Goodyear reports fourth quarter, full year results

• Record full-year segment operating income of $1.7 billion 
• Full-year free cash flow from operations of $1.0 billion 
• North America sets earnings records for fourth quarter, full year 
• Completed $150 million in share repurchases in fourth quarter 
• Company releases $2.2 billion U.S. tax valuation allowance, no change to cash taxes 
• Company reaffirms 2015 earnings growth target of 10%-15% above 2014 results

The Goodyear Tire & Rubber Company today reported results for the fourth quarter and full year of 2014.

“We delivered record full-year segment operating income, successfully navigating a challenging global economic environment,” said Richard J. Kramer, chairman and chief executive officer.

“While industry conditions led to mixed results globally, we achieved record fourth quarter segment operating income in North America as well as in Asia Pacific. Our continued performance validates the successful execution of our strategy,” he added.

“The release of our $2.2 billion U.S. tax valuation allowance after 12 years is a major milestone for Goodyear. It marks the completion of the successful turnaround of our North America business,” Kramer said.

The release of the tax valuation allowance represents a one-time, non-cash benefit to earnings in 2014. While the company will record charges for income taxes in future periods, it does not expect to pay cash taxes in the U.S. for approximately five years.

“Led by our momentum in North America, we are on target to achieve 2015 segment operating income growth of 10 percent to 15 percent above our record setting $1.7 billion in 2014, despite severe headwinds from the increasing strength of the U.S. dollar,” Kramer said.

Goodyear’s fourth quarter 2014 sales were $4.4 billion, compared to $4.8 billion a year ago. Sales were impacted by $256 million in unfavorable foreign currency translation and $181 million in lower sales volume in Europe, Middle East and Africa.

Tire unit volumes totaled 39.5 million for the fourth quarter of 2014. Original equipment unit volume was down 1 percent, primarily due to continued industry weakness in Latin America. Replacement tire shipments were down 4 percent, due to lower sales of winter tires in Europe resulting from one of the warmest winters on record.

The company reported segment operating income of $359 million in the fourth quarter of 2014, compared to $419 million a year ago. The decline in segment operating income was driven by reduced price/mix and lower volume, which more than offset the benefits of lower raw material costs and other cost savings actions.

Goodyear’s fourth quarter 2014 net income available to common shareholders was $2.1 billion ($7.68 per share). Excluding certain significant items, adjusted net income was $166 million (59 cents per share).

For the fourth quarter of 2013, net income available to common shareholders was $228 million (84 cents per share). Excluding certain significant items, adjusted net income was $209 million (74 cents per share). Per share amounts are diluted.

Full-Year Results

Goodyear’s 2014 sales were $18.1 billion, compared to $19.5 billion in 2013. Sales were impacted by $571 million in unfavorable foreign currency translation. Tire unit volumes totaled 162 million. Replacement tire shipments were up 1 percent. Original equipment unit volume was down 3 percent.

The company’s segment operating income of $1.7 billion was up 8 percent from last year. Compared to the prior year, the significant increase in segment operating income reflects lower raw material and conversion costs partially offset by lower price/mix and unfavorable foreign currency translation.

Goodyear’s 2014 net income available to common shareholders was $2.4 billion ($8.78 per share). Excluding certain significant items, adjusted net income was $790 million ($2.83 per share).

Net income available to common shareholders was $600 million ($2.28 per share) in 2013. Excluding certain significant items, adjusted net income was $725 million ($2.63 per share). All per share amounts are diluted.

See the note at the end of this release for further explanation and reconciliation tables for Segment Operating Income and Margin; Free Cash Flow from Operations; Adjusted Net Income; and Adjusted Diluted Earnings per Share, reflecting the impact of certain significant items on the 2014 and 2013 periods.

Business Segment Results

North America’s fourth quarter 2014 sales decreased 1 percent from last year to $2.1 billion. Sales reflect a 1 percent decrease in tire unit volume and unfavorable foreign currency translation, partially offset by improved price/mix. Replacement tire shipments were down 1 percent. Original equipment unit volume was flat.

Fourth quarter 2014 segment operating income of $229 million was a 15 percent improvement over the prior year and a record for any quarter. The improvement was driven primarily by lower raw material costs and lower pension expense.

Europe, Middle East and Africa’s fourth quarter sales decreased 20 percent from last year to $1.3 billion. Sales reflect a 12 percent decrease in tire unit volume, unfavorable foreign currency translation and lower price/mix. Replacement tire shipments were down 15 percent, primarily due to lower winter tire sales resulting from one of the warmest winters on record. Original equipment unit volume was down 5 percent.

Fourth quarter 2014 segment operating income of $30 million was 70 percent below the prior year primarily due to reduced price/mix, lower volume and higher marketing expenses, partially offset by lower raw material costs and cost savings actions including savings from the closure of a tire plant in France.

Latin America’s fourth quarter sales decreased 12 percent from last year to $434 million. Sales reflect an 8 percent increase in tire unit volume more than offset by unfavorable foreign currency translation. Replacement tire shipments were up 20 percent. Original equipment unit volume was down 24 percent, primarily in Brazil.

Fourth quarter segment operating income of $20 million was down 62 percent from a year ago primarily due to higher conversion costs, unfavorable foreign currency translation and an unfavorable tax claim.

Asia Pacific’s fourth quarter sales decreased 5 percent from last year to $511 million. Sales reflect a 7 percent increase in tire unit volume, which was more than offset by reduced price/mix and unfavorable foreign currency translation. Replacement tire shipments were flat. Original equipment unit volume was up 15 percent.

Fourth quarter segment operating income of $80 million was up 19 percent from last year and a record, driven by lower raw material costs and higher volume.

Outlook

The company reaffirmed its 2015-2016 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 2.0x to 2.1x.