If Goodyear was hoping to draw kudos from analysts with its cost-slashing strategy unveiled at an investors meeting last month in New York, it didn't get the reaction it wanted.
But the company's plan to improve profitability didn't draw bad reviews, either. Analysts for the most part are waiting to see how the tire maker follows through on its cost-cutting program.
Goodyear Tire & Rubber Co. wants to slash high-cost manufacturing capacity by 8 to 12 percent during the next three years to save $100 million to $150 million annually. Overall, it is looking to save $750 million to $1 billion in three years, while incurring restructuring charges of about $150 million.
CEO Robert Keegan said Goodyear aims to improve the company's operating margin to 8 percent and its North American operating income to 5 percent.
To achieve its goals, the company said it will shut down high-cost factories around the globe, although it did not disclose how many plants will be closed or where they are. Goodyear also plans to trim its cost structure, increase Asian sourcing for low-end products, upgrade manufacturing, accelerate tire introductions and generate capital to support further investment in its core tire business.
Some of that capital could come from the divestiture of hose-and-belt unit Engineered Products, which is for sale.
"Engineered Products is a good business, but it doesn't fit Goodyear's overall strategy," said analyst Saul Ludwig at KeyBanc Capital Markets' Equity Research, of Cleveland. "I think there are buyers out there for it."
Efraim Levy, an analyst with Standard & Poor's Equity Group in New York, said that while the sale would reduce Goodyear's revenue, it would fit with the company's strategy to concentrate solely on tire manufacturing.
Possibly. But there were no takers for Goodyear's chemical business when the company put it on the selling block in March 2003.
A legitimate deal never surfaced, and Goodyear finally pulled it off the market in mid-2004 and eventually made it part of its North American Tire business, where it has had a positive impact on sales and earnings.