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Goodyear Q1: Sales Down 15% from 2019, Net Loss of $619M

Goodyear’s first quarter 2020 sales were $3.1 billion, down 15% from a year ago, the company recently reported.

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In its first-quarter financial results, Goodyear said the decline was driven by lower industry volume, which was significantly impacted by the COVID-19 pandemic and unfavorable foreign currency translation. These factors were partially offset by improvements in price/mix.

Tire unit volumes totaled 31.3 million, down 18% from the prior year’s period. Replacement tire shipments declined 16%, driven by a severe contraction in industry demand following shelter-in-place mandates and sharp declines in consumer confidence, Goodyear says. Original equipment unit volume decreased 21%, driven by declines in OE demand after global auto manufacturers suspended vehicle production in response to the rapid spread of COVID-19.

Goodyear’s first quarter 2020 net loss was $619 million ($2.65 per share) compared to a net loss of $61 million (26 cents per share) a year ago. The increase in net loss was driven by discrete tax charges, a decline in segment operating income and a non-cash goodwill impairment charge, partially offset by lower rationalization charges, Goodyear says.

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Discrete tax items include a charge of $295 million related to a valuation allowance on certain deferred tax assets for foreign tax credits. The company also recorded a non-cash impairment charge of $182 million to reduce the carrying value of goodwill in its EMEA business unit as a result of weaker industry conditions resulting from the ongoing COVID-19 pandemic.

First-quarter 2020 adjusted net loss was $140 million (60 cents per share), compared to adjusted net income of $45 million (19 cents per share) in 2019. Per-share amounts are diluted.

The company reported a segment operating loss of $47 million in the first quarter of 2020, down $237 million from a year ago. The decline primarily reflects lower volume and lower factory utilization, Goodyear says. Segment operating income includes an unfavorable impact of approximately $65 million due to lower factory utilization and other period costs related to suspending production at its manufacturing facilities.

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“Our first-quarter results were affected significantly by the sharp declines in demand in the wake of the COVID-19 pandemic,” said Richard J. Kramer, chairman, chief executive officer and president. “We are taking necessary measures to ensure the health and safety of our associates and to safeguard our business while continuing to serve our customers and support essential services.”

“While this unprecedented crisis continues to disrupt our business and the broader automotive industry, I am confident we will emerge from this crisis in a strong position,” added Kramer. “We have taken swift actions to aggressively reduce expenses and investment levels, while at the same time continuing to focus on our strategic priorities. I would like to thank all of our associates for their hard work and dedication during this challenging period to ensure we are well-positioned when the economy recovers.”

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COVID-19 and Production

Goodyear says it continues to evaluate its production plans around the world in light of the COVID-19 pandemic. Most of the company’s manufacturing facilities in the Americas and Europe, as well as several of its tire plants in Asia, were closed to protect the safety and well-being of its associates and conserve cash. 

The company plans a phased restart of production during the second quarter, which began earlier this month with some of its commercial truck tire facilities in the U.S. and Europe. The company expects the majority of its manufacturing facilities to resume operations by the end of May. Decisions regarding 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. 

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The company’s plant in Pulandian, China is operating with 100% of its workforce but is not yet operating at full capacity. The facility is expected to continue ramping up production during the second quarter. 

Throughout the COVID-19 pandemic, Goodyear has prioritized the health and well-being of its associates and the communities where it operates. The company is implementing new protocols covering employee screening and other protective measures recommended by the Centers for Disease Control and Prevention to ensure the safety and well-being of its associates as operations gradually resume.

The company says it expects 2020 capital expenditures to be no more than $700 million. The company is also implementing actions to reduce 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.

The company is also accelerating restructuring actions to further improve its cost structure and position the company for recovery, Goodyear says. The company has recently reached a tentative bargaining agreement to permanently close its Gadsden, Alabama manufacturing facility as part of the company’s strategy to strengthen the competitiveness of its manufacturing footprint. The tentative bargaining agreement remains subject to approval by the membership of the local union. The company expects the closure will result in approximately $130 million of annual savings in 2021 when compared with 2019.

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