Add Goodyear to the list of tyre makers planning to build or expand tyre plants closer to home.
The Akron-based tyre maker said it plans to invest about $500 million to build a consumer tyre factory in North America or Latin America.
The plant would have an initial annual capacity of about 6 million high-value-added tyres for the OE and replacement markets in the Americas, with the ability to expand capacity as demand increases, according to the tyre maker.
Goodyear said site selection is under way to identify a location and tyre production is expected to begin in the first half of 2017.
In a presentation at the KeyBanc Capital Markets’ Industrial, Automotive and Transportation Conference in Boston today, Goodyear Executive Vice President and CFO Laura K. Thompson said the company expects to make a formal announcement of the site selection by year-end or early 2015.
The consumer tyre market in the Americas is expected to grow at a rate of about 2.5 percent annually through 2019, for a total of about 71 million more tyres, 90 percent of which is expected to be high-performance tyres. Goodyear said it expects demand for its high-performance tyres to grow by 12 million units by 2019 in the Americas.
The company said it expects to meet this growth with increased capacity at existing plants and capacity from the new facility.
“By the end of 2016, we would be very constrained without these investments,” Ms. Thompson said.
The announcement comes as Goodyear updated its 2014-2016 capital allocation plan focused on increasing shareholder returns and capturing high-return growth opportunities in North America and Latin America.
The company is shifting a majority of its capital expenditures to the Americas after heavy investment in the Europe/Middle East/Africa and Asia market segments during the 2011-2013 period, which included opening a plant in China.
Due to its strong 2013 free cash flow, which enabled the full funding of its hourly U.S. pension plans in early 2014, the company said it is reallocating approximately $1.1 billion of its 2014-2016 cash flow.
According to Goodyear, the updated capital allocation plan, which aims to increase shareholder value by providing approximately $650 million in returns to investors, strengthening the balance sheet and investing in high-return growth, includes:
- Allocating an additional $300 million to growth capital expenditures to build the tyre plant;
- Increasing the quarterly cash dividend on Goodyear’s common stock by 20 percent to 6 cents per share from 5 cents per share beginning in September. The payout represents an annual rate of 22 cents per share for 2014 and 24 cents per share for 2015.
- Increasing the share repurchase program by $350 million to allow Goodyear to acquire up to $450 million of its stock through 2016;
- Based on company performance, the shareholder return program can be increased up to an additional $250 million, to a total of $900 million; and
- Allocating an additional $400 million towards debt reduction, to further strengthen Goodyear’s leverage metrics and advance the company’s objective of achieving an investment grade credit rating.
“This updated capital allocation plan for 2014-2016 reflects Goodyear’s commitment to balancing all our priorities — returning cash to shareholders, investing in high-return growth projects and achieving investment grade metrics — to drive long-term shareholder value consistent with our articulated strategy,” said Goodyear Chairman and CEO Richard Kramer.
“With growing consumer demand for our high-value-added tyres in North America and Latin America, the time is right to invest in additional manufacturing capacity in the Americas to maintain Goodyear’s leading position and to grow earnings beyond 2016,” he said.
The company also reaffirmed its 2014-2016 financial targets, which include segment operating income growth of between 10 and 15 percent per year and an annual positive free cash flow from operations.
The company said it expects a 2- to 3-percent increase in unit volumes for 2014, compared with 2013. Ms. Thompson said.