Goodyear Tire Conference Call Highlights
The Goodyear Tire & Rubber Company (NASDAQ: GT) reported its third quarter earnings. Shares of the company are up 5 percent.
Below are some key highlights and takeaways from its conference call.
• Record third quarter segment operating income of $520 million.
• Segment operating margin of more than 11%, the best in more than a decade.
• Segment operating margins of greater than 10% in all four of our businesses.
• An all-time record quarter for North America, with earnings up 30% year-over-year.
• Europe, Middle East and Africa back on track with a 57% improvement in segment operating income.
• Strong EPS quarter.
• We will achieve a fourth straight year of more than $1.2 billion in earnings, something never before accomplished.
• That focus led our North America business to deliver record segment operating income of $210 million, a second straight quarter of more than 10% operating margin
• Improved price/mix versus raw materials compared to the second quarter.
• This strong demand validates our strategy and the value of our brand, as consumers continue to seek out and prefer our tires.
• In North America, the unusually high inventory levels of Chinese imports will likely have a negative impact on overall industry growth for at least the next 12 months.
• For 2014 specifically, we expect earnings growth near the high-end of our range.
• I'm extremely proud of our teams and our achievements. Our results are evidence that we have the right strategy in place and we will not be deterred by volatility in any of our markets.
• We plan to repurchase up to $150 million of our common stock in the fourth quarter. We're creating sustainable long-term value now and are confident in our ability to meet the challenges ahead, and continue to deliver outstanding results.
Financials:
• We are very pleased with our strong third quarter earnings performance.
• Segment operating income for the quarter increased to a record $520 million; a 21% increase over last year, bringing the year-to-date growth to 17%.
• Unit volume in the quarter decreased 2%. Replacement volumes were down 1%, primarily driven by North America, as Rich just explained.
• Original equipment volumes were down 3%, primarily driven by Brazil, where the recessionary economy continues to negatively affect OEM production.
• For the quarter, net sales were down $345 million.
• Third quarter sales decreased by $137 million because of foreign currency translation; and $72 million from lower volumes.
• Our gross margin was 24.5.
• In the quarter, we achieved a record $520 million in segment operating income and 11.2% in SOI margin.
• Each of our four business units posted margins exceeding 10%.
• This is the first time in at least 15 years that we have achieved these margins.
• Our third quarter operating tax rate, as a percentage of foreign segment operating income, was 18%; lower than prior guidance, due to better than expected profitability in lower tax countries.
• Our earnings per share on a diluted basis for the quarter was $0.58.
• Our adjusted earnings per diluted share was $0.87.
• The impact from lower sales volumes was nearly offset by the benefit of higher second quarter production levels in Europe, Middle East and Africa, resulting in a $2 million net year-over-year change.
• Price/mix, net of raw materials, accounted for a net unfavorable impact of $14 million.
• The continued weakness in the off-the-road business once again fully explains the decline year-over-year.
• Raw materials declined 6% during the quarter.
• Strong cost savings of $135 million.
International:
• In the third quarter, North America reported an all-time record segment operating income of $210 million and achieved an operating margin of greater than 10% for the second quarter in a row.
• The team in North America delivered a positive price/mix, net of raw material cost, of approximately $22 million despite industry market disruptions.
• Manufacturing costs were reduced by $32 million.
• Turning to Europe, Middle East and Africa. We delivered segment operating income of $181 million in the third quarter; an improvement of 57% over last year's $115 million.
• Turning to Latin America, segment operating income was $49 million for the quarter, $40 million less than the prior year.
• Our Asia Pacific business reported segment operating income of $80 million for the quarter, a $14 million increase year-on-year.
• Unit volumes of $6 million in Asia Pacific were about 7% higher than a year ago.
Guidance:
• We now expect growth in our segment operating income for the full year 2014 to be near the high-end of our targeted 10% to 15% range.
• And we also expect tire unit volume will be flat to up 1%.
• Our target to grow segment operating income 10% to 15% each year to 2016 remain unchanged.
• We see volume growth of 1% to 2% next year and positive price/mix versus raw materials of about $50 million to $100 million.
• We expect raw materials to remain at current spot rates or to decline slightly.
• We expect another solid year of operational excellence savings.
• Our earnings growth is supported by our investments in CapEx.
• In 2015, we expect our CapEx to be about $1.2 billion, consistent with our previously announced capital allocation plan.
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