AKRON—Goodyear´s sales in 2005 rose 7.5 percent to a record $19.7 billion while net income nearly doubled to $228 million-the tire maker´s highest profits since 1998.
For the fourth quarter, however, Goodyear´s sales grew 2.1 percent to $4.93 billion but the firm posted a net loss of $51 million. The company said the net income figure includes a $78 million after-tax loss on asset sales, including a loss on the tire maker´s sale of its North American farm tire business to Titan International Inc. in December.
Without the loss on asset sales, Goodyear would have reported a net gain of $27 million. That figure still is 78.4 percent behind the net income of $125 million posted in 2004´s fourth quarter. Officials said one challenge in the quarter was raw material prices.
Goodyear had expected the costs to rise 11 percent, but they grew 13 percent instead. The firm still was able to offset the increases with improved price mix, but the costs nevertheless drew those funds away from the bottom line. Last fall´s hurricanes also negatively impacted the quarter by $21 million for the company overall, including $15 million in North American Tire.
For 2006, Robert Keegan, Goodyear chairman and CEO, said the company will continue to face many challenges, including the competitive nature of the industry, legacy costs, upcoming contract talks with the United Steelworkers, raw material cost increases and leveraging the firm´s balance sheet. These challenges, he said, are "manageable."
Keegan also tracked Goodyear´s progress toward some goals outlined last September as part of "phase two" of the company´s turnaround plans. Goodyear is looking to increase its North American segment operating margin to 5 percent from 1.8 percent in 2005 and a negative 0.3 percent in 2002. The company also wants to hit 8-percent total segment operating income from 5.9 percent in 2005 and 2.6 percent in 2002.
In 2005, North American Tire-Goodyear´s largest business unit and the focus of the firm´s turnaround-reported a jump in net income of 125.7 percent to $167 million from $74 million in 2004. Sales grew 6.1 percent to $9.09 billion. But tire units decreased 0.6 percent to 101.9 million units.
In the fourth quarter, the unit posted a 48.3-percent gain in net income to $43 million. Sales rose 3.8 percent to $2.29 billion, but tire units again fell 3.1 percent to 24.7 million units. Goodyear said the sales rose on better pricing and product mix, but volume was down as part of its selective strategy in the lower-value segment of the replacement market.
On the other hand, Goodyear´s Engineered Products division´s segment operating income slipped to $103 million from $114 million in 2004 on a 7-percent increase in sales to $1.6 billion. In the fourth quarter, operating income remained flat at $25 million while sales rose 3 percent to a record $394 million, primarily because of strong industrial and replacement sales. Military products, however, declined in the quarter, the firm said.
Total segment operating income rose 23 percent to nearly $1.2 billion. For the fourth quarter, total segment operating income fell to $226 million from $237.5 in the prior year´s period. In addition to the effects from rising raw material costs and the hurricanes, Goodyear´s segment operating income in the fourth quarter also was impacted by production cutbacks in December in the European Union and Latin America Tire business units, whose operating incomes fell $13 million and $10 million, respectively.
Company officials said they drew back production to reduce inventory and cast the plan as part of fulfilling long-term objectives despite short-term earnings consequences.
The tire maker said raw material costs increased 11 percent-or about $550 million-for the full year. But those increases were offset by a price/mix improvement of about $635 million.
Goodyear also said it reduced its total debt by $257 million in 2005 and contributed more than $500 million to its pension plans. Total debt as of Dec. 31 dropped to $5.42 billion from $5.68 billion as of the end of 2004.
"Our company completed another very good year, and I am extremely proud of the progress we made in 2005," Keegan said. "I am gratified by the work of our people, who demonstrated an intense, informed market focus and a commitment to innovation and building strong brands."