Weak demand, prices impact Goodyear's first quarter

Akron, Ohio – The combined effects of price increase and weak demand impacted Goodyear's first quarter, which saw operating and net income fall on relatively unchanged sales.

Goodyear's collective segment operating income fell 8.1% to $385 million, while net income fell 9.8% to $166 million.

The decreases were driven by the impact of lower volume and unabsorbed overhead, partially offset by favourable price/mix net of raw materials costs and net cost-saving actions, Goodyear said.

Goodyear's first quarter sales of $3.7 billion were slightly ahead of the year-ago period, largely due to improved price/mix and higher pricing of third-party chemical sales partially offset by lower tire unit volume, the company said.

"These results are a great outcome given an environment of rising raw material costs and weaker demand," Richard Kramer, Goodyear chairman, CEO and president.

"While raw-material inflation has moderated in recent weeks, we continue to expect a significant year-over-year headwind in 2017," he said. "We remain confident in our ability to offset raw-material cost inflation over time."

Tire unit volumes fell 4% to 40 million, including an 8% drop in original equipment unit volume, primarily due to lower US auto production in the first quarter, according to Goodyear, noting the comparison with very strong volumes in the US and China OE market during the first quarter of 2016.

Replacement tire shipments fell 2% during the quarter.

"We expected a decline in unit volume in the first quarter which was driven by our planned exit of some of the smaller rim size tires," Kramer said.

He admitted that unit demand was weaker than expected, especially in the replacement market and sell out in the first quarter was softer than anticipated.

In Europe, Middle East and Africa, first quarter 2017 sales decreased 1% from last year to $1.2 billion, reflecting a 4% decrease in tire unit volume and unfavourable foreign currency translation, which was partially offset by improved price/mix. Replacement tire shipments were down 5%. Original equipment unit volume was down 1%.

In the Americas business segment, operating income declined 17.7% to $214 million as sales edged up 0.4% to $1.96 billion. Tire sales slid 4.4% to 17.2 million units. Replacement tire shipments fell 2% while OE unit volume dropped 12%.

"For the rest of the year we continue to expect softness in the US OE production, particularly in the second and third quarters," Kramer said.

"We saw growth in the 17-inch and larger segment of the industry at 8%, which is driving continued mix-up in our business. Total industry sell-out during the quarter was softer than expected. We believe the weakness in sell-out is related to warmer weather trends in the Northeast and Midwest as well as a delay in tax refunds affecting the US consumer," he said.

He said Goodyear expects moderate replacement industry growth in 2017 amid positive key economic indicators.

He acknowledged that the round of tire price hikes, which Goodyear initiated in February with an 8% increase, had a negative effect on volume.