AKRON-Goodyear marked the first anniversary of its return to profitability after years awash in red ink with the proper paper gift: another second quarter financial report all in black.
The tire maker posted net income of $69 million, compared with $30 million profits a year earlier and following losses in the billions in 2002 and 2003. Its North American Tire unit, for years Goodyear´s Achilles heel, also reported its fifth consecutive quarterly profit.
Goodyear officials continue to be careful to indicate they don´t consider the company´s turnaround a done deal in the face of rising raw material costs, still-high debt levels and looming pension expenses.
"We are making continuous progress," Chairman and CEO Robert Keegan told analysts during a conference call. "I can assure you we are not satisfied."
The Akron-based tire maker posted net sales of $4.99 billion, up from $4.52 billion last year. For the first half of the year, sales rose to $9.76 billion from $8.82 billion while net income improved to $137 million from a $48 million loss.
Tire unit volume in the second quarter rose 2.5 percent to 56.4 million units from 55 million units in 2004. Volume increases were driven by gains in the European, Latin American and Asia/Pacific markets. Total segment operating income in the quarter grew to $316 million from $254 million in 2004.
"Five of our businesses had record second quarter sales, and margins improved in our North American and European Union tire businesses," said Keegan.
"This success is further evidence that our strategies are working and that our unwavering focus on key products, customers and markets is paying off. We continue to gain share in targeted markets."
Keegan specifically pointed to the success of new products, including two Assurance tires and the Wrangler and Fortera light truck tires with SilentArmor technology. Sales of Assurance tires are outperforming 2004´s levels. The tires, introduced in 2003, were heralded as the most successful product launch in company history.
"Sales of our new Fortera and Wrangler SilentArmor light truck and SUV tires with Kevlar are above planned sales levels and frankly are challenging the record launch numbers of the Assurance family," Keegan told analysts.
The North American Tire division recorded quarterly segment operating income of $55 million, up from $41 million in 2004. Sales climbed 5.8 percent to $2.3 billion but tire unit volume fell 1.6 percent to 25.3 million units.
For the six months, the unit posted segment operating income of $66 million, compared to $17 million a year earlier, as sales increased to $4.43 billion from $4.11 billion. Tire unit volume grew slightly to 50.6 million units.
While some cheer Goodyear´s accomplishments-including its stock price, which closed at $18.49 Aug. 5, the highest mark since August 2002-other signs continue to concern some company watchers.
One such issue is Goodyear´s reliance on other business units besides North American Tire for profitability. For the first half of the year, that and Good-year´s other largest units-the European Union division-contributed almost 70 percent of the total segment sales yet accounted for only 43 percent of the profits. Latin American Tire continues to contribute more profits than its sales share, accounting for 27 percent of the total segment profits on only 7 percent of the sales. North American Tire represents 45 percent of the sales and 11 percent of the profits.
This scenario raises concerns for some analysts that a shift in the equation´s balance could likewise shift the profitability scales.
An analyst also questioned during the company´s conference call whether the inclusion of the chemical business into North American Tire artificially inflated results. Keegan said the tire division would have been profitable without the chemical operation´s numbers.