire
industry, however, has slowed since June. Production cutbacks by original
equipment customers in the auto and commercial truck industries are negatively
impacting shipments.
In response, the company has reduced third quarter tire production beyond
original expectations to maintain proper inventory levels, resulting in
manufacturing inefficiencies and higher costs. The current phase out of a
manufacturing facility in the United Kingdom has further increased European
costs in the quarter.
The company's expectations were that pricing would stabilize at second
quarter levels during the second half of 2000. In North America, pricing
continues to weaken for commercial and value-priced consumer tires. Net price
reductions continued in Asia as well as in selected tire lines in European
countries. In Latin America, pricing has also not kept pace with rising raw
material costs.
Goodyear's Engineered Products sales weakened further, especially in the
conveyor belt business and in the replacement market for hose and power
transmission products. Higher costs due to reduced capacity utilization and
raw material costs are negatively impacting margins.
The company continues to move forward on plans to divest non-strategic
assets and to reduce working capital requirements. Shortfalls in net income,
however, will likely result in negative cash flow for the year.
Goodyear's actual third quarter results are scheduled to be released
October 24.