CHICAGO - Goodyear Tire & Rubber Co. on Tuesday posted its strongest quarter in two years, as earnings more than tripled on cost cutting, lower raw material prices and improved international results.
"The emerging markets have come back for them -- Brazil, Asia, the Middle East, Turkey," said David Bradley, an analyst with J.P. Morgan "Cost cutting was a part of it. And the euro getting stronger helped."
The Akron, Ohio-based company, one of the world's largest tire makers, reported second-quarter net income of $28.9 million, or 18 cents a share, compared with $7.8 million, or 5 cents a share, a year earlier.
"Six of our seven businesses showed significant improvement in earnings and margins in the second quarter," Chairman and Chief Executive Sam Gibara said in a statement. "If the benefit from last year's Ford tire recall program is excluded, North American Tire showed improvement as well."
Revenue fell to $3.48 billion from $3.58 billion.
Results exceeded Goodyear's June 19 earnings forecast of 10 cents to 15 cents a share. Analysts' recent estimates ranged from 9 cents to 15 cents, with an average of 12 cents, according to Thomson First Call.
Goodyear said last year's second-quarter results included $20 million in pretax earnings from Ford Motor Co.'s recall of tires made by Bridgestone Corp. The results also included about $4 million of pretax earnings from its specialty chemical business, which was sold in December.
At its North American tire operation, unit volume declined 8.8 percent to $26.4 million. The decline came in replacement tires, where unit sales dropped 8.8 percent. Shipments to original equipment manufacturers, such as carmakers, rose 6.8 percent for the quarter.
Operating income for the North American tire unit dropped to $39.3 million from $49.0 million. The company blamed the decline in replacement tires, a negative shift in brand mix, the end of the Ford tire recall and reduced factory utilization. That more than offset lower raw material costs, higher selling prices and and cost cutting.
At its European tire business, unit volume dropped 1.8 percent to 14.8 million while sales increased 6.2 percent to $806.9 million. Operating income almost doubled to $34.5 million.
Its Eastern Europe, Africa and Middle East unit also reported higher operating income as did Latin America and Asia.
Goodyear's sales of chemical products declined with the sale of the unit late last year. The unit reported that operating income increased 45 percent to $18.7 million as margins improved.
The company said the weaker U.S. dollar boosted worldwide sales by about $20 million in the quarter, but had a negligible effect on earnings.
Goodyear declined to give a specific earnings outlook for the third quarter, citing a "very, very volatile economic environment."
"Soft replacement tire markets in June in North America and Europe is a concern to us," Gibara said on a conference call with analysts. "Should they extend into the third quarter, they obviously will limit our ability to see the substantial and rapid recovery in profitability that we're seeking."
He said replacement and OEM tire sales should continue to improve on a sequential basis in the second half of the year, while remaining down on a year-over-year basis. He also said sales to large distributors, which have fallen as a result of a price increase and other changes instituted earlier this year, should recover to previous levels.
Gibara added that raw material prices are expected to increase in the second half from first-half levels.