Stewart: Goodyear Forward plan spurs momentum in operating results

AKRON—The Goodyear Forward plan is working, and consistent quarterly increases in segment operating income (SOI) are evidence of that, according to the world's third-largest tire manufacturer.

Goodyear offered this optimistic fiscal outlook Nov. 5, despite lower net sales of $4.82 billion, down 6.2 percent against Q3 2023 ($5.14 billion); and lower tire volume of 42.5 million units, also down 6.2 percent against Q3 2023 (45.3 million units).

Conversely, SOI was $347 million, up 3 percent and $11 million against Q3 2023 ($336 million). SOI margin reached 7.2 percent, up 70 bps against Q3 2023 (6.5 percent).

"I want to acknowledge the momentum that the Goodyear team has collectively created over the last four quarters, with four consecutive quarters of market growth," Goodyear President and CEO Mark Stewart said during a Nov. 5 investor call. "Goodyear Forward is delivering significant and tangible results both in the bottom line and as a key driver in enabling us to structurally change the way we govern the company."

In fact, Stewart said 2024 is the first year Goodyear has expanded its margins since 2016, excluding the tire maker's recovery following COVID.

"I have spent time meeting with key customers in the Americas and around the world as to what we can do better to exceed customer needs," Stewart said. "I have even greater confidence today that we can transform and position ourselves for profitable growth in the years to come."

For the third quarter, Goodyear posted a net loss of $34 million, compared with a net loss of $89 million in 2023 Q3. The firm said it realized an adjusted net income of $105 million, slightly better than the $104 million in the prior-year quarter.

"Conservative replacement volume continues to under-perform the industry with Tier 4 tires flowing into a majority of our key markets," Stewart said. "OE production continues to reset to a lower base."

Through the first nine months of 2024, Goodyear reported a net loss of $6 million, significantly better than the $398 million net loss for the corresponding period of 2023.

Adjusted net income for the three quarters of this year was $189 million, compared to an adjusted net loss of $75 million last year, according to Goodyear's financial results.

Sales were off 6.8 percent to $13.9 billion for the first nine months of 2024 from the nearly $15 billion posted a year earlier.

By geographic operating segment, net sales were down across the Americas, EMEA and Asia-Pacific year-over-year, driven primarily by lower volume in replacement markets, though OE business also was down in China, according to Goodyear's third quarter financial report for 2024.

However, SOI margins increased in two of its three regions for the third quarter, led by an 11.7-percent margin in Asia-Pacific on SOI of $72 million (a 29-percent increase year-over-year).

SOI increased in EMEA rose slightly to $24 million for the quarter, but decreased by about 2.7 percent in the Americas to $251 million. The Americas still represented the largest in overall net sales by segment at $2.86 billion for Q3.

According to Christina Zamarro, Goodyear chief financial officer and executive vice president, Goodyear Forward—a major restructuring plan announced last year—has provided $1.5 billion in gross annual run-rate benefits.

"We expect this program to benefit segment operating income by $450 million in 2024," she said, adding this is up by $100 million over previous targets. "And we should see a $750 million year-over-year benefit for segment operating income in 2025 (specifically from Goodyear Forward)."

Goodyear is seeking an SOI margin target of 10 percent (up from 7.2 percent) a year from now.

"This is a testament to our ongoing commitment to transforming the way we work," Zamarro said.

In addition, Goodyear officials noted that the U.S. retail business space delivered "its best performance in 15 years."

"We are converting our stores to retail-by-day and fleets-by-night," Stewart said. "We see a long runway here in growing our retail operations."

Through three quarters, the segment operating income was at $933 million, up $348 million from 2023.

That reflected $285 million from Goodyear Forward benefits; $235 million from net price/mix versus raw material costs; $69 million net from insurance proceeds; and $55 million from the negative impact of the Tupelo storm damage in 2023. The gains were partially offset by lower tire volume of $143 million and headwinds of $116 million from inflationary costs.

In the Americas, tire sales for 3Q 2024 dropped 8.4 percent to $2.86 billion, driven by declines in replacement volume, which were down about 1.5 percent against Q3 2023.

Tire unit volume fell 8.3 percent year-over-year to 21 million. Segment SOI fell $7 million to $251 million.

"We did, however, see consumer OE volume and share gains in the U.S. and Latin America, despite overall industry declines," Zamarro said.

For the nine months, sales in the Americas dropped 5.4 percent to $8.14 billion, but segment operating income of $671 million represented an 8.2 percent margin, compared to a 4.9 percent margin on an SOI of $440 million in 2023.

Sales for EMEA region fell 1.9 percent for Q3 2024 to $1.35 billion.

Tire units fell to 12.2 million from 12.5 million last year. SOI rose slightly to $24 million, for an operating margin of 1.8 percent.

"Consumer replacement industry growth of about 8 percent was driven by growth in non-member imports of about 15 percent," Zamarro said. "Of note is that two of our tires were awarded the top spot by Europe's largest automobile association, ADAC, in the annual all-season and winter tire testing program."

For the nine months, net sales dropped 5.5 percent in EMEA to $3.97 billion, with SOI coming in at $67 million, compared to $11 million in the first three quarters of 2023.

In Asia-Pacific, revenues fell 5.4 percent for Q3 2024 to $618 million, as tire units fell to 9.3 million from 9.9 million in Q3 2023. The SOI checked in at $72 million for a margin of 11.7 percent, compared with $56 million and a margin of 8.6 percent the prior year.

"In China there was consumer industry slowdown in replacement and OE driven by weaker consumer sentiment," Zamarro said.

For the nine months in Asia-Pacific, sales dropped just $3 million to $1.81 billion, as unit volumes rose to 27.1 million from 26.2 million. SOI was $195 million for a margin of 10.7 percent, compared to $134 million and a margin of 7.4 percent last year.

"We will continue to look for opportunities as we create a more efficient, stronger company," Stewart said.

To increase consumer confidence in the Goodyear brand, Stewart said the company will "elevate its priorities in our brand and the consumer-facing aspects of our business."

"We must be thought of as a premier brand in the tire technology space," he said. "And by this we are engaging consumers with our partnerships with recognized, premium brands."

Goodyear announced one such partnership in September with Ferrari, a contract that will provide the Eagle F1 Supersport for the Ferrari 12Cilindri.

"It looks like a GT and it drives like a super-sports car," Stewart said. "It is truly a remarkable machine. And this is our first premium fitment with Ferrari in 30 years."

Stewart said the company wants to be well-positioned in demonstrating technology and marketing strength in the EV space as well.

The recently released Assurance WeatherReady2 will offer top tier SKUs, and the total SKUs under this line is set to increase by 60 percent.

"This will make this line competitive with best-in-class premium Tier 1 offerings," Stewart said.

Similarly, in early 2025, Goodyear will launch the Eagle Asymmetrical6 and the aforementioned Eagle F1 Supersport.

These all will be 18-inch-and-above rim sizes.

"These lines have no predecessors in the U.S. market," Stewart said. "It demonstrates our commitment to expanding in the premium sector marketplace."

The change in tack toward premium offerings has been a missed opportunity in the past for Goodyear, Stewart said.

"When we provide an entire premium portfolio, all our SKUs will benefit," he said. "This is a market segment where quite frankly we have not done a good job of maximizing our opportunities across the value chain.

"Now we are actively changing that, as part of an operational and cultural shift. Going forward, we will assess market opportunities and leverage global assets for customers and consumers."