GOODYEAR TIRE & RUBBER CO annual report, FY2023

Goodyear Tire & Rubber Company — FY2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. Goodyear manufactures and sells tires globally, with Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific segments. This annual filing reports full-year results, not a standalone fourth-quarter income statement.

Financial performance and liquidity

MetricFY2023FY2022
Net sales$20.066 billion$20.805 billion
Goodyear net income (loss)$(689) million; $(2.42) per diluted share$202 million; $0.71 per diluted share
Cost of goods sold$16.557 billion; 82.5% of sales$16.953 billion; 81.5% of sales
Segment operating income$968 million; 4.8% margin$1.276 billion; 6.1% margin
Cash provided by operating activities$1.032 billion$521 million
Capital expenditures$1.050 billion$1.061 billion
Cash and cash equivalents at year-end$902 million$1.227 billion
Debt, including finance leasesApproximately $7.6 billionNot stated here on a directly comparable basis
  • Sales fell 3.6%. Global tire shipments declined 6.1% to 173.3 million units: replacement units fell 9.5%, while OE units rose 6.3%.
  • Price and product mix added $696 million to sales, partly offsetting lower tire volume, unfavorable currency translation, lower sales in other tire-related businesses, and the Tupelo storm.
  • Operating cash flow improved year over year, supported in part by lower inventory. Capital expenditures exceeded operating cash flow by approximately $18 million.
  • Cash decreased $325 million, primarily reflecting capital spending, $343 million of net debt repayment, and loans to TireHub, partly offset by operating cash flow and asset-sale proceeds.
  • Unused availability under credit agreements was $4.247 billion at year-end. Goodyear reported compliance with applicable material debt covenants; its first-lien revolver’s springing financial covenant was not applicable.
  • Interest expense rose to $532 million from $451 million; the average debt balance and average interest rate also increased. About $1.5 billion of debt was variable-rate.

Segments and changes versus FY2022

  • Americas: Sales of $11.993 billion, down 6.1%; operating income of $749 million, down from $1.094 billion; margin declined to 6.2% from 8.6%. Lower volume, conversion costs and the Tupelo storm weighed on results.
  • EMEA: Sales of $5.606 billion, down 0.7%; operating income fell to $17 million from $61 million; margin was 0.3% versus 1.1%. Lower volume, inflation, energy and transportation costs, and the Debica fire offset pricing and mix improvements.
  • Asia Pacific: Sales rose 3.0% to $2.467 billion; operating income increased to $202 million from $121 million; margin improved to 8.2% from 5.1%. Higher volume and price/mix contributed.
  • Consolidated net loss reflected higher rationalization charges ($502 million versus $129 million), a $230 million non-cash EMEA goodwill impairment, lower segment operating income, higher interest expense and higher other expense.
  • Raw-material costs eased in the second half of 2023, but wage and labor-related costs remained pressured; energy costs remained elevated in EMEA. Production was reduced by 14.2 million units versus 2022 to address softer demand and inventory.

Outlook, strategy and notable items

  • Goodyear Forward: Announced in November 2023 to pursue more than $2 billion in gross proceeds from potential portfolio actions involving chemicals, the Dunlop brand and off-the-road tires; achieve $1 billion of annual run-rate cost benefits and $300 million of annual run-rate top-line benefits by end-2025; reach a 10% segment operating margin by end-2025; and improve leverage. Goodyear expects the plan to benefit segment operating income by approximately $350 million in 2024. Execution, sale timing and proceeds are uncertain.
  • For Q1 2024, management expected tire volume to be slightly lower year over year, raw-material costs about $245 million lower, and price/mix net of lower raw-material costs to benefit segment operating income by about $115 million. Other non-raw-material inflation and costs were expected to reduce segment operating income by about $25 million; Goodyear Forward savings were expected to contribute about $50 million, with the Debica production ramp expected to weigh by about $15 million.
  • For 2024, planned capital expenditures are $1.2–$1.3 billion, rationalization payments about $300 million, interest expense $520–$540 million, income-tax payments about $200 million excluding one-time items, and funded-pension contributions $25–$50 million. Working capital is expected to be flat versus 2023. Asset-sale advisory, legal, consulting and other costs are expected to be about $100 million.
  • Major unusual events: the Tupelo storm reduced 2023 sales by an estimated $110 million and earnings by $69 million; the Debica fire reduced earnings by about $28 million. Insurance recoveries are expected for a significant portion of business-interruption impacts, but receivables are recorded when claims are substantially complete.
  • Rationalization actions include proposed closures of the Fulda and Fürstenwalde plants, workforce reductions in EMEA, and Australia/New Zealand restructuring. Further costs, cash outflows, consultations and execution remain relevant.
  • In January 2024, the European Commission inspected Goodyear premises as part of a tire-industry antitrust investigation. The company is cooperating; related civil lawsuits have also been filed, and outcomes cannot be predicted.
  • Other risks include competition and demand cycles, raw-material and energy volatility, labor negotiations and shortages, foreign exchange, substantial debt and financing access, environmental obligations, product liability and asbestos claims. Approximately 35,800 asbestos claimants were pending at year-end; recorded asbestos liabilities were $120 million, with a $66 million insurance receivable.
  • Management reported effective internal control over financial reporting, and the independent auditor issued an unqualified opinion on the financial statements and internal controls. The auditor identified U.S. deferred-tax-asset realizability and the EMEA goodwill impairment assessment as critical audit matters.

Investor verification priorities

  • Track whether portfolio transactions achieve the targeted proceeds and whether the announced Goodyear Forward savings, top-line benefits, margin and leverage goals are delivered on schedule.
  • Test recovery in replacement tire volumes and segment profitability, especially in Americas and EMEA, against continuing labor, energy and conversion-cost pressures.
  • Monitor liquidity, debt maturities, interest expense, borrowing-base availability and the company’s ability to reduce leverage while funding planned capital expenditures and restructuring.
  • Verify insurance recoveries and remaining operational impacts from the Tupelo and Debica incidents, as well as cash costs and timing for plant closures and workforce actions.
  • Assess sensitivity of the $1.2 billion U.S. net deferred tax assets to future profitability, and watch for further impairments or material outcomes in antitrust, asbestos, product-liability, tax and environmental matters.