The Goodyear Tire & Rubber Company announced preliminary results April 16 for the first quarter of 2020 and provided an update on several operational and financial actions that the company has taken in response to the COVID-19 pandemic.
In addition to the update on its operations, the company also announced the successful refinancing of its primary revolving credit facility in the U.S.
Business Update and Preliminary First Quarter Results
The company says its first-quarter results were greatly affected by the economic disruption associated with the COVID-19 pandemic.
Goodyear’s first quarter 2020 sales were approximately $3 billion, down from $3.6 billion a year ago. Tire unit volume totaled approximately 31 million for the first quarter of 2020, down 18% from the prior year. Goodyear says these results reflect significant declines in global OE shipments after auto manufacturers halted production and weak replacement demand following sweeping shelter-in-place mandates.
The company expects to report a loss before income taxes of $185 million to $195 million for the first quarter of 2020 and an adjusted loss before income taxes of $175 million to $185 million, which excludes approximately $10 million of rationalization and accelerated depreciation charges incurred during the quarter. The company’s results include an approximately $65 million unfavorable impact driven by lower factory utilization and other period costs, both directly related to shutting down its manufacturing facilities. The company has not yet calculated its tax rate for the first quarter and, accordingly, is not able to provide its preliminary net loss or loss per share.
Given evolving macroeconomic conditions during the first quarter, Goodyear says the company continues to conduct impairment testing related to the carrying values of certain assets, including goodwill of its Europe, Middle East and Africa business. As a result, the company could record a non-cash impairment charge during the quarter and its reported loss before income taxes could be higher by up to $185 million.
Most of the company’s manufacturing facilities in the Americas and Europe, as well as several of its tire plants in Asia Pacific, remain closed. The company plans a phased restart of production during the second quarter, beginning in April with some of its commercial truck tire facilities in the U.S. and Europe. Decisions to resume production will be based on an evaluation of market demand signals, inventory and supply levels, as well as the company’s ability to safeguard the health of its associates, Goodyear says.
The company’s plant in Pulandian, China is operating with 100% of its workforce and is able to meet customer demand. The facility is expected to continue ramping up production throughout the second quarter.
Operational Response Actions
Goodyear further announced that it is taking swift action to aggressively reduce operating costs and capital expenditures in response to rapid declines in industry volumes. These initiatives follow the company’s previously announced decision to temporarily close its manufacturing facilities in the Americas and Europe, which will reduce conversion costs, improve inventory levels and preserve cash, Goodyear says.
As a result of current conditions, the company expects 2020 capital expenditures to be no more than $700 million. The company is also implementing actions to reduce its payroll costs through a combination of furloughs, temporary salary reductions and salary deferrals covering over 9,000 of its corporate and business unit associates, including substantial salary reductions and deferrals for the company’s CEO, officers and directors. In addition, the company is reducing discretionary spending, including marketing and advertising expenditures. Together, these actions will help to mitigate the financial impact of lower industry demand as a result of COVID-19.
The company is also evaluating opportunities to accelerate restructuring actions to further improve its cost structure and position it for recovery, Goodyear says.
Financial Response Actions
Goodyear says it maintains a strong liquidity position, however, in light of the uncertain environment, it is taking prudent actions to further strengthen its balance sheet and enhance its financial flexibility.
As one step, the company announced that it will temporarily suspend its quarterly dividend, which will preserve approximately $37 million of cash on a quarterly basis. In addition, the company refinanced its $2.0 billion asset-based revolving credit facility, extending the maturity to 2025. The refinancing included favorable adjustments to the calculation of the facility’s borrowing base, further strengthening the company’s liquidity position. The covenants in the amended facility are substantially similar to those in the prior facility, and do not include any financial covenants unless the aggregate amount of cash and cash equivalents of Goodyear and its guarantor subsidiaries and the availability under the facility is less than $200 million.
As of March 31, 2020, and pro forma for the refinancing, the company had total liquidity of approximately $3,600 million, including approximately $970 million of cash and cash equivalents compared to $3,543 million in total liquidity, including $860 million of cash at March 31, 2019. Total debt was approximately $6,500 million and essentially unchanged compared to March 31, 2019.