Goodyear Reports Third Quarter 2020 Results
AKRON, Ohio, Oct. 30, 2020 /PRNewswire/ -- The Goodyear Tire & Rubber Company (NASDAQ: GT) today reported results for the third quarter and first nine months of 2020.
"Our results reflect increasing momentum as the global tire industry recovered more quickly than we expected during the quarter, led by the Americas," said Richard J. Kramer, chairman, chief executive officer and president. "We are taking every opportunity to continue building our business for the long term, while generating significant cost savings and free cash flow," added Kramer.
Goodyear's third quarter 2020 sales were $3.5 billion, down 9% from a year ago. The decline was driven by lower volume, unfavorable foreign currency translation and reduced sales from other tire-related businesses. These factors were partially offset by improvements in price/mix.
Tire unit volumes totaled 36.6 million, down 9% from the prior year's period. Industry demand during the quarter was affected by the continued economic disruption resulting from the COVID-19 pandemic. Replacement tire shipments declined 9%, reflecting the impact of lower consumer demand, temporary third-party retail store closings in the U.S., and actions taken to align European distribution. Original equipment unit volume decreased 9%, driven by reduced vehicle production.
Goodyear's third quarter 2020 net loss was $2 million (1 cent per share) compared to net income of $88 million (38 cents per share) a year ago. The decrease was driven by a decline in segment operating income. Third quarter 2020 adjusted net income was $24 million (10 cents per share), compared to adjusted net income of $105 million (45 cents per share) in 2019. Per share amounts are diluted.
The company reported segment operating income of $162 million in the third quarter of 2020, down $132 million from a year ago. The decline primarily reflects lower volume, reduced factory utilization and lower earnings from other tire-related businesses. These factors were partially offset by the benefits of cost saving actions, including ongoing rationalization plans, and improved price/mix.
Year-to-Date Results
Goodyear's sales for the first nine months of 2020 were $8.7 billion, a 21% decline from the 2019 period, driven by lower volume, reduced sales from other tire-related businesses and unfavorable foreign currency translation. These factors were partially offset by improvements in price/mix.
Tire unit volumes totaled 88.3 million, down 24% from 2019. Replacement tire shipments decreased 21%, primarily reflecting lower industry demand. Original equipment volume declined 31%, driven by lower global vehicle production.
Goodyear's net loss was $1.3 billion for the first nine months of 2020 ($5.62 per share) compared to net income of $81 million (35 cents per share) in the prior year's period. The first nine months of 2020 included several significant items, including a non-cash charge of $295 million related to a valuation allowance on certain deferred tax assets for foreign tax credits, a non-cash impairment charge of $182 million to reduce the carrying value of goodwill in the EMEA business, a non-cash impairment charge of $148 million to reduce the carrying value of an equity interest in TireHub, and rationalization charges of $133 million, primarily associated with the closure of a manufacturing facility in Gadsden, Alabama. Goodyear's net income for the comparable period in 2019 included rationalization charges of $128 million, primarily related to a plan to modernize two tire manufacturing facilities in Germany. Goodyear's adjusted net loss for the first nine months of 2020 was $550 million ($2.35 per share), compared to adjusted net income of $208 million (89 cents per share) in the prior year's period. Per share amounts are diluted.
The company reported a segment operating loss of $316 million for the first nine months of 2020, down $1.0 billion from a year ago. The decrease was primarily due to lower volume, reduced factory utilization and lower earnings from other tire-related businesses. These factors were partially offset by lower SAG, driven by reduced payroll and advertising expenses, and the benefits of cost saving actions, including ongoing rationalization plans.
Reconciliation of Non-GAAP Financial Measures
See the note at the end of this release for further explanation and reconciliation tables for Segment Operating Income (Loss) and Margin; Adjusted Net Income (Loss); and Adjusted Diluted Earnings (Loss) per Share, reflecting the impact of certain significant items on the 2020 and 2019 periods.
Business Segment Results
Americas
Third Quarter Nine Months
(in millions) 2020 2019 2020 2019
Tire Units 16.2 17.9 39.2 51.7
Net Sales $1,823 $2,049 $4,630 $5,896
Segment Operating Income (Loss) 106 175 (181) 398
Segment Operating Margin 5.8% 8.5% (3.9)% 6.8%
Americas' third quarter 2020 sales of $1.8 billion were 11% lower than in the previous year, driven by lower volume, unfavorable foreign currency translation and reduced sales from other tire-related businesses. These factors were partially offset by improvements in price/mix. Tire unit volume declined 10%. Replacement tire shipments decreased 12%, reflecting weak retail demand and temporary third-party retail store closings in the U.S. Original equipment unit volume was essentially flat, as the impact of weak industry demand in Brazil offset a 7% increase in U.S. consumer OE shipments.
Third quarter 2020 operating income of $106 million was down $69 million from the prior year's quarter. The decline was driven by reduced factory utilization and lower volume. These factors were partially offset by the benefits of cost saving actions, lower SAG and improved price/mix.
Europe, Middle East and Africa
Third Quarter Nine Months
(in millions) 2020 2019 2020 2019
Tire Units 13.2 14.5 32.1 42.1
Net Sales $1,156 $1,205 $2,827 $3,567
Segment Operating Income (Loss) 22 66 (141) 164
Segment Operating Margin 1.9% 5.5% (5.0)% 4.6%
Europe, Middle East and Africa's third quarter 2020 sales decreased 4% from last year to $1.2 billion due to lower volume, partially offset by improvements in price/mix. Tire unit volume decreased 9%. Replacement tire shipments fell 8%, driven by lower industry demand and the impact of the company's previously announced initiative to align distribution in Europe. Original equipment unit volume decreased 11%, driven by lower vehicle production.
Third quarter 2020 segment operating income of $22 million was down $44 million from the prior year's quarter, driven by the impact of lower volume, including reduced factory utilization, partially offset by lower raw material costs and improved price/mix.
Asia Pacific
Third Quarter Nine Months
(in millions) 2020 2019 2020 2019
Tire Units 7.2 7.9 17.0 21.9
Net Sales $486 $548 $1,208 $1,569
Segment Operating Income 34 53 6 141
Segment Operating Margin 7.0% 9.7% 0.5% 9.0%
Asia Pacific's third quarter 2020 sales decreased 11% to $486 million, driven by lower volume. Tire unit volume declined 9%. Original equipment unit volume declined 16%, driven by China and India. Replacement tire shipments decreased 4%, driven by lower industry demand in Japan. In China, consumer replacement volume set a new record, increasing 19% over the prior year.
Third quarter 2020 segment operating income of $34 million was down $19 million from the prior year's quarter. The decline primarily reflects lower unit volume, unfavorable price/mix and reduced factory utilization. These factors were partially offset by lower raw material costs and lower SAG.
Cash Flow and Liquidity
The company delivered strong cash flow during the third quarter, as it benefited from improved working capital and stronger-than-planned industry demand. Cash generated through operating activities totaled $581 million and capital expenditures of $124 million were down from $160 million in 2019. In August, the company repaid its $282 million 8.75% senior notes at maturity.
As of Sept. 30, 2020, the company had total liquidity of $4.2 billion, including $1.1 billion of cash and cash equivalents. In comparison, the company had $3.9 billion and $3.4 billion in total liquidity at June 30, 2020, and Sept. 30, 2019, respectively.
Conference Call
Goodyear will hold an investor conference call at 9:15 a.m. EDT today. Prior to the commencement of the call, the company will post the financial and other related information that will be presented on its investor relations website: http://investor.goodyear.com.
Participating in the conference call will be Richard J. Kramer, chairman, chief executive officer and president; Darren R. Wells, executive vice president and chief financial officer; and Christina L. Zamarro, vice president, finance and treasurer.
Investors, members of the media and other interested persons can access the conference call on the website or via telephone by calling either (800) 895-3361 or (785) 424-1062 before 9:05 a.m. EDT and providing the Conference ID "Goodyear." A taped replay will be available by calling (800) 926-1902 or (402) 220-5398. The replay will also remain available on the website.
About Goodyear
Goodyear is one of the world's largest tire companies. It employs about 62,000 people and manufactures its products in 46 facilities in 21 countries around the world. Its two Innovation Centers in Akron, Ohio, and Colmar-Berg, Luxembourg, strive to develop state-of-the-art products and services that set the technology and performance standard for the industry. For more information about Goodyear and its products, go to www.goodyear.com/corporate. GT-FN
Certain information contained in this press release constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors, many of which are beyond our control, that affect our operations, performance, business strategy and results and could cause our actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to: the impact on us of the COVID-19 pandemic; our ability to implement successfully our strategic initiatives; actions and initiatives taken by both current and potential competitors; increases in the prices paid for raw materials and energy; a labor strike, work stoppage or other similar event; foreign currency translation and transaction risks; deteriorating economic conditions or an inability to access capital markets; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; the adequacy of our capital expenditures; our failure to comply with a material covenant in our debt obligations; potential adverse consequences of litigation involving the company; as well as the effects of more general factors such as changes in general market, economic or political conditions or in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
(financial statements follow)
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statements of Operations (unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
(In millions, except per share amounts) 2020 2019 2020 2019
---
NET SALES $3,465 $3,802 $8,665 $11,032
Cost of Goods Sold 2,775 2,965 7,543 8,699
Selling, Administrative and General Expense 555 572 1,587 1,705
Goodwill and Other Asset Impairments 330 --
Rationalizations 25 21 133 128
Interest Expense 88 88 246 261
Other (Income) Expense 32 35 93 74
---
Income (Loss) before Income Taxes (10) 121 (1,267) 165
United States and Foreign Tax Expense (Benefit) (13) 31 50 63
---
Net Income (Loss) 3 90 (1,317) 102
Less: Minority Shareholders' Net Income 5 2 21
---
Goodyear Net Income (Loss) $(2) $88 $(1,317) $81
Goodyear Net Income (Loss) - Per Share of Common Stock
Basic $(0.01) $0.38 $(5.62) $0.35
Weighted Average Shares Outstanding 234 233 234 233
Diluted $(0.01) $0.38 $(5.62) $0.35
Weighted Average Shares Outstanding 234 234 234 234
Cash Dividends Declared Per Common Share
$ -- $0.16 $0.16 $0.48
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheets (unaudited)
(In millions,
except share
data) September 30, December 31,
2020 2019
Assets:
Current Assets:
Cash and Cash
Equivalents $1,057 $908
Accounts
Receivable,
less
Allowance -
$149 ($111
in 2019) 2,251 1,941
Inventories:
Raw Materials 479 530
Work in
Process 132 143
Finished
Products 1,541 2,178
2,152 2,851
Prepaid
Expenses and
Other
Current
Assets 235 234
Total Current
Assets 5,695 5,934
Goodwill 393 565
Intangible
Assets 135 137
Deferred
Income Taxes 1,472 1,527
Other Assets 805 959
Operating
Lease Right-
of-Use
Assets 852 855
Property,
Plant and
Equipment,
less
Accumulated
Depreciation
- $10,576
($10,488 in
2019) 6,840 7,208
Total Assets $16,192 $17,185
---
Liabilities:
Current Liabilities:
Accounts
Payable -
Trade $2,330 $2,908
Compensation
and Benefits 554 536
Other Current
Liabilities 873 734
Notes Payable
and
Overdrafts 529 348
Operating
Lease
Liabilities
due Within
One Year 196 199
Long Term
Debt and
Finance
Leases due
Within One
Year 411 562
Total Current
Liabilities 4,893 5,287
Operating
Lease
Liabilities 685 668
Long Term
Debt and
Finance
Leases 5,708 4,753
Compensation
and Benefits 1,319 1,334
Deferred
Income Taxes 80 90
Other Long
Term
Liabilities 468 508
Total
Liabilities 13,153 12,640
Commitments and Contingent Liabilities
Shareholders' Equity:
Common Stock, no par value:
Authorized,
450 million
shares,
Outstanding
shares - 233
million in
2020 and
2019 233 233
Capital
Surplus 2,163 2,141
Retained
Earnings 4,746 6,113
Accumulated
Other
Comprehensive
Loss (4,282) (4,136)
Goodyear
Shareholders'
Equity 2,860 4,351
Minority
Shareholders'
Equity -
Nonredeemable 179 194
Total
Shareholders'
Equity 3,039 4,545
Total
Liabilities
and
Shareholders'
Equity $16,192 $17,185
---
The Goodyear Tire & Rubber Company and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(In millions) Nine Months Ended
September 30,
2020 2019
---
Cash Flows from Operating Activities:
Net Income (Loss) $(1,317) $102
Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating Activities:
Depreciation and Amortization 665 584
Amortization and Write-Off of Debt Issuance Costs 9 12
Goodwill and Other Asset Impairments 330
Provision for Deferred Income Taxes 10 (33)
Net Pension Curtailments and Settlements 19 1
Net Rationalization Charges 133 128
Rationalization Payments (144) (46)
Net (Gains) Losses on Asset Sales 2 (5)
Operating Lease Expense 217 221
Operating Lease Payments (193) (201)
Pension Contributions and Direct Payments (40) (51)
Changes in Operating Assets and Liabilities, Net of Asset Acquisitions and Dispositions:
Accounts Receivable (502) (785)
Inventories 655 (166)
Accounts Payable - Trade (425) (110)
Compensation and Benefits 95 129
Other Current Liabilities 75 16
Other Assets and Liabilities 172 65
---
Total Cash Flows from Operating Activities (239) (139)
Cash Flows from Investing Activities:
Capital Expenditures (487) (561)
Asset Dispositions 2
Short Term Securities Acquired (56) (73)
Short Term Securities Redeemed 71 67
Notes Receivable (35) (7)
Other Transactions (8) (12)
---
Total Cash Flows from Investing Activities (515) (584)
Cash Flows from Financing Activities:
Short Term Debt and Overdrafts Incurred 1,555 1,451
Short Term Debt and Overdrafts Paid (1,339) (1,357)
Long Term Debt Incurred 5,942 4,797
Long Term Debt Paid (5,149) (3,941)
Common Stock Issued 1
Common Stock Dividends Paid (37) (111)
Transactions with Minority Interests in Subsidiaries (3) (26)
Debt Related Costs and Other Transactions (14) (25)
---
Total Cash Flows from Financing Activities 955 789
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash (46) (13)
---
Net Change in Cash, Cash Equivalents and Restricted Cash 155 53
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period 974 873
---
Cash, Cash Equivalents and Restricted Cash at End of the Period $1,129 $926
Non-GAAP Financial Measures (unaudited)
This earnings release presents Total Segment Operating Income (Loss) and Margin, Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share (EPS), which are important financial measures for the company but are not financial measures defined by U.S. GAAP, and should not be construed as alternatives to corresponding financial measures presented in accordance with U.S. GAAP.
Total Segment Operating Income (Loss) is the sum of the individual strategic business units' (SBUs') Segment Operating Income (Loss) as determined in accordance with U.S. GAAP. Total Segment Operating Margin is Total Segment Operating Income (Loss) divided by Net Sales as determined in accordance with U.S. GAAP. Management believes that Total Segment Operating Income (Loss) and Margin are useful because they represent the aggregate value of income (loss) created by the company's SBUs and exclude items not directly related to the SBUs for performance evaluation purposes. The most directly comparable U.S. GAAP financial measure to Total Segment Operating Income (Loss) is Goodyear Net Income (Loss) and to Total Segment Operating Margin is Return on Sales (which is calculated by dividing Goodyear Net Income (Loss) by Net Sales).
Adjusted Net Income (Loss) is Goodyear Net Income (Loss) as determined in accordance with U.S. GAAP adjusted for certain significant items. Adjusted Diluted Earnings (Loss) Per Share is the company's Adjusted Net Income (Loss) divided by Weighted Average Shares Outstanding-Diluted as determined in accordance with U.S. GAAP. Management believes that Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share are useful because they represent how management reviews the operating results of the company excluding the impacts of non-cash impairment charges, rationalizations, asset write-offs, accelerated depreciation, asset sales and certain other significant items.
It should be noted that other companies may calculate similarly-titled non-GAAP financial measures differently and, as a result, the measures presented herein may not be comparable to such similarly-titled measures reported by other companies.
See the tables below for reconciliations of historical Total Segment Operating Income (Loss) and Margin, Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share to the most directly comparable U.S. GAAP financial measures.
Segment Operating Income (Loss) and Margin Reconciliation Table
Three Months Nine Months
Ended
Ended
September 30, September 30,
(In millions) 2020 2019 2020 2019
---
Total Segment Operating Income (Loss) $162 $294 $(316) $703
Goodwill and Other Asset Impairments (330) --
Rationalizations (25) (21) (133) (128)
Interest Expense (88) (88) (246) (261)
Other Income (Expense) (32) (35) (93) (74)
Asset Write-offs and Accelerated Depreciation (4) (1) (94) (2)
Corporate Incentive Compensations Plans (14) (13) (24) (28)
Retained Expenses of Divested Operations (2) (1) (5) (7)
Other (7) (14) (26) (38)
---
Income (Loss) before Income Taxes $(10) $121 $(1,267) $165
United States and Foreign Taxes (Benefit) (13) 31 50 63
Less: Minority Shareholders' Net Income 5 2 21
---
Goodyear Net Income (Loss) $(2) $88 $(1,317) $81
Sales $3,465 $3,802 $8,665 $11,032
Return on Sales (0.1)% 2.3% (15.2)% 0.7%
Total Segment Operating Margin 4.7% 7.7% (3.6)% 6.4%
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share
Reconciliation Tables
Third Quarter 2020 Income Taxes Minority Goodyear
Weighted Diluted
(Loss) Interest Net Average EPS
Before Income Shares
Income Outstanding-
Taxes (Loss) Diluted
---
(In millions, except EPS)
As Reported $(10) $(13) $5 $(2) 234 $(0.01)
Significant Items:
Rationalizations, Asset Write-offs, 29 6 23 0.10
and Accelerated Depreciation
Charges
Pension Settlement Charges 16 4 12 0.05
Indirect Tax Settlements and 6 15 (9) (0.04)
Discrete Tax Items
51 25 26 0.11
As Adjusted $41 $12 $5 $24 234 $0.10
Third Quarter 2019 Income Taxes Minority Goodyear
Weighted Diluted
Before Interest Net Average EPS
Income Income Shares
Taxes Outstanding-
Diluted
---
(In millions, except EPS)
As Reported $121 $31 $2 $88 234 $0.38
Significant Items:
Rationalizations, Asset Write-offs, 21 3 18 0.07
and Accelerated Depreciation
Charges
Beaumont, Texas Flood Effect 6 1 5 0.02
Indirect Tax Settlements and (1) 5 (6) (0.02)
Discrete Tax Items
26 9 17 0.07
As Adjusted $147 $40 $2 $105 234 $0.45
First Nine Months 2020 Income Taxes Minority Goodyear
Weighted Diluted
(Loss) Interest Net Average EPS
Income Shares
Before Outstanding-
Income (Loss) Diluted
Taxes
---
(In millions, except EPS)
As Reported $(1,267) $50
$ -- $(1,317) 234 $(5.62)
Significant Items:
Goodwill and Other Asset 330 39 291 1.24
Impairments
Indirect Tax Settlements and 6 (277) (1) 284 1.21
Discrete Tax Items
Rationalizations, Asset Write-offs, 227 51 176 0.75
and Accelerated Depreciation
Charges
Pension Settlement Charges 19 5 14 0.06
Asset Sales 2 2 0.01
584 (182) (1) 767 3.27
As Adjusted $(683) $(132) $(1) $(550) 234 $(2.35)
===
First Nine Months 2019 Income Taxes Minority Goodyear
Weighted Diluted
Before Interest Net Average EPS
Income Income Shares
Taxes Outstanding-
Diluted
---
(In millions, except EPS)
As Reported $165 $63 $21 $81 234 $0.35
Significant Items:
Rationalizations, Asset Write-offs, 130 21 1 108 0.45
and Accelerated Depreciation
Charges
Indirect Tax Settlements and (6) (8) (16) 18 0.08
Discrete Tax Items
Beaumont, Texas Flood Effect 6 1 5 0.02
Legal Claims Related to Discontinued 5 1 4 0.02
Operations
Net Insurance Recovery from (4) (1) (3) (0.01)
Hurricanes
Asset Sales (5) (5) (0.02)
126 14 (15) 127 0.54
As Adjusted $291 $77 $6 $208 234 $0.89
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SOURCE The Goodyear Tire & Rubber Company
