Goodyear cuts 2020 forecast as raw material costs rise

February 9, 2018

GoodyearGoodyear Tire & Rubber Co recently cut its 2020 forecast for combined earnings of its three units amid higher prices for raw materials, overshadowing better-than-expected quarterly profit and revenue.

About two-thirds of Goodyear’s raw materials are oil-based derivatives and the 19 % rise in oil prices LCOc1 in the last year has weighed on the company’s expenses.

The company, which counts Japan’s Bridgestone Corp and France’s Michelin as its rivals, had hiked tyre prices last year to counter these costs, which led wholesalers to hoard tyres, in turn, dampening demand.

Goodyear, the biggest U.S. tyre maker, expects a negative impact of US$105 million due to raw materials in the current quarter. While it estimates tyre sales to rise 3 % this year, in the current quarter, it expects sales to remain flat.

The low end of the 2020 segment operating income forecast came in weaker, Northcoast Research analyst Nick Mitchell told Reuters.

Goodyear expects the metric to be US$2 billion-US$2.4 billion, down from its previous forecast of US$3 billion, the first-ever cut since it announced the target in 2016.

Shares fell 3.2 % to US$32.41 in morning trading.

“We have a very high degree of confidence in achieving the low end of the range,” Chief Executive Richard Kramer said on a conference call.

Goodyear reaffirmed its 2018 segment operating income of US$1.8 billion-US$1.9 billion.

Tyre unit volume rose 2 % in the fourth quarter, benefiting from strong demand for Goodyear’s more profitable 17-inch and larger model tyres and as wholesalers restocked.

The Americas, which is Goodyear’s biggest market, raked in sales of US$2.18 billion in the quarter ended Dec. 31, 6 % higher than the year-ago period.

Revenue from the Europe, Middle East and Africa region increased 11.7 % while in Asia Pacific, it jumped 13.7 %.

Goodyear posted a net loss of US$96 million, or 39 cents per share, in the quarter, compared with a profit of US$561 million, or US$2.14 per share, a year earlier, due to a US$299 million charge related to changes in U.S. tax laws.

On an adjusted basis, the company earned 99 cents a share, smashing past analysts’ estimate of 76 cents, according to Thomson Reuters I/B/E/S.

Total revenue rose 8.8 % to US$4.07 billion. Analysts on average had expected US$3.96 billion.

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