INVESTOR LETTER Q2 2023
Aug. 2, 2023
TABLE OF CONTENTS
03 | Letter to Investors |
04 | Summary |
05 | Financial Results |
08 | SBU Results |
14 | Outlook |
16 | Enabling Mobility |
18 | End Notes |
18 | Conference Call Details |
19 | Important Disclosures |
Forward-Looking Statements | |
Non-GAAP Financial Measures | |
Use of Hyperlinks | |
20 | Reference Tables |
Financial Tables (Unaudited) | |
Other Data Tables |
Celebrating 125 Years
In 1898, Frank Seiberling borrowed $3,500 from his brother-in-law and used it on a down payment for an old strawboard factory on East Market Street in Akron, Ohio. On August 29th of that year, Goodyear was officially incorporated.
Throughout our renowned journey, Goodyear has consistently demonstrated innovation, quality products and services and commitment to excellence, building our legacy as a trusted brand in the global automotive industry.
Goodyear's 125th anniversary this year celebrates a remarkable milestone in our rich history and growth from a small rubber manufacturer to become one of the world's largest tire companies, enabling the future of mobility.
To learn more about our 125th anniversary, visit the Goodyear corporate website.
125 YEARS | MAKING HISTORY | 125 YEARS |
Reconciliation of Non-GAAP Financial Measures
See "Important Disclosures - Non-GAAP Financial Measures" and "Reference Tables" for further explanation and reconciliation tables for Total Segment Operating Income and Margin; Free Cash Flow; Adjusted Net Income (Loss); and Adjusted Diluted Earnings per Share, reflecting the impact of certain significant items on the 2023 and 2022 periods.
Letter to Investors | Summary | Financial Results | SBU Results | Outlook | Enabling Mobility | End Notes | Disclosures | Reference Tables |
Q2 2023 - 2
TO OUR INVESTORS
The 125th anniversary of Goodyear's founding in August offers an incredible opportunity to reflect on our rich legacy of trusted products and services, dedicated associates, loyal customers and industry-leading innovations. It is also an opportunity to reflect on how we are paving the way as an industry leader for the next 125 years.
In the near-term, our focus is on driving strong operating results as we move through the second half of the year. While industry volumes in the second quarter were significantly more challenging than expected, we continue to expect to achieve second half segment operating margin that should bring us much closer to our near-term target of 8%.
Our second quarter results were marked by weak demand in Americas and EMEA, given consumer replacement channel destocking. As context, our second quarter volume was well below normalized levels, with unit volume 16% below 2019. Additionally, the U.S. and European commercial replacement industry weakened considerably in the quarter as freight ton miles and utilization drove channel destocking, resulting in lower overall mix in our business.
There continues to be signs our second half results will be much stronger. This is consistent with an environment where moderating inflation and falling raw material costs can drive meaningful margin expansion. Another
positive sign is that June was the first month this year where the U.S. consumer replacement industry saw growth. Importantly, industry pricing has remained solid.
Demand for travel in the U.S. continued to grow with miles driven up more than
2% year-to-date. Inventory of Goodyear- branded consumer products across the channels declined 14% since the end of 2022, supporting a view for U.S. consumer tire sell-in growth during the second half of the year.
In addition to these positive industry trends, we are also undertaking a review of our cost structure to fundamentally streamline our business and improve our competitive position. Through this board-led review (and with the help of a leading consultant), we expect to drive both substantial efficiency and growth. The savings we have identified and will continue to identify are specific, significant and actionable. We will have more to say when we provide the results
of that review in the coming months.
As you know, cost savings actions are already underway. To help improve our margins in EMEA over the long-term, we are moving with urgency on our previously announced footprint and SAG cost structure review in Europe. While work is ongoing, we announced a plan during the quarter to reduce production capacity at our Fulda, Germany facility in support of our goal to reduce consumer tire conversion cost in the region.
Our Asia Pacific segment, meanwhile, is benefitting from a recovery in replacement volume in China. Similarly, our OE business there is performing well thanks to the industry recovery and the benefit of new fitment wins geared toward luxury, SUV and electric vehicles. The outlook for the region remains positive.
Taken together, improving industry demand, along with actions to improve costs, support margin expansion reflective of the underlying earnings power of our business. I am confident our teams will deliver against our objective to create value not only at this stage of the market cycle, but sustainably for years to come. On behalf of generations of dedicated Goodyear associates who have served our customers and consumers for 125 years, thank you for your continued support and trust.
Richard J. Kramer
Chairman, Chief Executive Officer & President
Board-Led Strategic and Operational Review
We recently made an announcement with respect to the cooperation agreement with Elliott Investment Management L.P. Following constructive engagement, we are pleased that the outcome is consistent with our goals and objectives. As part of the agreement, we added three new independent, highly qualified directors to our board who will bring extensive public company executive and industry experience. Additionally, we also formed a new strategic and operational review committee. Together these actions will help to drive our strategic goals and streamline our operations.
Letter to Investors | Summary | Financial Results | SBU Results | Outlook | Enabling Mobility | End Notes | Disclosures | Reference Tables |
Q2 2023 - 3
SUMMARY
Reflections on the Quarter
Heading into the second quarter, we expected sequential quarterly improvement in our earnings. Instead, our second quarter segment operating income ("SOI") was essentially flat with our first quarter results. Our results differed from our expectations primarily due to two key industry trends: 1) Weaker industry volume in consumer replacement, particularly in Western markets, and 2) Weaker commercial truck industry which negatively impacted mix by ~$60 million. Overall price/mix was below our forecast as a result of commercial truck mix and lower volume.
Americas
- Volume was 2.5 million units lower year-over-year, reflecting continued channel inventory destocking and the effects of the tornado that impacted our facility in Tupelo, MS in early April (negative impact to volume of ~1 million units and SOI of ~$50 million). Americas consumer replacement industry volume was down over 9%, weaker than expected. Excluding the impact of Tupelo, Americas consumer replacement share outperformed the industry.
- In addition, recent pronounced weakness in the commercial replacement industry, which was down 21% year-over-year in the quarter (and a significant worsening of the trend we saw in the first quarter) due to accelerated channel destocking, negatively impacted Americas results. This resulted in a quarter where the region was not able to fully offset raw material and other cost inflation with price/mix (unlike what we achieved in most quarters over the last two years).
EMEA
- Volume was affected by negative industry and share trends in consumer and commercial replacement, resulting in 2.7 million units lower year-over-year. Consumer replacement market demand was significantly weaker than we expected (ETRMA members down 12%) in Q2, reflecting continued strong destocking and weak consumer replacement trends. Industry sell-out to consumers declined 4% versus last year, compared with ~flat in Q1.
- EMEA's consumer replacement volume trended below the industry, given a very strong comparable in the second quarter last year and elevated imports. We had planned for share loss in the quarter given last year's outperformance.
- Similar to Americas, the commercial replacement industry was also weaker than we expected and declined over 15% year-over- year, with imports outperforming ETRMA members.
Asia Pacific
- While Asia Pacific's volume grew ~0.4 million units in the quarter, planned volume growth was significantly higher. This was primarily driven by consumer OE volume, where one of our major OE customers delayed a vehicle launch during the quarter (pushed from Q2 to Q3). The vehicle (and our fitment supply) successfully launched in July.
Outlook
Based on first half trends, we have downgraded our industry outlook in the second half for both consumer replacement and commercial replacement. At the same time, we expect lower costs in the second half than we had previously shared. We continue to expect to achieve segment operating margin in the second half that should bring us much closer to our near-term target of 8%. Additionally, we expect two of our three business units--Americas and Asia Pacific-to record meaningful improvements in margin and exit the year with solid earnings heading into 2024.
125 YEARS | INNOVATION | 125 YEARS |
Letter to Investors | Summary | Financial Results | SBU Results | Outlook | Enabling Mobility | End Notes | Disclosures | Reference Tables |
Q2 2023 - 4
FINANCIAL RESULTS
Income Statement
Second quarter sales decreased 6.6% compared to prior year, driven by lower volume and the impact of foreign exchange, partly offset by strong price/mix. Revenue per tire increased
6% excluding the impact of foreign exchange. Tire unit volume in the quarter totaled 40.8 million units, down 10.7% from prior year levels. The stronger U.S. dollar reduced sales by approximately 2%.
Second quarter 2023 net loss was $208 million ($0.73 per share loss) compared to net income of $166 million ($0.58 per share) a year ago. The decrease in net income was primarily due to lower sales volume and higher other expense, driven by lower net gains on asset sales and higher pension costs.
After adjusting for significant items, our second quarter net loss was $97 million, compared to $142 million of net income in the prior year's quarter. Lower adjusted net income primarily reflects reduced segment operating income ($124 million compared to $364 million a year ago).
Adjusted earnings per share on a diluted basis were a loss of $0.34 compared to income of $0.50 a year ago.
NET SALES | ||||
($345)m | $5,212 | |||
$4,867 | ||||
YoY | ||||
-6.6% | 2022 | 2023 | ||
NET INCOME (LOSS) | $166 | ||||
($374)m | 2022 | 2023 | |||
YoY | ($208) | ||||
-225.3% | |||||
RETURN ON NET SALES | 3.2% | -4.3% | |||
EPS | $0.58 | ($0.73) | |||
ADJUSTED EPS | $ 0.50 | ($0.34) | |||
TIRE UNITS | ||||||||||||
45.6 | ||||||||||||
(4.8)m YoY | 40.8 | |||||||||||
-10.7% | 2022 | 2023 | ||||||||||
(5.4)m | REPLACEMENT | OE | ||||||||||
0.6m | ||||||||||||
UNITS | -15.1% YoY | UNITS | +5.4% YoY | |||||||||
SEGMENT OPERATING INCOME | |||||
$364 | |||||
($240)m | |||||
YoY | $124 | ||||
-65.9% | 2022 | 2023 | |||
SOI MARGIN | 7.0% | 2.5% |
Terms: Units & $ in millions except per share amounts
All per share amounts are diluted
Letter to Investors | Summary | Financial Results | SBU Results | Outlook | Enabling Mobility | End Notes | Disclosures | Reference Tables |
Q2 2023 - 5
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
The Goodyear Tire & Rubber Company published this content on 02 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 August 2023 20:23:08 UTC.