The Goodyear Tire & Rubber Company today reported a net loss of $73.6 million U.S. (42 cents per share) for the second quarter of 2003, compared with net income of $28.9 million U.S. (18 cents per share) in the second quarter of 2002.
All per share amounts are diluted. All figures are in U.S. dollars. The company reported second quarter sales of $3.8 billion for 2003, up 8% from $3.5 billion during the prior-year period. Tire unit volume in the second quarter of 2003 was 52.8 million units, compared to 53.3 million units in the 2002 period.
“We are disappointed in our financial results for the second quarter, but we are encouraged by the numerous positive trends in our company and we are optimistic about our turnaround,” said Robert J. Keegan, Goodyear chairman and chief executive officer. “Our international tire businesses, as well as our Engineered Products (the belts and hoses business–ed), and Chemicals units, continue to perform well, and five of our businesses have recorded improved year-over-year segment operating income for five consecutive quarters,” Keegan said. “In North America, our Goodyear brand gained market share in both the consumer and commercial replacement tire markets during the quarter, and we continue to implement our cost-cutting and turnaround strategies,” he said. “We have numerous obstacles to overcome, including continued weakness in the U.S. economy, but we remain confident that our strategies are solid.”
The 2003 second quarter included an after-tax rationalization charge of $13.4 million (8 cents per share) for salaried staff reductions and manufacturing consolidations in North America, Europe, Latin America and Asia, and an after-tax loss of $7 million (4 cents per share) on asset sales.
The single most important factor in the deterioration of operating performance was an increase in raw material costs of approximately $124 million, offset in part by cost reduction actions, improved price and mix and an estimated currency translation benefit of approximately $9 million. Second quarter sales were favorably impacted by the effects of currency translation, estimated at $169 million, and improved brand, customer and product mix. Depreciation and amortization expense was $153.8 million in the second quarter of 2003, versus $155.4 million in 2002. Capital expenditures were $87.2 million in the second quarter of 2003 and $97.1 million for the second quarter of 2002.
Goodyear increased its reserve for general and product liability- discontinued products by $90 million during the second quarter. The company also recorded a receivable of $101.8 million, primarily from its excess liability insurance carriers, related to general and product liability claims.
These items resulted in a net gain for the period of $11.8 million, which was recorded in the Consolidated Income Statement in Other (Income) and Expense.
Goodyear and the United Steelworkers of America have agreed to resume negotiations next week in Cincinnati on a master contract agreement covering approximately 16,000 associates at 14 facilities.
The company’s net loss for the first six months of 2003 was $236.9 million ($1.35 per share). For the first six months of 2002, the company recorded a net loss of $34.3 million (21 cents per share). First half 2003 results include an after-tax rationalization charge of $78.6 million (45 cents per share) as a result of salaried staff reductions and manufacturing consolidations in North America, Europe, Latin America and Asia. First half 2002 results included a segment operating income benefit of approximately $10 million resulting from the company’s participation in the Ford Motor Co. tire replacement program. The results also included a charge of $10 million principally related to the return of inventory resulting from the April 2002 closure of Penske Automotive Centers in the United States. Sales for the first six months of 2003 were $7.3 billion, an increase of 7.6% compared to $6.8 billion in 2002.
Tire unit volume was 105.4 million units, compared to 106.3 million units in the 2002 period. Tire price improvements had a favourable impact on sales for the first six months. The company estimates the effects of currency movements had a positive impact on sales of approximately $308 million during the first half, and a negligible impact on first-half losses. Higher raw material costs of approximately $186 million had a significant impact on the operating loss for the first half. Global capital expenditures for the six months were $177.3 million, compared to $172.9 million in 2002.
Depreciation and amortization expense was $301.7 million in the first half of 2003 and $302.2 million in 2002. Business Segments Second quarter total operating income from the company’s business segments was $160.8 million, compared to $168.5 million in the 2002 period. Total segment operating income for the first half of 2003 was $228.8 million, an increase of 13.6% from $201.4 million in the 2002 period. The loss before taxes was $51.7 million in the second quarter, compared to income of $49.2 million in 2002. The loss before taxes was $186.7 million in the first half of 2003, compared to a loss of $36.4 million in the 2002 period. See the note at the end of this release for further explanation and a reconciliation table.
North American Tire’s unit volume decreased 4.1% in the second quarter of 2003, and 4.7% for the first six months. Replacement volume was down 2.4% in the quarter and 4.5% for the first six months, while shipments to original equipment customers decreased 7.2% in the quarter and 5% in the first half compared to the 2002 periods. Compared to 2002, sales declined 0.3% for the 2003 second quarter and 2% for the first six months of the year. The first half of 2003 was negatively affected by lower volume in the replacement market and unfavourable product mix. First half 2002 results included approximately 500 thousand tires supplied by Goodyear for the Ford tire replacement program, with a segment operating income benefit of approximately $10 million. Ford ended the program in March 2002.
Segment operating income in the first six months of 2002 also reflected a charge of $10 million principally related to the return of inventory resulting from the April 2002 closure of Penske Automotive Centers in the United States. During the second quarter and the first half of 2003, cost savings initiatives favourably impacted segment operating results.
These savings were not enough to offset the impact of higher raw material and manufacturing costs, higher benefit costs and unfavourable product mix.
Engineered Products’ sales in the second quarter of 2003 decreased due largely to lower sales of original equipment, replacement and military products, while sales of industrial products increased. Sales increased for the first six months of 2003 primarily as the result of strong sales of replacement and industrial products, which offset lower sales of original equipment products. Currency translation favourably impacted sales in both the quarter and the half. Segment operating income increased in both periods due to lower manufacturing costs, the favourable impact of currency translations and lower raw material costs.