Goodyear lowers earnings forecast for 2018 fiscal year

AKRON—Goodyear has lowered its second half and fiscal 2018 earnings outlook by roughly 20 percent due to higher-than-expected increases in raw materials costs, unfavorable foreign currency swings and softening market conditions in China.

The revised outlook comes despite a "strong" second quarter operating performance, during which Goodyear achieved its price/mix and net cost savings goals and higher revenue and unit sales, but also reported lower operating income.

"While our execution in the period was robust, macro headwinds are intensifying," Richard Kramer, chairman, CEO and president said, "including rising raw material costs, a stronger U.S. dollar and softening market conditions in China."

Kramer said Goodyear is adjusting its plans "accordingly to mitigate the impact of these challenges over the intermediate-term" and that he remains confident that the company can deliver on its 2020 financial goals because of its strengthening position in the marketplace and value created through strategic initiatives.

Regarding the outlook, Kramer said Goodyear expects 2018 segment operating income of between $1.45 billion and $1.5 billion, down from previous forecasts of $1.8 billion to $1.9 billion.

The revised outlook takes into account a $130 million increase in raw material costs, $60 million in foreign currency exchange costs due to a stronger U.S. dollar and $70 million in headwinds due to softening market conditions in China.

For the quarter ended June 30, Goodyear suffered a 12.2 percent drop in segment operating income to $324 million, driven by the impacts of higher raw material costs, general cost inflation and lower price/mix. The negatives were offset partially by cost-savings benefits and increased sales volume.

Sales grew 4.2 percent to $3.84 billion, driven by 4 percent higher unit volumes and improved price/mix, Goodyear said. The operating ratio dropped one and a half points to 8.4 percent.

Net income rose 6.8 percent to $157 million, or 65 cents per share.

First half operating income dropped 20.3 percent to $605 million on 3.9-percent higher sales of $7.67 billion, cutting the operating ratio more than two points to 7.9 percent. Tire unit sales volume was up 1 percent over 2017 to 78 million.

Net income fell 25.8 percent to $232 million, or 96 cents per share.

In the Americas business unit, Goodyear saw segment operating income drop 29 percent in the quarter to $154 million on slightly lower sales of $2 billion, reflecting unfavorable foreign currency translation and reduced price/mix.

Tire unit volume increased roughly 2 percent to 17.3 million units, Goodyear said, reflecting higher replacement shipments despite the transition of a portion of its wholesale business to the new TireHub L.L.C. joint distribution venture with Bridgestone Americas Inc.

Goodyear stressed that it outperformed the industry when it comes to the higher value-added 17-inch and larger rim-diameter consumer tire products, posting sales gains of 11 percent and 10 percent in the quarter and six-month periods, respectively, vs. industrywide growth of 7 and 5 percent.

OE unit volume was up 2 percent, driven by both commercial and consumer growth. The company estimates that a national transportation strike in Brazil restricted growth in the Americas by about 1.5 percent.

First half operating income in the Americas fell 35.2 percent to $281 million on 1 percent lower sales of $3.99 billion.

As a part of its previously announced $2.1 billion share repurchase program, the company bought nearly 3 million shares of its common stock for $75 million during the quarter, bringing the year-to-date total to $100 million and approximately 4 million shares.

Since its inception, the company has spent $1.4 billion to acquire 48 million shares, or an average of $29.17 per share.