AKRON — Goodyear´s plan to improve its cost structure, focus on higher-end tires and create a richer product mix to improve profits apparently is paying off.
The tire maker has made significant progress during the year on its strategy to gain between $1.8 billion and $2 billion in cost savings by the end of 2009, Chairman and CEO Robert J. Keegan said in an Oct. 30 conference call following the release of the firm´s third quarter results.
He noted the company has achieved $900 million in savings thus far and remains on track to hit its goal.
Analysts are paying close attention to Goodyear´s progress. Dennis Virag, president of Ann Arbor, Mich.-headquartered Automotive Consulting Group Inc., for instance, said the extreme caution that once surrounded the firm´s stock slowly is evaporating.
Firms like Goodyear that came close to bankruptcy not long ago and "have a near-death experience, are forced to restructure and get back on the right track," he said. "That happened to Goodyear. The company is on the proper road right now and should continue to do well.
"Some of the best performers we´ve seen have been restructured from a near bankruptcy or a bankruptcy. With the proper management team and restructuring plan, many companies can be saved."
Goodyear-which announced record 2007 third quarter sales of $5.1 billion and income from continuing operations of $159 million, compared to a loss in last year´s third period-achieved its highest quarterly segment operating income in North America since 2001, Keegan said.
Lower volumes during the period were offset by higher prices and a richer product mix, the company said.
Sales for the quarter rose 3 percent, while the $159 million in net earnings from continuing operations was a big improvement over the $76 million loss reported in the third quarter of 2006.
Net income from all operations, including those discontinued, came in at $668 million, compared with a loss of $48 million last year.
Included in the discontinued units was a gain of $517 million on the sale of Goodyear´s Engineered Products business, sold to the Carlyle Group in August for about $1.5 billion. The sale helped reduce the firm´s overhead and cut its debt, Keegan said.
Goodyear has been making a concerted effort to focus on its tire manufacturing operation and shed noncore businesses since 2004.
In addition to its Engineered Products division, between 2004 and 2007 the firm sold its North American farm tire unit, some private label tire segments, its tire fabric business, rubber plantation and adhesive resins business.
Those sales helped contribute to getting the company on its proper course, Keegan indicated.
"Our outstanding third quarter is evidence of the success we are seeing in marketing our premium product lines while remaining focused on improving our cost structure," Keegan said. "Despite market challenges, our results are among the best ever achieved by Goodyear."
He said that during the period, the company´s North American Tire business delivered improved earnings despite a 6-percent drop in sales to $2.3 million, reflecting the success of new products, strong marketing initiatives and cost savings.
The sales decrease, in part, resulted from Goodyear´s exit from some segments of its private label business along with weak markets for original equipment and replacement tires, the company said.
North American Tire recorded operating income of $66 million, a 247-percent jump from 2006. Improved pricing and product mix more than offset increased raw material prices, Keegan said.
Goodyear´s other businesses also had double-digit percentage growth in operating income compared to last year. Total operating income from the firm´s five business segments was a record $382 million during the period, up 35 percent from last year´s quarter.