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.