MIAMI BEACH (Feb. 4, 2009)—Goodyear anticipates raw materials prices will peak in the first quarter, but take as long as six months before actually easing.
The lag time between purchasing and consuming materials accounts for the delay in the actual effect of the change, according to Darren Wells, Goodyear chief financial officer.
Raw material costs shot up about 25 percent in the fourth quarter, according to Wells, who spoke at the JP Morgan Chase & Co. High Yield and Leveraged Finance Conference in Miami Beach Feb. 2-4. The increase largely offset price/mix gains the company had made during the first nine months of the year.
Goodyear expects prices to begin to moderate in the second quarter. Wells said, however, that the economic slowdown and Goodyear's resultant production scale backs mean longer inventory times for raw materials bought at the current and recent higher price levels.
For fiscal 2008, the impact of raw materials costs was roughly 13 percent higher than in 2007, Wells said. Through the third quarter, Goodyear calculates it spent $361 million more on raw materials than in 2007, but this was offset by more than $680 million in added revenue from improved pricing and product mix.