Goodyear sees promise ahead after bumpy 2023

This year was supposed to be a year of celebration for Goodyear.

The Akron-based tire maker had been aiming toward 2023, as Aug. 29 was the day the iconic firm turned 125. It was to be a time for Goodyear to not only look back on its proud heritage of being an industry leader, but also look forward to how it would tackle the future demands of a changing automotive landscape.

But as is the case in life and business, sometimes things don't go as planned. Financial results from 2022 got 2023 off to a bit of a bleak start, followed by plans to cut costs. Then a tornado at a U.S. tire factory in the spring and a fire at its plant in Poland added more financial difficulties.

And then came the letter.

A shareholder's group that said it owns 10 percent of Goodyear's publicly traded stock called on the tire maker to take steps to "reverse a period of negative performance" and hopefully restore value to the company's stock.

While Goodyear did get to celebrate its anniversary properly, and enjoyed its share of bright spots, that letter definitely set the tone for the rest of the tire maker's 2023.

Goodyear began the year with several bright spots. And its relationship with NASCAR definitely was one of the brightest.

The tire maker has been NASCAR's sole supplier since 1997, and has been involved with the racing circuit for about 70 of its 75 years. It's a relationship that Goodyear sees as both a key marketing initiative, and also a way to build up its technology.

"When you mention Goodyear to people, they think of a couple things: They think about racing and they think about our airships," Greg Stucker, Goodyear's director of racing tires said. "… I think we have done a pretty good job over the years of making sure that we are putting the right product on the racetrack at the right time."

With NASCAR running its 75th season in 2023, Goodyear took time to celebrate the longtime partnership.

"To a degree, the principles of the relationship (with NASCAR) really haven't changed," Stucker told Rubber News. "The goal is to demonstrate, through our expertise and our technology, that we make some of the best race tires in the world and we put some of the best race tires on the racetrack. Tires designed and manufactured right here in Akron."

The old mantra of tire makers involved in racing was "win on Sunday, sell on Monday," but that's changed a bit over the years. Stucker said Goodyear races to demonstrate its technology, be it developed in consumer tires, aircraft or elsewhere.

"We can put things on the racetrack and evaluate them, whether it is material, a manufacturing concept, a construction, a different mold shape," he said. "We can do that pretty quickly in a very harsh environment and really push things to the edge."

Goodyear in January said it planned to trim its global salaried work force by about 5 percent, or 500 jobs, by mid-year, citing an uncertain near-term economic outlook and weaker industry conditions.

"Our fourth-quarter results fell short of our expectations given a significantly weaker industry backdrop, particularly in Europe," said Richard Kramer, Goodyear's chairman, CEO and president.

"While our businesses have performed at a high level through the volatility of the past several years, the uncertain near-term macroeconomic outlook and continuing impacts of inflation make these difficult actions necessary to position our business for future success."

Global replacement tire industry demand remained weak in the fourth quarter, Goodyear said, led by a 12-percent decline in the Europe/Middle East/Africa (EMEA) business areas.

After Goodyear in February released disappointing 2022 financials, S&P Global Rating, a U.S. credit rating agency and a division of S&P Global, revised Goodyear's outlook to negative, from stable.

On the positive side of things, Goodyear said the financial benefits of its 2021 acquisition of Cooper Tire & Rubber Co. were showing up in the bottom line. The company said the synergies of the combination during the fourth quarter of 2022 totaled $40 million, compared with third quarter 2022 benefits of $25 million.

By the middle of 2023, Kramer said the synergies would reach an annual run rate of $250 million.

April saw a tornado stop production at Goodyear's Tupelo, Miss., tire facility, while an August fire damaged its factory in Debica, Poland.

The Tupelo plant cost the company up to $130 million in lost sales in the second quarter, Goodyear said in an 8K statement with the Securities and Exchange Commission.

The category EF-2 tornado struck the plant April 1 and idled production for more than two months. Rated at 37,000 passenger and light truck tires a day, the 39-year-old plant is Goodyear's third-largest P/LT factory in the U.S. It was opened by Cooper Tire in 1984.

In addition, Goodyear said costs related to the Tupelo plant situation and delivery interruptions from a warehouse in Whiteland, Ind., impacted its Americas business unit operating income by $60 million to $80 million in the second quarter.

The Aug. 20 fire at the Debica factory damaged a portion of the tire curing area and prompted Goodyear to idle the plant temporarily. Production resumed on Aug. 22 at roughly 55 percent of capacity, Goodyear said, and ramped up to 70 percent by late September.

The company said in an SEC filing that the fire would cut Goodyear's sales in its Europe, Middle East and Africa region by up to $40 million this year and cut operating income by as much as $30 million.

In 1986, Goodyear fended off a takeover attempt by European financier Sir James Goldsmith.

While certainly not in the same league as that attack, there were some flashbacks to those memories when Elliott Investment Management L.P., a Florida-based investment firm with $55 billion in assets, sent a letter on May 11 to Kramer and the company's board of directors. The owner of 10 percent of Goodyear's publicly traded stock detailed reasons for what it called the tire maker's poor stock performance while outlining steps it said the company should take to "reverse a period of negative performance," including:

• Appointing five new "highly qualified" individuals to its board to improve governance and spearhead change;
• Divesting its corporate retail stores and use the proceeds to pay down its debt and improve its financial flexibility; and
• Forming an operational review committee to develop an operational and development plan.

Elliott Investment wrote that it believed the steps would strengthen Goodyear's financial position, bolster its competitiveness, create sustainable value and potentially drive the firm's stock price above $32 a share, nearly 180 percent higher from its then-current level.

"It is an unfortunate fact for Goodyear and its investors that over the past decade, owning Goodyear stock has been a disappointment," Elliott Investment wrote. "We believe the company's poor stock performance is a direct result of its significant margin erosion, suboptimal go-to-market strategy and unfocused brand."

After meeting with the investment group, Goodyear in July agreed to add three new directors—mutually agreed-upon between Goodyear and Elliott—and formed an oversight committee as part of a cooperation agreement with Elliott.

The Strategic and Operational Review Committee's mandate was to "oversee and support the board and management's review of various strategic and operational alternatives to maximize sustainable shareholder-value creation and build upon a number of initiatives that Goodyear has been executing," the company said in a statement.

Light is often seen as a sign of hope. A signal that the future is full of promise.

Goodyear may have had that in mind when it re-lit the iconic sign at the site of its former headquarters on East Market Street in Akron as part of the celebration of the firm's 125th anniversary. The sign had been dark for nearly 10 years, when Goodyear moved to its new global headquarters a couple miles away.

Goodyear collaborated with The Well CDC, a nonprofit focused on Akron's Middlebury neighborhood where the former headquarters is located, to revitalize the sign that now shines over Goodyear Hall.

"This project shines a light on Goodyear's continued commitment to invest in Akron and in the communities where we live and work," said Laura Duda, Goodyear's senior vice president and chief communications officer. "We are thankful to work together with great community partners like The Well CDC to support the neighborhood that Goodyear has called home for the past 125 years."

Kramer in an August speech before the Akron Roundtable likened the changing world Goodyear's founders faced with the situation today, where he said technology and data are changing mobility completely.

"Our history has revolved around commonalities and patterns that have been repeated through generations of change," Kramer said. "Our founders certainly could not have pictured what the world would look like in 2023, but they started building a path that has led us to where we are today."

A week after reporting a third-quarter net loss of $89 million, the tire maker launched Goodyear Forward, a plan to revitalize the company.

The wide-ranging initiative was the result of the work of the Strategic and Operational Review Committee, formed after the letter from Elliott Investment. The 16-week review was charged with looking into all options to maximize "sustainable shareholder value creation" and build upon initiatives Goodyear already had started.

If Goodyear achieves its aims, it will have a more optimized portfolio, doubled profit margin by the end of 2025 and a far less-leveraged company with much lower debt.

It also will have a new leader, as Kramer announced plans to retire in 2024.

Goodyear Forward's major initiatives include:

• The potential sales of Goodyear's chemicals/synthetic rubber business, the iconic Dunlop brand and its off-the-road equipment tire brand, moves projected to bring in excess of $2 billion;
• Cost reductions yielding annual benefits of $1 billion by the end of 2025;
• Top line actions to optimize North American brand and tier positioning, rationalize SKUs and drive other benefits for an annual boost of $300 million by the end of 2025;
• See its segment operating income margin double to 10 percent by the end of 2025; and
• Increase its net leveraging position over that same time period through its strengthened financial profile, enhanced earnings, cash flow generation and debt reduction of about $1.5 billion—bringing Goodyear closer to an investment-grade rating.

"Our plan is a combination of the acceleration of existing projects and the initiation of new projects, all focused on sustainable value creation," Kramer said on the Nov. 15 investor's call. "Goodyear Forward is not just a great plan on paper, but a plan that is specific and actionable with detailed timelines and accountability that makes it credible and achievable.