Goodyear profit tops forecast, shares jump
By David Bailey
DETROIT (Reuters) - Goodyear Tire & Rubber Co <GT.N> posted better-than-expected fourth-quarter profit on Thursday as it benefited from higher pricing and a focus on more profitable branded tires, and its shares jumped as much as 9.6 percent.
The largest U.S. tire maker said revenue rose in each of its operating regions and it remains on track with a multiyear restructuring that includes asset sales, plant closings and production shifts to lower-cost regions.
"We see the company's performance in the quarter as evidence that its strategy is gaining traction, even after adjusting for the adverse impact of the (United Steelworkers union) strike in fourth quarter 2007," Calyon Securities analyst Mark Warnsman said.
Goodyear's ability to offset increasing raw materials prices was "particularly significant," Warnsman said in a note to clients.
Goodyear reported net income of $52 million, or 23 cents per share, compared with a net loss of $358 million, or $2.02 per share, a year earlier, when it faced a three-month strike in the United States.
Excluding discontinued operations and special items such as restructuring costs, losses on asset sales, financing fees and a lower tax expense, Goodyear said it earned 49 cents per share. Analysts' average forecast was 43 cents, according to Reuters Estimates.
Chief Executive Robert Keegan said Goodyear's focus on premium tires and reduction of debt and other obligations in recent years gave it confidence in dealing with the uncertain economic environment.
"Certainly, we are engaged in contingency planning relative to economic conditions," Keegan said on a conference call with analysts. "We are not overconfident, we are continuing to reduce our cost structure."
Revenue rose 11.3 percent to $5.16 billion. Analysts had expected $4.94 billion.
The company sold fewer tires overall due to weak winter demand in Europe and other key areas, and cutbacks in production of private-label tires in North America, but price increases and the focus on more expensive branded tires led to a 10 percent increase in revenue per tire.
In North America, its largest unit, sales revenue rose 9.9 percent to $2.28 billion. Year-earlier results were hurt by the strike.
In the European Union, sales revenue rose 5.4 percent to $1.42 billion, supported by price increases, a focus on more expensive tires and favorable foreign exchange rates.
In its remaining regions -- covering Eastern Europe, Africa, the Middle East, Latin America, Asia and the Pacific -- revenue rose 20 percent to $1.46 billion.
Goodyear, like other large tire makers, has been able to raise prices on its tires to more than cover the increased cost of raw materials. Natural rubber, petroleum-based synthetic rubber, carbon black, steel cord and other materials make up about 40 percent of the cost of goods sold, Goodyear said.
The company has forecast a 7 percent to 9 percent increase in raw materials costs in 2008 and sees industry.
Goodyear has a fair amount of sales directly to vehicle manufacturers, but has said in the past that sales declines to automakers allow it to sell a higher percentage of more expensive tires to the light vehicle replacement market.
The company expects North American industrywide passenger vehicle tire demand to vehicle manufacturers to be down 2 percent to 4 percent in 2008, and the consumer replacement market to be flat to up 2 percent.
Goodyear expects North America industry tire demand from commercial vehicle manufacturers to rise 20 percent to 30 percent in 2008, and demand for commercial replacement tires to be flat to up 2 percent.
Akron, Ohio-based Goodyear and the United Steelworkers union reached an agreement late in 2006 to end a three-month strike that curtailed North American production.
The deal allows the adoption of a voluntary employees beneficiary association like the plans the United Auto Workers union and the Detroit-based automakers developed during their negotiations last year.
Goodyear shares were up $1.52, or 6 percent, at $26.84 on the New York Stock Exchange.
(Editing by John Wallace and Maureen Bavdek)