Goodyear Tire (GT) posted a net income of $41 million or 18 cents per share (excluding special items) for the first quarter of 2010, in sharp contrast to a loss of $285 million or $1.19 per share (excluding special items) in the same quarter a year ago. With this, the company has outperformed the Zacks Consensus Estimate of a profit of 1 cent per share. The profit was led by an impressive rise in tire unit volume during the quarter.
Sales during the quarter grew 21% to $4.3 billion. This reflected a positive impact of $399 million led by a 14% increase in tire unit volume due to strong global demand and growth in the emerging markets. Sales were also boosted by $224 million in favorable foreign currency translation and by $125 million from higher sales in other tire-related businesses, mainly third-party chemical sales in North America.
Operating income was $240 million in contrast to a loss of $176 million in the year-ago quarter. This was attributable to higher sales and vehicle production, cost reductions of $148 million and a decrease in raw material costs by $283 million.
Segment Performance
Sales in the North American Tire segment rose 15% to $1.8 billion due to a 9% increase in tire unit volume and a strong price and product mix. Unit sales to original equipment manufacturers (OEMs) grew 45% as a result of higher production levels. The segment showed a narrower operating loss of $14 million compared to $189 million a year ago, owing to improved sales.
Sales in the Europe, Middle East and Africa Tire segment elevated 21% to $1.5 billion on the back of a 14% rise in tire unit volume and favorable foreign currency translation effects. Unit sales to OEMs shot up 53%, driven by higher vehicle production in Europe.
Meanwhile, replacement tire shipments inched up 5%. Operating income in the segment was $109 million in contrast to a loss of $50 million a year ago due to lower raw material costs, higher volume, improvements in productivity and cost reduction actions.
Sales in the Latin American Tire segment appreciated 25% to $478 million as tire unit volume increased 21%. OEM unit volume rose 21% due to higher vehicle production. Replacement tire shipments were up 20%. Operating income in the segment improved to $76 million from $48 million a year ago.
Goodyear continues to expect the devaluation in Venezuela to negatively affect operating income in the Latin American Tire segment by $50 million to $75 million on a year-over-year basis for full year 2010.
Sales in the Asia-Pacific Tire segment escalated 42% to $484 million, driven by a 27% increase in tire unit volume. Unit sales to OEMs improved 48%. Replacement tire shipments were up 16%. Operating income in the segment rose to $69 million from $15 million in the previous year due to better price and product mix, higher volume, cost reduction actions and favorable foreign currency translation effects.
Financial Position
Goodyear had cash and cash equivalents amounting to $1.77 billion as of March 31, 2010, a decrease from $1.92 billion as of December 31, 2009. Long-term debt and capital leases were $4.4 billion as of March 31, 2010. Long-term debt (including capital leases) to capitalization ratio was as high as 86%.
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