DETROIT: Goodyear Tyre & Rubber Co posted a stronger-than-expected quarterly profit but cut its 2013 forecast due to weakness in the European automotive market.
Chief Executive Officer Richard Kramer said Europe’s economy continues to worsen, and the top US tire maker lowered its full-year forecast for segment operating income, the combined results of the company’s four business units.
“During the fourth quarter, it became increasingly clear that the effects of the European economic crisis will be felt for an extended period of time,” Kramer said on a conference call. “We believe there has yet to be a comprehensive and lasting solution to the euro crisis.”
Goodyear, which said it would take steps to improve profit margins in Europe, now expects the global tire industry to grow at a slower pace in the near term than previously forecast. It anticipates its full-year tire unit volume for 2013 will grow at a low-single-digit per centage rate from last year.
The company forecast overall 2013 segment operating income of $1.4 billion to $1.5 billion, below its prior outlook of $1.6 billion. It blamed the currency devaluation in Venezuela as well as weakness in Europe.
“The (fourth-quarter) beat was nice, but we have been of the view that the $1.6 billion target was the key benchmark for investors,” Morgan Stanley analyst Ravi Shanker said in a research note. “We believe the cut was larger than expected.”
The company broke even in the fourth-quarter on results available to common shareholders, compared with a year-earlier profit of $18 million, or 7 cents a share.
Excluding charges for closing a factory in France and other one-time items, Goodyear earned 39 cents a share, almost double the 20 cents analysts polled by Thomson Reuters had expected. Shanker said a lower-than-expected share count added 5 cents to those results.
Sales fell 11 per cent to $5.05 billion, below the $5.34 billion analysts had expected. Tyre sales volume dropped 7 per cent to 40 million, a steeper decline than the 3 per cent to 5 per cent decrease the company forecast in October.
Segment operating income and profit margins rose in three of the company’s four regions in the fourth quarter. However, in Europe, Middle East and Africa, revenue slid 16 per cent to $1.6 billion, and segment operating income dropped 57 per cent.
Goodyear said that over the next three years it would focus on increasing share in Europe in such premium markets as run-flat and high-performance tyres, and boosting sales in the region’s emerging markets. It also expects to achieve productivity gains in Europe totaling an additional $75 million to $100 million through such actions as back-office consolidation and increased manufacturing efficiency.
Last month, the Akron, Ohio-based company said it would exit the farm tire business in the Europe, Middle East and Africa region and planned to close the Amiens North plant in France, which makes consumer and farm tires.
When completed, the plan will cut about 6 million tires of high-cost capacity and result in about $75 million of annual profit improvement, Goodyear said. Most of those savings will not be seen this year, however, executives said.