Goodyear reports First Quarter results, reaffirms targets

• Record first quarter Segment Operating Income of $373 million, up 24%
• Record North America first quarter earnings of $156 million, up 23%
• Europe, Middle East and Africa earnings of $110 million, up $79 million
• Venezuelan foreign currency charge drives Net Loss
• Company begins share repurchase program, buys 850,000 shares in first quarter
• Company reaffirms 2014-2016 financial targets

The Goodyear Tire & Rubber Company today reported higher Segment Operating Income for the first quarter of 2014 compared to the year-ago quarter.

“Our Segment Operating Income growth demonstrates our strategy is working and continues to deliver sustainable results. Despite the Venezuelan charge in the quarter, our operating results remained strong and in line with our expectations and we are reaffirming our 2014-2016 financial targets,” said Richard J. Kramer, chairman and chief executive officer.

“We delivered solid performance in our developed markets, led by North America, which reported a 23 percent increase in earnings. Growth in North America and Europe offset headwinds in emerging markets where we continue to navigate foreign currency and economic challenges,” he said.

Goodyear’s first quarter 2014 sales were $4.5 billion, compared to $4.9 billion a year ago. First quarter 2014 sales reflect $202 million in lower sales in other tire related businesses, most notably third party chemical sales in North America; $126 million in unfavorable foreign currency translation; and $98 million in lower price/mix, principally due to lower raw material costs, partially offset by $44 million in higher tire unit volumes.

Tire unit volumes totaled 40 million, up 1 percent from 2013. Original equipment unit volume was down 2 percent. Replacement tire shipments were up 3 percent.

“We remain confident in our full-year expectation of 2 percent to 3 percent year-over-year volume growth, despite the negative impact of severe January winter weather in North America and labor and economic disruptions in Venezuela during the quarter,” Kramer said.

Goodyear’s first quarter 2014 Net Loss Available to Common Shareholders was $58 million (23 cents per share), driven by a $132 million after-tax foreign currency exchange charge in Venezuela. Goodyear Net Income Available to Common Shareholders in the 2013 first quarter was $26 million (10 cents per share). All per share amounts are presented on a fully diluted GAAP basis.

The company reported record Segment Operating Income of $373 million in the first quarter of 2014. This was up 24 percent from the year-ago quarter, reflecting $111 million in cost savings that more than offset inflation of $75 million, lower unabsorbed overhead of $48 million due to higher production levels and favorable price/mix net of raw materials of $17 million (excluding raw material cost savings). These were partially offset by $22 million of increased SAG expense and $16 million in unfavorable foreign currency translation.

Consistent with historical seasonal trends, the company used cash in the first quarter. This use of cash was due to the normal timing of collections in Europe as well as higher inventory levels in North America to support sales growth in the second quarter. As a result, Free Cash Flow from Operations was a use of $513 million for the first quarter of 2014.

See the note at the end of this release for further explanation and reconciliation tables for Segment Operating Income; Free Cash Flow from Operations; and Adjusted Net Income (Loss) and Adjusted Diluted Earnings per Share, reflecting the impact of certain significant items and the April 1, 2014 conversion of the company’s mandatory convertible preferred stock.

First Quarter Business Segment Results

North America’s first quarter 2014 sales decreased 13 percent from last year to $1.9 billion. Sales reflect a 1 percent decrease in tire unit volume, mainly related to adverse winter weather conditions; lower price/mix; and a $201 million decline in sales in other tire-related businesses, most notably third-party chemical sales. Original equipment unit volume was down 5 percent. Replacement tire volume remained flat.

First quarter Operating Income of $156 million was a 23 percent improvement over the prior year and a first quarter record. Operating income was positively impacted by lower conversion costs of $47 million and favorable price/mix net of raw materials of $3 million. These were partially offset by $9 million in higher transportation costs, $5 million in increased SAG expenses and $4 million resulting from lower tire unit volume.

Europe, Middle East and Africa’s first quarter sales increased 4 percent from last year to $1.7 billion. Sales reflect a 7 percent increase in tire unit volume and favorable foreign currency translation of $20 million, which were partially offset by lower price/mix. Original equipment unit volume was up 11 percent. Replacement tire shipments were up 6 percent.

First quarter Operating Income of $110 million was a $79 million improvement over the prior year. Favorable price/mix net of raw materials of $39 million, lower unabsorbed overhead of $35 million due to higher production levels and higher tire unit volumes of $19 million positively impacted Operating Income.

Latin America’s first quarter sales decreased 18 percent from last year to $422 million. Sales reflect $93 million in unfavorable foreign currency translation and an 11 percent decrease in tire unit volume. Original equipment unit volume decreased 30 percent, due primarily to lower consumer vehicle production. Replacement tire shipments were down 2 percent, driven by lower volume in Venezuela.

First quarter Operating Income of $42 million was down 30 percent from a year ago. Price/mix improvements of $20 million and lower raw material costs of $14 million benefited Operating Income. It was negatively impacted by lower tire volume of $14 million; increased SAG expense of $12 million; higher conversion costs of $12 million, due primarily to labor disruptions that reduced production levels in Venezuela; $8 million in unfavorable currency translation; and higher factory start-up costs of $4 million.

The company expects that the impact of changes in the foreign exchange rate used to remeasure its financial statements, government price and profit margin controls and labor issues in Venezuela will negatively impact full-year 2014 Segment Operating Income by $40 million to $60 million.

Asia Pacific’s first quarter sales decreased 13 percent from last year to $492 million. Sales reflect a 2 percent increase in tire unit volume, which was more than offset by reduced price/mix, $41 million in unfavorable foreign currency translation and $6 million in lower sales in other tire-related businesses. Original equipment unit volume remained flat. Replacement tire shipments were up 3 percent.

First quarter Operating Income of $65 million was down 23 percent from last year. Lower factory start-up costs of $11 million positively impacted Operating Income. It was offset by $8 million in unfavorable foreign currency translation; $7 million in higher SAG expense, $7 million in lower insurance recoveries and $2 million in unfavorable price/mix net of raw materials.

Outlook

The company reaffirmed its 2014-2016 financial targets, which include:
– Segment Operating Income growth of between 10 percent and 15 percent per year,
– Annual positive Free Cash Flow from Operations and,
– An Adjusted Debt to EBITDAP ratio of 2.5x.
Additionally, the company continues to expect a 2 percent to 3 percent increase in unit volumes for 2014 over 2013.