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Goodyear targets growth as profits continue to climb

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Tara Foote, Eagle brand manager of Goodyear North America, discusses tire tread compounds with investor Michael Sheridan at Goodyear's investor day in New York.

AKRON—Goodyear's North American business has taken a giant step since it posted a $300 million loss in 2009 and the company has high expectations for significant income growth within the next three years.

From its dismal days of 2009, the North American operation has climbed steadily to profitability, garnering $500 million in segment operating income in 2012.

The tire maker's overall outlook for 2013 operating income of about $1.5 billion remains unchanged, and it's targeting between 10 and 15 percent growth in operating income through 2016, Chairman and CEO Richard J. Kramer said during a Sept. 20 conference call with investors.

In the last two and a half years, Goodyear has improved its segment operating income percentage from 4.9 percent in 2010 to an expected 7.5 percent in 2013 in a tough economy, the executive said.

He also said the company plans to reinstate its quarterly cash dividend on the firm's common stock. It last paid a stock dividend in December 2002. The firm declared a quarterly dividend of 5 cents per share of common stock, pay-able Dec. 1 to shareholders of record Nov. 1. The payment represents an annual rate of 20 cents per share.

In addition, Kramer said the tire maker will launch a share repurchase program under which the company will buy up to $100 million of its common stock. The repurchases are intended to offset new shares issued under equity compensation programs, Goodyear said.

"Our capital allocation plan demonstrates Goodyear's commitment to creating value for shareholders while maintaining financial flexibility to execute our strategic plan, continuing to strength-en our balance sheet and investing for future growth," Kramer said.

Goodyear has done well in North America for the last three years despite a tough economy, according to Steve McClellan, who heads up the North American operation. In March 2011, "we announced our goal of $450 million in earnings by the end of 2013," he said. "And we've hit the target. In fact, we did it early. We made $514 million last year."

It did it by eliminating some of its high cost capacity during the last few years, he said, as the firm closed one of its factories while streamlining others.

Goodyear CEO Richard Kramer speaks to investors at the firm’s investor day in New York.

The company also increased manufacturing and supply chain efficiencies throughout its operations, he said. The firm no longer is chasing volume for volume's sake and has simplified its product portfolio.

"We're building a branded business and we're competing in the most profitable segments in the market," McClellan said.

Goodyear is continuing to work on its cost structure, said Darren Wells, chief financial officer and executive vice president. He cited a number of structural cost changes the company is working on, including closure of a plant in Amiens, France, "which will deliver $75 million of structural cost savings once that's completed.

"I would also put in that category some of the work that we're doing for additional productivity improvements in our Europe, Middle East, Africa business."

He said the company has invested and upgraded its plants in Lawton, Okla., and Fayetteville, N.C., and is investing in its Asian-Pacific operations, relocating and expanding its plant in China and boosting the size of its mining tire factory in Japan. Goodyear also is building a facility in Chile and expanding a production site in Brazil.

"I expect that we're going to continue the need to make investments to support growth in Brazil ... and we're going to have to start to lay the groundwork for being able to deliver additional supply of high value added tires in the Americas," Wells said.

Announcements on those projects probably will be made in the next year or so, he said.