Goodyear Tire & Rubber Co. (GT) announced that it would raise prices of its commercial truck tires by 15% and the price of tread rubber by as much as 7% from the next month. The price increases were driven by soaring price of raw materials.
Rubber, both natural and synthetic, is primarily used for manufacturing tires. This apart, carbon black, sulfur and other chemicals are used in tires.
Recently, natural rubber prices reached historic high due to surging demand in Asia, particularly China – the world’s largest rubber consumer. Moreover, there is a shortage in supply of natural rubber due to heavy rain in the main rubber producing countries, thereby pushing up its price.
Goodyear Tire, a Zacks #3 Rank (Hold) stock, revealed a 32% decline in profit to $21 million or 7 cents per share (excluding special items) in the fourth quarter of 2010 from $31 million or 14 cents per share in the same quarter of 2010. However, the company fared well compared with the Zacks Consensus Estimate of a loss of 7 cents per share during the quarter.
The decline in profit was primarily attributable to higher raw material costs, increased selling, administrative and general expenses and unfavorable currency translation effects. The company’s cost of goods sold increased 17% to $4.19 billion, while selling, administrative and general expenses rose 12% to $715 million.
Sales during the quarter appreciated 14% to $5.07 billion, higher than the Zacks Consensus Estimate of $4.88 billion. It was backed by a 4% increase in tire volume to 45 million units, which positively affected sales by $130 million.
Apart from unit volumes, sales were favorably affected by improvements in price/product mix that led revenue per tire to increase by 12% during the quarter, excluding the foreign currency translation effects.
Sales were also benefited by a $159 million rise in sales in other tire-related businesses, primarily third-party chemical sales in North America. However, it was negatively affected by $111 million due to unfavorable foreign currency translation effects.
Goodyear’s total segment operating income ebbed $25 million to $224 million in the quarter. This was attributable to $397 million in net higher raw material costs ($430 million before raw material cost reduction actions) and negative impact of $17 million due to unfavorable foreign currency translation effects that more than offset the benefit of $315 million due to improved price/product mix.
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