AKRON—While Goodyear's earnings were down significantly in the first half of the year, the company believes it has positioned itself to recover from the impact of the COVID-19 pandemic and grow in the future.
Goodyear released its second quarter and first half of 2020 earnings results on July 31.
"The second quarter was arguably the most challenging quarter in Goodyear's 122-year history," said Richard Kramer, Goodyear chairman, president and CEO.
Second quarter sales were $2.1 billion, down 41 percent from a year ago, the company reported. Sales for the first six months of 2020 were $5.2 billion, a 28 percent decline from the 2019 period.
The decline, the company said, was driven by lower industry volume and reduced sales from other tire-related businesses. These factors were partially offset by improvements in price/mix.
"Although our first half results were greatly affected by difficult industry conditions as a result of the ongoing COVID-19 pandemic, the decisive actions we took to safeguard our business helped mitigate the impact on our results," Kramer said.
Some of the actions Goodyear took include reducing salaries by about 65 percent; reduced manufacturing costs by more than 35 percent; modified project plans to reduce capital expenses by more than $100 million; reduced other SAG expenses by more than $75 million; cash usage less than $500 million; and refinancing of $2 billion credit facility, maturing notes.
Industry demand during the second quarter was significantly affected by the actions governments, businesses and consumers took to slow the spread of COVID-19, with the greatest impact occurring in April and May, the company said.
Tire unit volumes totaled 20.4 million in the second quarter, down 45 percent from the prior year's period. For the first half of the year, tire unit volumes totaled 51.7 million, down 31 percent from 2019.
Replacement tire shipments declined 39 percent in Q2 and 28 percent in the first half of the year. The company said this reflected the impact of lower consumer demand, temporary store closings and wholesale and retail customers reducing inventory levels.
Original equipment unit volume decreased 62 percent in Q2—41 percent for the first half of the year—driven by reduced vehicle production, including the effects of global auto manufacturers temporarily suspending vehicle production, the company said.
"While we are encouraged to see industry demand gradually recovering in most major markets, our plans for the second half (of 2020) consider the challenges and uncertainties that remain. We continue to focus on the wellbeing of our associates, servicing our customers and supporting our brands while appropriately managing our costs and working capital," Kramer said.
"We are also committed to supporting the strong growth we are seeing in our e-commerce and mobile installation businesses. These investments in distribution will strengthen our leadership position and support our long-term growth prospects as consumer buying behavior continues to evolve within the tire industry."
Goodyear's second quarter 2020 net loss was $696 million ($2.97 per share) compared to net income of $54 million (23 cents per share) a year ago. The decrease was driven by a decline in segment operating income, a non-cash asset impairment charge and higher rationalization charges.
Second quarter 2020 adjusted net loss was $437 million ($1.87 per share), compared to adjusted net income of $58 million (25 cents per share) in 2019. Per share amounts are diluted.
The company reported a segment operating loss of $431 million in the second quarter of 2020, down $650 million from a year ago. The decline primarily reflects lower volume and reduced factory utilization. These factors were partially offset by lower SAG, driven by reductions in payroll and advertising expenses relating to actions taken as a result of the COVID-19 pandemic, the company said.
Goodyear's net loss was $1.3 billion for the first six months of 2020 ($5.62 per share) compared to a net loss of $7 million (3 cents per share) in the prior year's period.
The company reported a segment operating loss of $478 million for the first six months of 2020, down $887 million from a year ago. The decrease was primarily due to lower volume and reduced factory utilization, the company said. These factors were partially offset by lower SAG, driven by reductions in payroll and advertising expenses.
The company completed a phased restart of production at its plants during the second quarter. All of the company's factories resumed production and none have experienced any COVID-19-related disruption following their restart, the company said.
Production levels for the quarter were approximately 26 million units below the prior year, reflecting lower sales and actions taken to reduce inventories and conserve cash. Inventory units were approximately 8.5 million below the prior year's level at the end of June.
Production planning for the second half has been modified to focus on high customer service levels, while ensuring the company is able to continue to operate at lower inventory levels on an ongoing basis and to reduce its conversion cost per tire over time, the company said.
As of June 30, the company had total liquidity of $3.94 billion, including $1 billion of cash and cash equivalents.
During the second quarter, the company issued $800 million of senior notes. The company also benefited from a smaller than planned use of cash during the quarter, driven by improved working capital management, Goodyear said.
Cash used in operations and capital expenditures totaled $259 million and $152 million, respectively. The combined use of $411 million of cash was significantly less than the company's initial estimates, it said.