Goodyear Reports Record Second Quarter Results

- Record second quarter segment operating income of $556 million

- North America earnings of $321 million, up 54% and a record for any quarter

- Segment operating margin of 13%, with 3 of 4 business units above 10%

- Second quarter Goodyear net income of $192 million

- Completed $50 million in share repurchases in second quarter

- Company reaffirms 2015 financial targets

Jul 29, 2015, 08:15 ET from The Goodyear Tire & Rubber Company

AKRON, Ohio, July 29, 2015 /PRNewswire/ -- The Goodyear Tire & Rubber Company (NASDAQ: GT) today reported record results for the second quarter of 2015.

"We delivered outstanding segment operating income growth and achieved a segment operating margin of more than 13 percent, despite significant foreign currency and global economic headwinds," said Richard J. Kramer, chairman and chief executive officer.

"North America continued to lead the way with a 54 percent increase in segment operating income and a 16 percent segment operating margin driven by strong demand for our products," he said. "Additionally, three of our four businesses posted segment operating margins in excess of 10 percent."

Kramer added, "Our strong second quarter results – even amid ongoing global challenges – reflect the strength of our strategy and of our value proposition."

Goodyear's second quarter 2015 sales were $4.2 billion, down from $4.7 billion a year ago, with the decrease largely attributable to unfavorable foreign currency translation of $401 million.

Tire unit volumes totaled 40.8 million for the second quarter of 2015, up 1 percent from last year. Original equipment unit volume was up 4 percent. Replacement tire shipments were down 1 percent.

The company reported second quarter segment operating income of $556 million in 2015, up 21 percent from a year ago and a record for any quarter. The increase in segment operating income was driven by favorable price/mix net of raw materials and cost reduction actions. These were partially offset by inflation and unfavorable foreign currency translation.

Goodyear's second quarter 2015 net income was $192 million (70 cents per share). Excluding certain significant items, adjusted net income was $229 million (84 cents per share). Per share amounts are diluted.

Second quarter 2015 adjusted net income was also impacted by $79 million (29 cents per share) of U.S. tax expense following the release of the company's U.S. tax valuation allowance in the fourth quarter of 2014. Due to tax credits and prior tax-loss carryforwards, the company does not expect to pay significant cash income taxes in the United States for about five years.

Goodyear's second quarter 2014 net income was $213 million (76 cents per share). Excluding certain significant items, adjusted net income was $225 million (80 cents per share). Per share amounts are diluted.

Year to Date

Goodyear's sales for the first six months of 2015 were $8.2 billion, down 10 percent from the 2014 period, reflecting unfavorable foreign currency translation of $794 million. Tire unit volumes totaled 81.6 million for the first half of 2015, up 1 percent from 2014. Replacement tire shipments were up 1 percent. Original equipment unit volume was up 3 percent.

The company's first half segment operating income of $947 million was up 14 percent from last year and a record. Compared to the prior year, year-to-date segment operating income reflects the benefits of favorable price/mix net of raw materials and cost reduction actions, which exceeded the impact of inflation and unfavorable foreign currency translation.

Goodyear's year-to-date net income available to common shareholders of $416 million ($1.52 per share) is up from $155 million (58 cents per share) in 2014's first half. 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 2015 and 2014 periods.

 

Business Segment Results

North America


Second Quarter


Six Months


(in millions)

2015


2014


2015

2014


Tire Units

15.8


15.3


30.6

29.9



Sales

$ 2,026


$ 2,044


$   3,884

$ 3,923



Segment Operating Income 

321


208


519

364



Segment Operating Margin

15.8%


10.2%


13.4%

9.3%



North America's second quarter 2015 sales decreased 1 percent from last year. A 3 percent increase in tire unit volume was more than offset by a decrease in third-party chemical sales. Replacement tire shipments were up 1 percent. Original equipment unit volume was up 9 percent.

Second quarter 2015 segment operating income of $321 million was a 54 percent improvement over the prior year and a record for any quarter. The improvement was driven by favorable price/mix net of raw materials and higher tire volume.

Europe, Middle East and Africa


Second Quarter


Six Months


(in millions)

2015


2014


2015

2014


Tire Units

14.8


15.1


30.7

31.3



Sales

$ 1,265


$ 1,580


$   2,596

$ 3,256



Segment Operating Income 

108


117


181

227



Segment Operating Margin

8.5%


7.4%


7.0%

7.0%



Europe, Middle East and Africa's second quarter sales decreased 20 percent from last year to $1.3 billion, primarily due to unfavorable foreign currency translation. Sales also reflect a 2 percent decrease in tire unit volume, due to lower consumer tire sales and the company's exit from the farm tire business. Replacement tire shipments were down 2 percent. Original equipment unit volume was down 2 percent.

Second quarter 2015 segment operating income of $108 million was 8 percent below the prior year due to unfavorable foreign currency translation, which more than offset favorable price/mix net of raw materials.

 

Asia Pacific


Second Quarter


Six Months


(in millions)

2015


2014


2015

2014


Tire Units

6.0


5.8


11.7

11.0



Sales

$ 491


$ 543


$   941

$ 1,035



Segment Operating Income 

84


76


151

141



Segment Operating Margin

17.1%


14.0%


16.0%

13.6%



While Asia Pacific's second quarter tire unit volumes increased 5 percent, sales decreased 10 percent as volume growth was more than offset by unfavorable foreign currency translation and lower price/mix resulting from the impact of lower raw material costs on pricing. Replacement tire shipments were up 1 percent. Original equipment unit volume was up 11 percent, primarily in China and India.  

Second quarter 2015 segment operating income of $84 million was up 11 percent from last year, primarily driven by improved volume and favorable price/mix net of raw materials, partially offset by higher SAG expenses.

Latin America


Second Quarter


Six Months


(in millions)

2015


2014


2015

2014


Tire Units

4.2


4.4


8.6

8.4



Sales

$ 390


$ 489


$   775

$ 911



Segment Operating Income 

43


59


96

101



Segment Operating Margin

11.0%


12.1%


12.4%

11.1%



Latin America's second quarter sales decreased 20 percent from last year to $390 million, due primarily to unfavorable foreign currency translation. Sales also reflect a 4 percent decrease in tire unit volume, primarily driven by a weak economy in Brazil and Venezuela. Replacement tire shipments were down 2 percent. Original equipment unit volume was down 11 percent.

Second quarter segment operating income of $43 million was down 27 percent from a year ago primarily due to the impact of inflation on both raw material and conversion costs as well as lower volume, partially offset by favorable price/mix.

Operating income in Venezuela was $36 million, up $17 million from 2014's second quarter. This operating income excludes foreign currency exchange losses related to the Venezuelan bolivar fuerte, which were $12 million in the quarter and represented a $19 million greater loss versus the second quarter of 2014. The company previously indicated that it expected no earnings contribution from its Venezuelan operations in the second quarter.

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.

Shareholder Return Program

The company paid a quarterly dividend of 6 cents per share of common stock on June 1, 2015. The Board of Directors has declared a quarterly dividend of 6 cents per share payable September 1, 2015, to shareholders of record on July 31, 2015.

As a part of its previously announced $450 million share repurchase program, the company repurchased 1.6 million shares of its common stock for $50 million during the second quarter.

Conference Call

Goodyear will hold an investor conference call at 9 a.m. today. Prior to the commencement of the call, the company will post the financial and other related information that will be presented on its investor relations Web site: http://investor.goodyear.com.

Participating in the conference call will be Richard J. Kramer, chairman and chief executive officer, and Laura K. Thompson, executive vice president and chief financial officer. 

Investors, members of the media and other interested persons can access the conference call on the Web site or via telephone by calling either 800-895-1085 or 785-424-1055 before 8:55 a.m. and providing the Conference ID "Goodyear." A taped replay will be available by calling 800-723-5759 or 402-220-2662. The replay will also remain available on the Web site.

Goodyear is one of the world's largest tire companies. It employs about 67,000 people and manufactures its products in 50 facilities in 22 countries around the world. Its two Innovation Centers in Akron, Ohio and Colmar-Berg, Luxembourg strive to develop state-of-the-art products and services that set the technology and performance standard for the industry. For more information about Goodyear and its products, go to www.goodyear.com/corporate.  GT-FN

Certain information contained in this press release constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors, many of which are beyond our control, that affect our operations, performance, business strategy and results and could cause our actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to: our ability to implement successfully our strategic initiatives; actions and initiatives taken by both current and potential competitors; foreign currency translation and transaction risks; increases in the prices paid for raw materials and energy; a labor strike, work stoppage or other similar event; deteriorating economic conditions or an inability to access capital markets; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; the adequacy of our capital expenditures; our failure to comply with a material covenant in our debt obligations; potential adverse consequences of litigation involving the company; as well as the effects of more general factors such as changes in general market, economic or political conditions or in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

(financial statements follow)

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Statements of Operations (unaudited)






Three Months Ended


Six Months

Ended


June 30,


June 30,

(In millions, except per share amounts)

2015

2014


2015

2014







NET SALES

$ 4,172

$ 4,656


$ 8,196

$ 9,125







Cost of Goods Sold

3,027

3,532


6,093

7,050

Selling, Administrative and General Expense

648

698


1,256

1,356

Rationalizations

46

24


62

65

Interest Expense

106

102


209

207

Other (Income) Expense

17

8


(111)

176







Income before Income Taxes

328

292


687

262

United States and Foreign Taxes

120

60


243

68







Net Income

208

232


444

194

     Less:  Minority Shareholders' Net Income

16

19


28

32







Goodyear Net Income

192

213


416

162

Less:  Preferred Stock Dividends

--

--


--

7

Goodyear Net Income Available to
   Common Shareholders

$       192

$       213


$       416

$       155







Goodyear Net Income Available to
   Common Shareholders- Per Share of
   Common Stock












   Basic

$      0.71

$      0.77


$       1.54

$       0.59







   Weighted Average Shares Outstanding

270

276


270

262







   Diluted

$      0.70

$      0.76


$       1.52

$       0.58







   Weighted Average Shares Outstanding

274

281


274

281







Cash Dividends Declared Per Common Share

$      0.06

$      0.05


$       0.12

$       0.10








 

 

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Balance Sheets (unaudited)




(In millions, except share data) 

June 30,

December 31,


2015

2014

Assets:



Current Assets:



  Cash and Cash Equivalents

$     1,638

$     2,161

  Accounts Receivable, less Allowance - $97 ($89 in 2014)

2,476

2,126

  Inventories:



     Raw Materials

488

535

     Work in Process

144

149

     Finished Products

1,913

1,987


2,545

2,671

  Deferred Income Taxes

579

570

  Assets Held For Sale

218

--

  Prepaid Expenses and Other Current Assets

239

196

     Total Current Assets

7,695

7,724

Goodwill

563

601

Intangible Assets

132

138

Deferred Income Taxes

1,572

1,762

Other Assets

744

731

Property, Plant and Equipment

  less Accumulated Depreciation - $8,733 ($9,029 in 2014)

6,810

7,153

    Total Assets

$   17,516

$   18,109




Liabilities:



Current Liabilities:



  Accounts Payable-Trade

$     2,602

$     2,878

  Compensation and Benefits

675

724

  Liabilities Held For Sale

203

--

  Other Current Liabilities

904

956

  Notes Payable and Overdrafts

36

30

  Long Term Debt and Capital Leases due Within One Year

321

148

    Total Current Liabilities

4,741

4,736

Long Term Debt and Capital Leases

5,746

6,216

Compensation and Benefits

1,452

1,676

Deferred and Other Noncurrent Income Taxes

186

181

Other Long Term Liabilities

626

873

    Total Liabilities

12,751

13,682




Commitments and Contingent Liabilities



Minority Shareholders' Equity

569

582




Shareholders' Equity:



Goodyear Shareholders' Equity:



Common Stock, no par value:



Authorized, 450 million shares, Outstanding shares – 269 million (269 million in 2014) after deducting 9 million treasury shares (9 million in 2014)

269

269

Capital Surplus

3,117

3,141

Retained Earnings

4,727

4,343

Accumulated Other Comprehensive Loss

(4,143)

(4,143)

   Goodyear Shareholders' Equity

3,970

3,610

Minority Shareholders' Equity – Nonredeemable

226

235

   Total Shareholders' Equity

4,196

3,845

   Total Liabilities and Shareholders' Equity

$   17,516

$   18,109




 

 

 

The Goodyear Tire & Rubber Company and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



(In millions) 

Six Months Ended


June 30,


2015

2014

Cash Flows from Operating Activities:



Net Income

$      444

$     194

  Adjustments to Reconcile Net Income to Cash Flows from Operating Activities:



     Depreciation and Amortization

349

371

     Amortization and Write-Off of Debt Issuance Costs

5

10

     Provision for Deferred Income Taxes

171

(1)

     Net Pension Curtailments and Settlements

2

39

     Net Rationalization Charges

62

65

     Rationalization Payments

(86)

(119)

     Net Gains on Asset Sales

(1)

(3)

     Pension Contributions and Direct Payments

(51)

(1,257)

     Net Venezuela Currency Loss

--

157

     Gain on Recognition of Deferred Royalty Income

(155)

--

  Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:



     Accounts Receivable

(439)

(376)

     Inventories

(13)

(318)

     Accounts Payable - Trade

(25)

86

     Compensation and Benefits

(46)

35

     Other Current Liabilities

(18)

(26)

     Other Assets and Liabilities

75

9

     Total Cash Flows from Operating Activities

274

(1,134)

Cash Flows from Investing Activities:



  Capital Expenditures

(448)

(441)

  Asset Dispositions

8

5

  Decrease (Increase) in Restricted Cash

(6)

3

  Short Term Securities Acquired

(49)

(41)

  Short Term Securities Redeemed

21

46

  Other Transactions

5

7

     Total Cash Flows from Investing Activities

(469)

(421)

Cash Flows from Financing Activities:



  Short Term Debt and Overdrafts Incurred

49

18

  Short Term Debt and Overdrafts Paid

(43)

(24)

  Long Term Debt Incurred

1,116

1,314

  Long Term Debt Paid

(1,312)

(823)

  Common Stock Issued

18

31

  Common Stock Repurchased

(52)

(65)

  Common Stock Dividends Paid

(32)

(26)

  Preferred Stock Dividends Paid

--

(15)

  Transactions with Minority Interests in Subsidiaries

(1)

(34)

  Debt Related Costs and Other Transactions

(10)

--

     Total Cash Flows from Financing Activities

(267)

376

Effect of Exchange Rate Changes on Cash and Cash Equivalents

(61)

(180)

Net Change in Cash and Cash Equivalents

(523)

(1,359)

Cash and Cash Equivalents at Beginning of the Period

2,161

2,996

Cash and Cash Equivalents at End of the Period

$    1,638

$     1,637

 

Non-GAAP Financial Measures (unaudited)

This earnings release presents Total Segment Operating Income, Free Cash Flow from Operations, Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS) on a historical basis and our targeted Total Segment Operating Income growth rate for 2015-2016 and our targeted ratio of Adjusted Debt to EBITDAP for 2016, which are important financial measures for the company but are not financial measures defined by U.S. GAAP, and should not be construed as an alternative to corresponding financial measures presented in accordance with U.S. GAAP.

Total Segment Operating Income is the sum of the individual strategic business units' (SBUs) Segment Operating Income as determined in accordance with U.S. GAAP. Management believes that Total Segment Operating Income is useful because it represents the aggregate value of income created by the company's SBUs and excludes items not directly related to the SBUs for performance evaluation purposes.

Free Cash Flow from Operations is the company's Cash Flows from Operating Activities as determined in accordance with U.S. GAAP before pension contributions and direct payments and rationalization payments, less capital expenditures. Management believes that Free Cash Flow from Operations is useful because it represents the cash generating capability of the company's ongoing operations, after taking into consideration capital expenditures necessary to maintain its business and pursue growth opportunities.

Adjusted Net Income is Goodyear's Net Income as determined in accordance with U.S. GAAP adjusted for certain significant items. Adjusted Diluted EPS is the company's Adjusted Net Income divided by Weighted Average Shares Outstanding-Diluted as determined in accordance with U.S. GAAP. Management believes that Adjusted Net Income and Adjusted Diluted EPS are useful because they represent how management reviews the operating results of the company excluding the impacts of rationalizations, asset write-offs, accelerated depreciation, asset sales and certain other significant items.

Adjusted Debt is the sum of our total debt and our global pension liability, each as determined in accordance with U.S. GAAP, and EBITDAP, as adjusted, represents Net Income (the most directly comparable U.S. GAAP financial measure) before interest expense, income tax expense, depreciation and amortization expense, net periodic pension cost, rationalization charges and other (income) and expense. We refer to the ratio of Adjusted Debt to EBITDAP because we believe it is widely used by investors as a means of evaluating a company's leverage.

We are unable to present a quantitative reconciliation of our forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures, because management cannot reliably predict all of the necessary components of those U.S. GAAP financial measures without unreasonable effort. These components could be significant to the calculation of those U.S. GAAP financial measures in the future.

It should be noted that other companies may calculate similarly-titled non-GAAP financial measures differently and, as a result, the measures presented herein may not be comparable to such similarly-titled measures reported by other companies.

See the tables below for reconciliations of historical Total Segment Operating Income, Free Cash Flow from Operations, Adjusted Net Income and Adjusted Diluted EPS to the most directly comparable U.S. GAAP measures.

 

 


Total Segment Operating Income and Margin Reconciliation Table


Three Months
Ended

Six Months
Ended

June 30,

June 30,




(In millions)

2015

2014

2015

2014

Segment Operating Income 

$556

$460

$947

$833

  Rationalizations

46

24

62

65

  Interest Expense

106

102

209

207

  Other (Income) Expense

17

8

(111)

176

  Asset Write-offs and Accelerated Depreciation

--

2

2

3

  Corporate Incentive Compensation Plans

22

19

35

46

  Corporate Pension Curtailments/Settlements

--

--

--

33

  Intercompany Profit Elimination

15

(4)

21

9

  Retained Expenses of Divested Operations

2

3

4

7

  Other

20

14

38

25

Income before Income Taxes

$328

$292

$687

$262

United States and Foreign Taxes

120

60

243

68

Less: Minority Shareholders Net Income

16

19

28

32

Goodyear Net Income

$192

$213

$416

$162






Sales

$4,172

$4,656

$8,196

$9,125

Return on Sales

4.6%

4.6%

5.1%

1.8%

Total Segment Operating Margin

13.3%

9.9%

11.6%

9.1%

 

Free Cash Flow from Operations Reconciliation Table


Three Months


Ended


June 30,

(in millions)

2015

2014

Net Income

$208

$232

   Depreciation and Amortization

177

188

   Working Capital (1)

92

(18)

   Pension Expense (2)

36

38

   Provision for Deferred Income Taxes

80

20

   Other (3)

28

66

   Capital Expenditures

(244)

(212)

Free Cash Flow from Operations (non-GAAP)

$377

$314

   Capital Expenditures

244

212

   Pension Contributions and Direct Payments

(25)

(34)

   Rationalization Payments

(60)

(83)

Cash Flow from Operating Activities (GAAP)

$536

$409


Amounts are calculated from the consolidated Statements of Cash Flows except for pension expense, which is as reported in the Notes to Consolidated Financial Statements. 


(1) Working Capital represents total changes in accounts receivable, inventories and accounts payable – trade.

(2) Pension expense is the net periodic pension cost (before curtailments, settlements and termination benefits) as reported in the pension-related note in the Notes to Consolidated Financial Statements.

(3) Other includes amortization and write-off of debt issuance costs, net pension curtailments and settlements, net rationalization charges, net (gains) losses on asset sales, net Venezuela currency loss, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities.

 


 

Adjusted Net Income and Adjusted Diluted Earnings per Share Reconciliation Table



Net Income

Weighted Average


Second Quarter 2015

After-tax and
Minority Interest

Shares Outstanding-
Diluted

Diluted EPS

(In millions, except EPS)




Goodyear Net Income Available to Common Shareholders

$ 192

274

$ 0.70





Significant Items:




    Rationalizations, Asset Write-offs, and Accelerated    

       Depreciation Charges

32



    Discrete Tax Benefits

2



    Transaction Costs and Net Gains on Asset Sales

3




37


$ 0.14

As Adjusted

$229

274

$ 0.84





Net Income

Weighted Average


Second Quarter 2014

After-tax and
Minority Interest

Shares Outstanding-
Diluted

Diluted EPS

(In millions, except EPS)




Goodyear Net Income Available to Common Shareholders

$ 213

281

$ 0.76





Significant Items:




    Rationalizations, Asset Write-offs, and Accelerated    

       Depreciation Charges

19



    Charges for Labor Claims Related to a Closed Facility in Greece

10



    Net Gains on Asset Sales

(4)



    Settlement of Indirect Tax Claims

(13)




12


$ 0.04

As Adjusted

$225

281

$ 0.80

 

 

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SOURCE The Goodyear Tire & Rubber Company



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