Goodyear posts net loss in Q3, but sees bright spots in Americas, Asia-Pacific

AKRON—Goodyear suffered a net loss for its third quarter as overall tire volumes and revenue declined, but the firm expressed optimism because its Americas and Asia-Pacific units hit segment operating income targets.

For the period, the Akron-based tire maker posted a net loss of $89 million compared to a net profit of $44 million in the second quarter of 2022, according to the firm's quarterly financial report.. Sales fell 3.2 percent to $5.14 billion, as tire volumes dropped 2.8 percent to 45.3 million units.

Segment operating income (SOI), Goodyear said, declined 9.9 percent to $336 million, a margin of 6.5 percent companywide, short of its 8-percent margin goal. The Americas and Asia-Pacific businesses, though, both exceeded the goal, while the Europe, Middle East and Africa (EMEA) unit fell short, with an SOI of just 1.6 percent as Europe continued to fight a variety of economic headwinds.

"This was the first quarter in two years where the benefits of price/mix vs. raw materials exceeded inflation, including price remaining a benefit in the quarter," Rich Kramer, Goodyear chairman, CEO and president," said in a Nov. 6 letter to investors. "And, importantly, we were able to expand margins in the context of a global tire industry that remains below 2019 levels: consumer replacement industry volumes remained 5 percent below 2019 on a year-to-date basis while OE remained about 2 percent lower."

Kramer said there were signs of improvement in several of its markets, including the U.S., where industry volume grew 10 percent over last year, indicating an end to channel destocking, which began in late 2022.

The Goodyear CEO said in a Nov. 7 call with analysts that the company focused on the areas of the market where it can drive value, primarily the premium end of the tire spectrum.

"The premium part of the market still has dynamics that are favorable to us," Kramer said. "In terms of segments, it's the most profitable pool, if you will, of the market. It's where we have 18-inch and above (tires) growing fairly significant.

"... Our products, our brand, our technology—both Goodyear and Cooper—play really well there. The demand-to-supply dynamics still work in our favor."

For the first nine months of 2023, Goodyear suffered a net loss of $398 million, compared with a net profit of $306 million for the first three quarters of last year. Sales dipped 3.1 percent to just shy of $15 billion. Segment operating income for the nine-month period declined 43.8 percent to $585 million, an operating margin of 3.9 percent.

Sales in the Americas decreased 5.6 percent in the third quarter to $3.12 billion, with SOI dropping 15.7 percent to $258 million. The drop in volume, Goodyear said, reflected the impact of low-cost imports in Latin America, the continuing effect of the storm on the firm's facility in Tupelo, Miss., and depressed conditions in the commercial truck industry. Goodyear said its consumer truck replacement volumes fell 10 percent, caused by continued destocking, but that was better than the industry decline of 16 percent.

On the bright side, the 8.3-percent SOI margin is a major improvement over Goodyear's operating margin of about 3 percent in the first half of 2023, the firm told investors.

Business in its EMEA unit remained below historical levels because of "continued industry volume weakness and elevated inflation."

Net sales actually increased 1.2 percent in the region to $1.37 billion, driven by an increase in revenue per tire of 10 percent. Operating income for the segment was down 26.7 percent to $22 million.

Goodyear's EMEA financials also were impacted by the Aug. 20 fire at its tire factory in Debica, Poland. Tire production at the plant currently is at 70 percent, the firm said in its earnings report, with the fire causing an estimated $14 million negative impact on profits for the quarter. It expects a further $15 million impact on SOI in the fourth quarter and an additional $5 million in corporate expenses.

Kramer said on the Nov. 7 analyst call that Goodyear's near-term goal was to get the EMEA business back to its pre-COVID SOI of $50 million a quarter, but Q3 remained well below that.

"The industry is still really challenged as relative to 2019," he said on the call. "Consumer business is down 15 percent and truck business is down 22 percent versus 2019. It's not back to normal.

"We have been and are evaluating EMEA and looking at all options to generate value in the near term, and continuing to assess the long-term solutions as well given the macro environment of what's going on over there."

Goodyear in September revealed a restructuring plan that would cut 1,200 jobs in the EMEA region, representing about 15 percent of the business unit's salaried employment. Goodyear also plans to halve capacity at its tire plant in Fulda, Germany. That move, which would involve 550 job losses, is intended to reduce consumer-tire production costs in the region, Goodyear said, and deliver $30 million in annualized segment operating income benefits by mid-2024.

Asia-Pacific results were more positive for the Akron-based tire maker, with net sales basically flat on the quarter at $648 million, but with SOI jumping 51.4 percent to $56 million, a margin of 8.6 percent.

Overall volume in Asia-Pacific grew 5.4 percent for the quarter, with replacement shipments down 3.5 percent but original equipment volume up 18.5 percent.

In late September, the company announced an Asia-Pacific "rationalization plan" that proposed eliminating 700 positions, exiting nine warehouses, and selling around 100 retail and fleet locations in the Asia-Pacific region. Goodyear also announced it would distribute through a third-party in Australia and New Zealand.

Looking ahead to the fourth quarter, Goodyear expects global replacement unit volumes to be 3-4 percent lower than 2022, with OE volumes forecast to climb about 5 percent.

Lower production in the third quarter that was 4.4 million units below the third quarter of 2022—excluding the impact of the Debica fire—will negatively impact fourth-quarter unabsorbed overhead by about $40 million, according to its financial report.

Raw material costs are expected to be about $300 million lower than 2022, with the bottom-line benefit to be $250 million, after taking into account a negative price/mix impact from contractual agreements tied to lower raw material costs along with the continuing negative mix from weakness in the commercial truck industry.

Goodyear will hold an investor call Nov. 15 to offer an update on the Strategic and Operational Review Committee —formed in response to the Elliot Investment letter earlier this year.