Goodyear seeing signs of US retail business recovery

Akron, Ohio — While Goodyear expects its tire sales volume to drop roughly 50% in the quarter ending 30 June, it's seeing business at the retail level returning to near pre-Covid-19 pandemic levels, CFO Darren Wells told analysts in a 10 June conference call.

Citing the company's data on the seven-day rolling average of retail store activity, Wells said business at this level during late May was tracking at about 5% below the same period a year ago.

"We're back to within 'shouting distance' of a year ago, in terms of sell-out," he said during his presentation at Deutsche Bank's Global Auto Industry Conference.

He also told those listening in to the call that the company's take on the US replacement tire market showed May down 33% from a year ago, which was a marked improvement over April, when the market was down 50%.

Wells said Goodyear's sales for the past few months have been impacted measurably by Walmart Inc.'s decision to suspend activity at most of its US tire centres as well as the particularly hard economic downturn in the Northeast, where Goodyear has an above-average market presence.

At the same time, Wells said Goodyear expects its production to be down nearly 26 million units during the quarter versus a year ago, but that in part is by design in order to help rebalance inventories and help the company manage costs more effectively.

In the first quarter, ended 31 March, Goodyear reported a segment operating loss of $47 million (€41 million), down from an operating profit of $190 million in 2019, and showed a net loss of $619 million, versus a net loss of $61 million from a year earlier.

Sales fell 15.1% to $3.06 billion "driven by lower industry volume and unfavourable foreign currency translation." Tire volume was down 18% to 31.3 million units.

Goodyear earlier said it's expecting a decline in earnings in the second quarter of about $150 million. In the second quarter of 2019, the company reported segment operating income of $219 million and net earnings of $54 million.

Managing cash flow is a top priority for the company, Wells said, noting that he expects the company's usage during the quarter to be in the $700 million to $800 million range, down measurably from the $1 billion the company had budgeted for at the end of the first quarter.

"We've flattened that curve," he said, mentioning the firm's work to manage working capital, inventories, receivables, etc.

Wells pointed out specific measures related to doing business in the Covid-19 pandemic Goodyear is taking to help manage, including:

• Cutting salaried payroll ($65 million);

• Cutting marketing and other SAG expenses ($75 million);

• Suspending the dividend ($110 million);

• Reducing capital expenditures ($100 million);

• Deferring taxes ($60 million in the US alone); and

• Expanding the US asset-based lending borrowing base ($350 million).

He also said that the $800 million in new senior unsecured notes issued and cost-savings measures the company expects to accrue from restructuring measures in Europe ($60 million to $70 million annually) and fiscal 2021 cost savings of $130 million related to the closing of the Gadsden, Alabama, tire plant.