AKRON (July 28, 2011)—Goodyear reported record second quarter operating income and sales, but Chairman and CEO Richard Kramer cautioned this elevated level of earnings is not sustainable considering sluggish demand in developed markets and other headwinds.
Goodyear's collective segment operating income rose 74.4 percent to $382 million as sales grew 24.1 percent to $5.62 billion, yielding an earnings ratio of 6.8 percent.
Sales revenue was up despite a 2-percent drop in tire unit volumes, reflecting weaker industry volumes, particularly in the North American consumer tire business, Goodyear said.
Second quarter sales reflect strong price/mix improvements, the company said, which drove revenue per tire up 18 percent over the 2010 quarter.
Sales were up by double digits in all geographic regions. Operating income was up solidly in Europe/Middle East, but down in Latin America and up only marginally in Asia/Pacific.
Net income available for common shareholders rose 43 percent to $40 million.
In North America, Akron-based Goodyear reported $137 million in operating income on $2.41 billion in sales, or a 5.7-percent ratio. Sales revenue grew 17.7 percent despite a 5.4-percent drop in tires sold to 15.7 million units. OE unit volume fell 9 percent, and replacement shipments were off 5 percent.
The drop in demand for consumer tires in the quarter prompted management to revise the company's outlook for 2011 slightly, saying volume growth will be at the lower end of the previous 3- to 5-percent increase forecast.
The record segment operating income reflected improved price/mix of $554 million, which more than offset $428 million in higher raw material costs, Goodyear said.
“North American Tire's results benefitted from proactive pricing for the value of our products in the face of rising raw material costs,” Kramer said. “These results will be difficult to repeat in the second half because of increasing raw material cost challenges and uncertain economic conditions.”
For the six months ended June 30, Goodyear's segment operating income was up 54.5 percent to $709 million as sales grew 25.3 percent to $11 billion. The income improvement reflects higher sales in all business units and actions that reduced costs by $147 million, Goodyear said.
Net income was $143 million versus a loss of $19 million in 2010.
In North America, first-half operating income was $177 million on 23.2-percent higher sales of $4.72 billion.
“A sluggish economic recovery in our developed markets and higher inflation in emerging markets have resulted in uneven growth in the tire industry,” Kramer said.
In North America, Goodyear expects the consumer replacement industry to be flat to up 2 percent, with consumer OE sales up by 5 to 10 percent. Commercial replacement sales should grow by 10 to 15 percent and commercial OE by 40 to 50 percent.
Goodyear said it anticipates its raw material costs for the remainder of 2011 will increase more than 30 percent.