The Goodyear Tire & Rubber Company today reported a net loss of $6.6 million (4 cents per share) for the third quarter of 2000. Net income in the third quarter of 1999 was $109.1 million (69 cents per share).
The 2000 results include after-tax rationalization charges of $1.2 million (1 cent per share) related to closing a manufacturing facility in Italy and a gain of $3.2 million (2 cents per share) resulting from a property sale in Mexico. Last year's results include various adjustments, most notably an after-tax gain of $143.7 million (90 cents per share) resulting from the completion of the company's Dunlop joint ventures in September 1999. All per share amounts are diluted.
Third quarter results reflect rapidly escalating costs for raw materials and energy, incremental costs associated with ongoing manufacturing restructuring in Europe, the further deterioration of the euro's value versus the U.S. dollar, competitive market conditions around the world and reduced original equipment tire shipments in North America resulting primarily from production cutbacks by automobile and commercial truck manufacturers.
"High raw material costs, especially those for oil-derived products, remain a major factor in our results," said Samir G. Gibara, chairman and chief executive officer. "Third quarter 2000 earnings were approximately 40 cents per share lower than they would have been if these costs had remained at 1999 levels. Energy costs are about double what they were last year," he said.
"Despite very challenging industry and marketplace conditions, Goodyear is seeing benefits from our Dunlop joint ventures, cost reduction efforts, our recent new product introductions and heightened consumer awareness of tire quality due to the Bridgestone/Firestone recall," Gibara added.
In response to these difficult industry-wide conditions, Gibara noted Goodyear has reduced production in certain markets to better align inventory levels with demand, curtailed discretionary expenditures and implemented several initiatives to increase sales revenue and margins.
"We are advancing efforts to streamline our global manufacturing operations; moving some production out of the United Kingdom, which has been severely impacted by the weak euro; and -- through our innovative agreement with Phoenix -- adding access to European hose manufacturing capacity with no investment," he said. "Additionally, our businesses around the world are moving aggressively to implement the price increases required to offset the sudden surge in raw material and energy costs," he said.
"It is too early to measure the full impact the Bridgestone/Firestone tire recall will have on Goodyear or the industry, both in the original equipment and replacement markets," Gibara said. "However, consumers are showing more interest in safety and brand quality than price. This clearly benefits Goodyear. We have a unique opportunity to achieve market share gains that can be sustainable and profitable. We intend to maximize this opportunity."
Goodyear's North American Tire business has shipped more than 2.5 million tires of the size and type being used to replace the 6.5 million recalled Firestone tires. Goodyear is producing more than 28,000 tires a day to serve as replacements for those recalled.
"Consumer reaction to the recall has been felt throughout the Goodyear consumer tire line," Gibara said. "Despite a general softening in the marketplace, Goodyear-brand replacement tire shipments grew at a pace more than four times the industry average in September. Our objective is for these consumers to remain Goodyear customers."
Worldwide, Goodyear's third quarter sales were $3.5 billion in 2000, versus $3.3 billion in 1999. The Dunlop operations contributed $540 million in sales in 2000's third quarter and $232 million in September 1999. The company estimates that the negative effect of currency movements reduced consolidated sales by approximately $135 million in the quarter.
Tire unit volume in 2000's third quarter was 56.9 million units, up 4.6 million units or 8.7 percent from last year, reflecting the addition of 9.4 million units from the company's Dunlop operations. Volume for the 1999 third quarter included 4.1 million units shipped in September by Dunlop.
Sales for the first nine months of 2000 were $10.5 billion compared with $9.3 billion in 1999. The Dunlop businesses contributed $1.7 billion in sales during the 2000 nine-month period. The company estimates that the negative effect of currency movements reduced consolidated sales by approximately $265 million in the nine months. Tire unit volume was 167.6 million units, up 22.9 million units or 15.8 percent in the nine-month period. The Dunlop operation shipped 28.1 million units during the nine months.
Net income for the first nine months of 2000 was $116.7 million (74 cents per share). This includes after-tax net rationalization charges of $6.4 million (4 cents per share). The 1999 period's net income of $200.3 million ($1.26 per share) included net after-tax rationalization charges of $125.7 million (80 cents per share). The company estimates that the negative effect of currency movements reduced operating income by approximately $47 million in 2000's nine-month period.
Capital expenditures in the 2000's third quarter were $144.4 million compared with $206.6 million in the 1999 period. For the nine months, capital expenditures were $411.1 million in 2000 and $560 million in 1999.
Depreciation and amortization expense in 2000's third quarter was $155.5 million compared with $146.2 million in the 1999 period. For the nine- month period, depreciation and amortization expense was $475.7 million in 2000 and $411.6 million in 1999.
Interest expense increased 59.5 percent in the 2000 quarter and 66.6 percent in the nine months due to higher debt levels incurred primarily to fund the acquisition of the Dunlop operations and higher interest rates. "Our businesses are quickly implementing plans to increase margins," Gibara said. "Price increases around the globe are a key part of this effort. Economic and marketplace conditions, however, will make it difficult to realize bottom-line improvement in the fourth quarter.
"Our 2001 results should reflect the benefits of the price increases announced this year, market share gains in both the original equipment and replacement markets, improved manufacturing efficiencies resulting from restructuring and stabilizing raw material costs with some continued weakness in the commercial truck tire market."
Business Segments
Third quarter segment operating income was $83.9 million in 2000 and $10.6 million in 1999. For the first nine months, segment operating income was $487.0 million in 2000 and $396.1 million in 1999. Segment operating income does not reflect the rationalization charges and certain other items in 2000 and 1999.
North American Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $1,745.3 $1,622.5 $5,075.6 $4,709.4
Operating Income (Loss) 32.0 (108.6) 172.6 7.4
Margin 1.8% (6.7)% 3.4% 0.2%
Tire unit volume in 2000's third quarter was up 4.3 percent from 1999 to 29.5 million units, and 7.1 percent to 86.8 million units for the first nine months principally due to the addition of the Dunlop operations. In 2000, the Dunlop businesses sold 3.3 million units in the third quarter and 9.3 million units in the nine months. Dunlop sold 1 million units in September 1999. Replacement market volumes increased, while shipments to original equipment automobile and commercial truck customers were down during the third quarter. For the nine months, volumes in both replacement and original equipment markets are above 1999 levels. Third quarter 2000 shipments to original equipment customers fell approximately 7 percent from last year and 20 percent from second quarter 2000 levels.
Sales revenue increased in both periods due to the higher unit volume, however, competitive pricing had an adverse impact on sales in both periods.
Operating income increased in both periods as a result of the volume contributed by the Dunlop businesses. Income, however, was negatively impacted by higher costs for raw materials and energy and production cutbacks to better align inventory levels with demand. Operating income in 1999's third quarter included one-time charges primarily related to inventory write- offs associated with a market distribution strategy realignment.
European Union TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$731.2$661.5$2,351.8 $1,635.8
Operating Income12.342.795.8123.3
Margin1.7%6.5%4.1%7.5%
Tire unit volume in 2000's third quarter was up 24.9 percent from 1999 to 14.9 million units, and 50.7 percent to 45.3 million units for the first nine months due to the addition of the Dunlop operations. The Dunlop businesses sold 6.1 million units in the third quarter of 2000 and 18.7 million units in the nine months. In September 1999, Dunlop sold 3 million units. Substantial volume growth was achieved in both replacement and original equipment markets because of the additional Dunlop business.
Sales revenue in both periods also increased due to the additional Dunlop businesses, but was negatively impacted by the continuing decreased value of the euro versus the U.S. dollar and British pound; competitive pricing, especially in Germany and the United Kingdom; lower volume in some market segments; and an adverse change in product mix. The euro's value versus the U.S. dollar has fallen 13 percent this year. The company estimates that the effects of currency movements reduced sales by approximately $90 million in the quarter and $180 million in the nine months.
Operating income decreased in both the quarter and nine months due to increasing costs for raw materials, competitive pricing conditions in the region, manufacturing inefficiencies resulting from the ongoing transfer of production from the United Kingdom to the European continent, costs associated with closing a plant in Italy and the negative impact of currency movements. The company estimates that the effects of currency movements reduced operating income by approximately $10 million in the quarter and $39 million in the nine months. Synergies from the Dunlop joint ventures are being achieved ahead of schedule.
Eastern Europe, Africa,Third QuarterNine Months
Middle East Tire
(in millions of dollars)2000199920001999
Sales$211.1$212.3$588.0$582.8
Operating Income19.013.146.434.3
Margin9.0%6.2%7.9%5.9%
Tire unit volume in 2000's third quarter was up 2.4 percent from 1999 to 4.5 million units, and 4.1 percent to 11.7 million units for the first nine months. Third quarter sales revenue fell slightly as a result of a downturn in the replacement market and currency movements. For the nine months, however, sales revenue increased as a result of improving economic conditions in the region. The company estimates that currency movements negatively impacted sales by approximately $25 million in the quarter and $50 million in the nine months.
Operating income increased in both periods primarily as a result of increased factory utilization levels and improving market conditions. Additionally, the 2000 nine-month period was negatively impacted by an industry-wide strike in Turkey.
Latin American TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$258.2$234.7$771.3$694.5
Operating Income10.112.554.958.6
Margin3.9%5.3%7.1%8.4%
Tire unit volume in 2000's third quarter was up 10.4 percent from 1999 to 5 million units, and 10.9 percent to 14.7 million units for the first nine months. Substantial growth was achieved in the original equipment market in both periods. Replacement market volume was down for the quarter but up for the nine months. Sales revenue in both periods was up as a result of the higher volume, but negatively impacted by competitive pricing, ongoing weak economic conditions and currency movements. Operating income fell in both periods because of higher raw material costs, manufacturing inefficiencies and labor costs.
Asia TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$126.0$150.0$395.5$439.8
Operating Income3.55.519.616.9
Margin2.8%3.7%5.0%3.8%
Tire unit volume in 2000's third quarter was down 7 percent from 1999 to 3 million units, and 1 percent to 9.1 million units for the first nine months. Both 2000 periods reflect the exclusion of replacement market sales that were transferred to the company's Japanese joint venture with Sumitomo Rubber Industries, as well as stronger original equipment sales. Sales revenue decreased as a result of the lower volume, competitive pricing, a less- favorable product mix and currency movements.
Operating income decreased in the quarter primarily because of the lower volume, competitive pricing and the change in product mix. For the nine months, operating income increased due to a one-time operating charge in 1999's third quarter. Both periods were impacted by high raw material and energy costs as well as competitive pricing.
Engineered ProductsThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$276.1$297.9$890.1$935.3
Operating Income0.88.945.060.2
Margin0.3%3.0%5.1%6.4%
Sales revenue in 2000's third quarter and first nine months decreased primarily because of the company's exit from the interior trim business as well as reduced demand for conveyor belting by the mining and agriculture industries and for hose and power transmission products in the North American replacement market. Operating income decreased in both periods as a result of lower volume, competitive pricing conditions, higher raw material costs and reduced capacity utilization.
Chemical ProductsThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$272.4$231.5$834.0$683.1
Operating Income6.236.552.795.4
Margin2.3%15.8%6.3%14.0%
Sales revenue increased in 2000's third quarter and first nine months due to price increases and higher volume. Operating income decreased in both periods primarily due to increased raw material and energy costs and the inability to recover cost increases due to competitive pricing conditions. Goodyear will hold an investor conference call at 11 a.m. ET today. Shareholders, members of the media and other interested persons may access the conference call on the Internet at or via telephone by calling 800-289-0436 before 10:55 a.m. A taped replay of the conference call will be available at 3 p.m. ET by calling 888-203-1112 and entering access code number 614373.
Goodyear is the world's largest tire company. Headquartered in Akron, Ohio, the company manufactures tires, engineered rubber products and chemicals in more than 90 facilities in 27 countries. It has marketing operations in almost every country around the world. Goodyear, with the addition of its Dunlop tire joint ventures, employs more than 105,000 people worldwide.
The 2000 results include after-tax rationalization charges of $1.2 million (1 cent per share) related to closing a manufacturing facility in Italy and a gain of $3.2 million (2 cents per share) resulting from a property sale in Mexico. Last year's results include various adjustments, most notably an after-tax gain of $143.7 million (90 cents per share) resulting from the completion of the company's Dunlop joint ventures in September 1999. All per share amounts are diluted.
Third quarter results reflect rapidly escalating costs for raw materials and energy, incremental costs associated with ongoing manufacturing restructuring in Europe, the further deterioration of the euro's value versus the U.S. dollar, competitive market conditions around the world and reduced original equipment tire shipments in North America resulting primarily from production cutbacks by automobile and commercial truck manufacturers.
"High raw material costs, especially those for oil-derived products, remain a major factor in our results," said Samir G. Gibara, chairman and chief executive officer. "Third quarter 2000 earnings were approximately 40 cents per share lower than they would have been if these costs had remained at 1999 levels. Energy costs are about double what they were last year," he said.
"Despite very challenging industry and marketplace conditions, Goodyear is seeing benefits from our Dunlop joint ventures, cost reduction efforts, our recent new product introductions and heightened consumer awareness of tire quality due to the Bridgestone/Firestone recall," Gibara added.
In response to these difficult industry-wide conditions, Gibara noted Goodyear has reduced production in certain markets to better align inventory levels with demand, curtailed discretionary expenditures and implemented several initiatives to increase sales revenue and margins.
"We are advancing efforts to streamline our global manufacturing operations; moving some production out of the United Kingdom, which has been severely impacted by the weak euro; and -- through our innovative agreement with Phoenix -- adding access to European hose manufacturing capacity with no investment," he said. "Additionally, our businesses around the world are moving aggressively to implement the price increases required to offset the sudden surge in raw material and energy costs," he said.
"It is too early to measure the full impact the Bridgestone/Firestone tire recall will have on Goodyear or the industry, both in the original equipment and replacement markets," Gibara said. "However, consumers are showing more interest in safety and brand quality than price. This clearly benefits Goodyear. We have a unique opportunity to achieve market share gains that can be sustainable and profitable. We intend to maximize this opportunity."
Goodyear's North American Tire business has shipped more than 2.5 million tires of the size and type being used to replace the 6.5 million recalled Firestone tires. Goodyear is producing more than 28,000 tires a day to serve as replacements for those recalled.
"Consumer reaction to the recall has been felt throughout the Goodyear consumer tire line," Gibara said. "Despite a general softening in the marketplace, Goodyear-brand replacement tire shipments grew at a pace more than four times the industry average in September. Our objective is for these consumers to remain Goodyear customers."
Worldwide, Goodyear's third quarter sales were $3.5 billion in 2000, versus $3.3 billion in 1999. The Dunlop operations contributed $540 million in sales in 2000's third quarter and $232 million in September 1999. The company estimates that the negative effect of currency movements reduced consolidated sales by approximately $135 million in the quarter.
Tire unit volume in 2000's third quarter was 56.9 million units, up 4.6 million units or 8.7 percent from last year, reflecting the addition of 9.4 million units from the company's Dunlop operations. Volume for the 1999 third quarter included 4.1 million units shipped in September by Dunlop.
Sales for the first nine months of 2000 were $10.5 billion compared with $9.3 billion in 1999. The Dunlop businesses contributed $1.7 billion in sales during the 2000 nine-month period. The company estimates that the negative effect of currency movements reduced consolidated sales by approximately $265 million in the nine months. Tire unit volume was 167.6 million units, up 22.9 million units or 15.8 percent in the nine-month period. The Dunlop operation shipped 28.1 million units during the nine months.
Net income for the first nine months of 2000 was $116.7 million (74 cents per share). This includes after-tax net rationalization charges of $6.4 million (4 cents per share). The 1999 period's net income of $200.3 million ($1.26 per share) included net after-tax rationalization charges of $125.7 million (80 cents per share). The company estimates that the negative effect of currency movements reduced operating income by approximately $47 million in 2000's nine-month period.
Capital expenditures in the 2000's third quarter were $144.4 million compared with $206.6 million in the 1999 period. For the nine months, capital expenditures were $411.1 million in 2000 and $560 million in 1999.
Depreciation and amortization expense in 2000's third quarter was $155.5 million compared with $146.2 million in the 1999 period. For the nine- month period, depreciation and amortization expense was $475.7 million in 2000 and $411.6 million in 1999.
Interest expense increased 59.5 percent in the 2000 quarter and 66.6 percent in the nine months due to higher debt levels incurred primarily to fund the acquisition of the Dunlop operations and higher interest rates. "Our businesses are quickly implementing plans to increase margins," Gibara said. "Price increases around the globe are a key part of this effort. Economic and marketplace conditions, however, will make it difficult to realize bottom-line improvement in the fourth quarter.
"Our 2001 results should reflect the benefits of the price increases announced this year, market share gains in both the original equipment and replacement markets, improved manufacturing efficiencies resulting from restructuring and stabilizing raw material costs with some continued weakness in the commercial truck tire market."
Business Segments
Third quarter segment operating income was $83.9 million in 2000 and $10.6 million in 1999. For the first nine months, segment operating income was $487.0 million in 2000 and $396.1 million in 1999. Segment operating income does not reflect the rationalization charges and certain other items in 2000 and 1999.
North American Tire Third Quarter Nine Months
(in millions of dollars) 2000 1999 2000 1999
Sales $1,745.3 $1,622.5 $5,075.6 $4,709.4
Operating Income (Loss) 32.0 (108.6) 172.6 7.4
Margin 1.8% (6.7)% 3.4% 0.2%
Tire unit volume in 2000's third quarter was up 4.3 percent from 1999 to 29.5 million units, and 7.1 percent to 86.8 million units for the first nine months principally due to the addition of the Dunlop operations. In 2000, the Dunlop businesses sold 3.3 million units in the third quarter and 9.3 million units in the nine months. Dunlop sold 1 million units in September 1999. Replacement market volumes increased, while shipments to original equipment automobile and commercial truck customers were down during the third quarter. For the nine months, volumes in both replacement and original equipment markets are above 1999 levels. Third quarter 2000 shipments to original equipment customers fell approximately 7 percent from last year and 20 percent from second quarter 2000 levels.
Sales revenue increased in both periods due to the higher unit volume, however, competitive pricing had an adverse impact on sales in both periods.
Operating income increased in both periods as a result of the volume contributed by the Dunlop businesses. Income, however, was negatively impacted by higher costs for raw materials and energy and production cutbacks to better align inventory levels with demand. Operating income in 1999's third quarter included one-time charges primarily related to inventory write- offs associated with a market distribution strategy realignment.
European Union TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$731.2$661.5$2,351.8 $1,635.8
Operating Income12.342.795.8123.3
Margin1.7%6.5%4.1%7.5%
Tire unit volume in 2000's third quarter was up 24.9 percent from 1999 to 14.9 million units, and 50.7 percent to 45.3 million units for the first nine months due to the addition of the Dunlop operations. The Dunlop businesses sold 6.1 million units in the third quarter of 2000 and 18.7 million units in the nine months. In September 1999, Dunlop sold 3 million units. Substantial volume growth was achieved in both replacement and original equipment markets because of the additional Dunlop business.
Sales revenue in both periods also increased due to the additional Dunlop businesses, but was negatively impacted by the continuing decreased value of the euro versus the U.S. dollar and British pound; competitive pricing, especially in Germany and the United Kingdom; lower volume in some market segments; and an adverse change in product mix. The euro's value versus the U.S. dollar has fallen 13 percent this year. The company estimates that the effects of currency movements reduced sales by approximately $90 million in the quarter and $180 million in the nine months.
Operating income decreased in both the quarter and nine months due to increasing costs for raw materials, competitive pricing conditions in the region, manufacturing inefficiencies resulting from the ongoing transfer of production from the United Kingdom to the European continent, costs associated with closing a plant in Italy and the negative impact of currency movements. The company estimates that the effects of currency movements reduced operating income by approximately $10 million in the quarter and $39 million in the nine months. Synergies from the Dunlop joint ventures are being achieved ahead of schedule.
Eastern Europe, Africa,Third QuarterNine Months
Middle East Tire
(in millions of dollars)2000199920001999
Sales$211.1$212.3$588.0$582.8
Operating Income19.013.146.434.3
Margin9.0%6.2%7.9%5.9%
Tire unit volume in 2000's third quarter was up 2.4 percent from 1999 to 4.5 million units, and 4.1 percent to 11.7 million units for the first nine months. Third quarter sales revenue fell slightly as a result of a downturn in the replacement market and currency movements. For the nine months, however, sales revenue increased as a result of improving economic conditions in the region. The company estimates that currency movements negatively impacted sales by approximately $25 million in the quarter and $50 million in the nine months.
Operating income increased in both periods primarily as a result of increased factory utilization levels and improving market conditions. Additionally, the 2000 nine-month period was negatively impacted by an industry-wide strike in Turkey.
Latin American TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$258.2$234.7$771.3$694.5
Operating Income10.112.554.958.6
Margin3.9%5.3%7.1%8.4%
Tire unit volume in 2000's third quarter was up 10.4 percent from 1999 to 5 million units, and 10.9 percent to 14.7 million units for the first nine months. Substantial growth was achieved in the original equipment market in both periods. Replacement market volume was down for the quarter but up for the nine months. Sales revenue in both periods was up as a result of the higher volume, but negatively impacted by competitive pricing, ongoing weak economic conditions and currency movements. Operating income fell in both periods because of higher raw material costs, manufacturing inefficiencies and labor costs.
Asia TireThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$126.0$150.0$395.5$439.8
Operating Income3.55.519.616.9
Margin2.8%3.7%5.0%3.8%
Tire unit volume in 2000's third quarter was down 7 percent from 1999 to 3 million units, and 1 percent to 9.1 million units for the first nine months. Both 2000 periods reflect the exclusion of replacement market sales that were transferred to the company's Japanese joint venture with Sumitomo Rubber Industries, as well as stronger original equipment sales. Sales revenue decreased as a result of the lower volume, competitive pricing, a less- favorable product mix and currency movements.
Operating income decreased in the quarter primarily because of the lower volume, competitive pricing and the change in product mix. For the nine months, operating income increased due to a one-time operating charge in 1999's third quarter. Both periods were impacted by high raw material and energy costs as well as competitive pricing.
Engineered ProductsThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$276.1$297.9$890.1$935.3
Operating Income0.88.945.060.2
Margin0.3%3.0%5.1%6.4%
Sales revenue in 2000's third quarter and first nine months decreased primarily because of the company's exit from the interior trim business as well as reduced demand for conveyor belting by the mining and agriculture industries and for hose and power transmission products in the North American replacement market. Operating income decreased in both periods as a result of lower volume, competitive pricing conditions, higher raw material costs and reduced capacity utilization.
Chemical ProductsThird QuarterNine Months
(in millions of dollars)2000199920001999
Sales$272.4$231.5$834.0$683.1
Operating Income6.236.552.795.4
Margin2.3%15.8%6.3%14.0%
Sales revenue increased in 2000's third quarter and first nine months due to price increases and higher volume. Operating income decreased in both periods primarily due to increased raw material and energy costs and the inability to recover cost increases due to competitive pricing conditions. Goodyear will hold an investor conference call at 11 a.m. ET today. Shareholders, members of the media and other interested persons may access the conference call on the Internet at or via telephone by calling 800-289-0436 before 10:55 a.m. A taped replay of the conference call will be available at 3 p.m. ET by calling 888-203-1112 and entering access code number 614373.
Goodyear is the world's largest tire company. Headquartered in Akron, Ohio, the company manufactures tires, engineered rubber products and chemicals in more than 90 facilities in 27 countries. It has marketing operations in almost every country around the world. Goodyear, with the addition of its Dunlop tire joint ventures, employs more than 105,000 people worldwide.
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