AKRON—Goodyear believes it is on solid footing for the second quarter after experiencing strong aftermarket growth to start the year and despite the continuing impact of COVID-19 pandemic and looming price increases.
Among the reasons for optimism: Replacement sales are blooming, commercial sales are strong, demand for Goodyear.com is rising, and Walmart Inc.'s auto service locations are returning to service.
"As the markets recover, we're feeling a level of momentum we haven't felt in some time," said Richard Kramer, Goodyear chairman, president and CEO. "We have a strong lineup of products. Following action to further improve our distribution, our ability to reach customers has never been better.
"Our fleet solutions offerings are unmatched in the market, and our planned acquisition of Cooper Tire will further strengthen our position, creating increased opportunities to create value in the years ahead."
Goodyear's revenue in the first quarter rose 14.9 percent to $3.51 billion, driven by higher volume, improvements in price/mix and favorable foreign currency translation. The Akron-based company's first quarter segment operating income of $226 million was the strongest first quarter since 2018.
Market conditions are strong, as is demand, Kramer said during a first-quarter earnings call April 30. Compared with 2020, Goodyear has a "much brighter picture" as more people are getting vaccinated and vehicle miles driven continue to increase.
Goodyear also saw a continued recovery of the company's replacement market share in the U.S. and Europe. In North America, the company sold 15.5 million units in the first quarter this year, up 1 million units, or 6.9 percent, versus 2020. Goodyear believes this is due, in part, to wholesalers' and tire dealers' looking to ramp up inventory after keeping a relatively minimal level last year.
Replacement demand should help the company mitigate continued delays with original equipment manufacturing.
"OE production has been affected by parts shortages in the first quarter," Kramer said. "This is a situation we expect to persist."
The extra tire capacity, however, will be redirected to replenish the aftermarket demand for premium replacement tires, he added. Goodyear's U.S. consumer replacement volume grew 17 percent in the quarter—11 percent total in North America—versus the same period in 2020, Kramer noted.
"I'm especially pleased with the premium high-margin segments, where we grew significantly; more than the market which itself was up double digits," Kramer said.
Demand is strong for larger rim-diameter (17 inches and larger) tires, and Goodyear's sees its pending acquisition of Cooper Tire & Rubber Co. as boost to its offerings across this segment. Cooper, Goodyear said, will add a large lineup of LT/SUV tires to the portfolio.
"Even as markets recover and our business momentum gains strength, we continue to focus on our longer-term competitive advantage with both the Cooper Tire acquisition and new mobility," Kramer said. "Our enthusiasm around the Cooper Tire transaction continues to build as we develop our integration plans and prepare to welcome Cooper Tire to the Goodyear family."
Goodyear, considered the No. 3 tire maker worldwide, based on Tire Business' 2020 Global Tire Report, said Feb. 22 that it planned to buy Findlay, Ohio-based Cooper, the No. 13 ranked company.
The deal, expected to close in the third quarter, cleared two hurdles recently. China became the first country to grant antitrust approval April 23, and Cooper stockholders voted for the deal April 30.
The combined company expects to generate $17.5 billion in sales with 42 tire plants (nine from Cooper).
"We're excited for this next chapter to begin," he said.
E-commerce sales and mobile tire service both contributed to the strong volume performance, Kramer said.
"Higher traffic and improved conversion rates at Goodyear.com are fueling strong unit growth with our e-commerce volume up more than 25 percent in the first quarter," Kramer said. He added that Goodyear's mobile-tire-installation service—still in an "early growth phase"—is growing thanks to good customer reviews and an increased coverage area that "contributed to triple-digit volume growth in the quarter."
Goodyear's commercial tire business generated a 13 percent volume increase in the quarter, compared with 2020. Kramer noted that commercial volume has increased 20 percent in the last two years.
While the OE sector continues a slow recovery—shipments of OE tires were down less than expected (6 percent) in the quarter—Goodyear has secured a number of OE fitments in the last year for new electronic vehicles, such as Tesla Model Y and General Motors Co.'s electric Hummer.
"In 2021, OEMs continue to look to Goodyear for tires that can handle the added stress, the increased vehicle weight, regenerative braking, higher torque, while helping extend vehicle range through reduced rolling resistance," Kramer said. "We must deliver on these requirements while also addressing the level of road noise in the cabin through noise-reduction technology."
Looking ahead, Goodyear said tire volume will continue to trend back toward 2019 levels as tire dealers continue to replenish inventory and more consumers are out driving.
"We tend to benchmark how we are doing based on pre-pandemic levels," Goodyear CFO Darren Wells said during the conference call. "... I think the fact that our operating income is already above 2019, we feel like that is a very good sign."
Wells noted the strong first-quarter performance is more impressive when you consider some segments still are performing poorly. He said the "other tires" category, including aviation and off-highway segments, has yet to begin recovery.
At the same time, he said, the company is on solid footing thanks to the "cost-saving actions" the company made in 2020, including closing the Gadsden, Ala., plant, which will have saved the company $30 million in outlays over four quarters through mid-2021.
"We're above 2019 levels of segment operating income, and we still haven't gotten the benefit of full-volume recovery—we're still 8 percent down on volume," Wells said. "We're expecting that volume recovery to occur, so we should get continued growth as volumes continue to recover. We should start to get some of the $150 million we lost last year in that other tire-related business category.
"We had a number of things that were very good in the first quarter and a number of things that will allow us to continue to build going forward," Wells said.
Prices will increase in the second half of the year, Wells said, because most of a $375 million materials increase will be realized the the second half of the year. Goodyear estimates raw-materials costs will rise about 15 percent in the second half of 2021.
Offsetting the higher materials cost, he said, will generally mean a 5 percent increase in prices.
"We don't have all of that pricing in place yet; we made pretty significant progress on pricing in the first half," Wells said.
"We realize that the pricing we have announced to date isn't sufficient to get us through the second half. What we have announced so far gets us a little more than halfway there ..." Wells said.
"We've got momentum and some good industry dynamics that should support us as we work our way through the second half."