Goodyear Tire & Rubber Co. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Goodyear operates regional tire businesses in the Americas, EMEA, and Asia Pacific.
Financial performance
- Net sales: $4.537 billion, down 8.2% from $4.941 billion. Worldwide tire shipments fell 3.3% to 40.4 million; replacement volume declined 7.4%, while OE volume increased 8.9%.
- Profitability: Goodyear net loss was $57 million, or $0.20 per diluted share, versus a $101 million loss, or $0.35 per share. Loss before tax was $52 million; income tax expense was $6 million.
- Margins: Cost of goods sold was 81.9% of sales versus 84.9%; SAG expense was 15.3% versus 13.4%. Segment operating income rose to $247 million from $125 million, and segment operating margin improved to 5.4% from 2.5%.
- Segments: Americas operating income was $179 million (up from $79 million); EMEA was $8 million (unchanged); Asia Pacific was $60 million (up from $38 million). Sales declined in the Americas and EMEA, but increased in Asia Pacific.
- Cash flow: Operating cash outflow was $451 million, improved from $775 million, including $539 million of working-capital use and $55 million of rationalization payments. Investing cash outflow was $231 million; capital expenditures were $318 million. Financing cash inflow was $661 million, primarily from net borrowings.
- Liquidity and debt: Cash and cash equivalents were $893 million at quarter-end, compared with $902 million at year-end 2023; unused credit availability was $3.313 billion, down from $4.247 billion. Balance-sheet notes payable, current long-term debt and finance leases, and long-term debt and finance leases totaled approximately $8.266 billion, versus $7.624 billion at year-end. About 26% of debt carried variable rates, averaging 7.06%.
Changes, outlook, and management commentary
- Higher segment income reflected lower raw-material costs ($261 million), lower transportation and imported-tire costs ($75 million), and $72 million of Goodyear Forward benefits. Offsets included weaker price and mix ($134 million), higher conversion costs ($102 million), lower tire volume ($28 million), and an $11 million EMEA impact from the Debica factory fire.
- Management expects Q2 2024 global tire volume to be approximately flat year over year, excluding the Tupelo tornado recovery effect; raw-material costs to be about $160 million lower; and price/mix net of raw-material reductions to contribute about $90 million. It expects about $30 million more unabsorbed overhead and $10 million higher non-raw-material inflation and other costs.
- For full-year 2024, Goodyear expects raw-material costs $325–$350 million below 2023, at least $375 million of Goodyear Forward benefits, working capital flat versus 2023, capital expenditures of $1.2–$1.3 billion, rationalization payments of about $300 million, interest expense of $520–$540 million, and income-tax payments of about $200 million excluding one-time items.
- Goodyear Forward targets $1 billion of cost-structure reductions and a 10% segment operating margin by end-2025. The plan includes portfolio reviews of chemical operations, the Dunlop brand, and off-the-road tires. Execution costs and asset write-offs are affecting current results.
- The Debica facility was still recovering from a 2023 fire; full ramp-up was expected in Q3 2024. Management estimated a Q1 earnings impact of about $14 million. A March 2024 plan will close the Malaysia tire plant by year-end, eliminating about 550 positions; expected pretax charges are about $40 million.
- In April, Goodyear completed the sale of a German distribution center and recognized an approximately $80 million gain, net of transaction costs. The company received $108 million of related proceeds in Q1, primarily as prepaid cash.
Risks, contingencies, and unusual items
- Material risks include substantial debt, variable-rate interest exposure, competition, inflation and commodity volatility, supply-chain disruptions, foreign-exchange risk, and the execution and benefits of Goodyear Forward. Credit-facility availability can decline if borrowing-base assets lose value.
- Goodyear reported compliance with applicable material debt covenants. A first-lien facility financial covenant is not currently applicable; the company reported $2.171 billion of available cash plus availability under that facility against a $275 million threshold.
- Recorded liabilities included $446 million for general and product liability and other tort claims, including asbestos claims; the asbestos liability was $121 million, with a $67 million insurance receivable. Approximately 35,850 asbestos claims were pending. Management said excess asbestos losses are reasonably possible but cannot be reasonably estimated.
- Environmental liabilities were $82 million. Workers’ compensation liabilities were $169 million; the company estimated reasonably possible excess of about $20 million. Management cautioned that contingent liabilities and insurance recoveries are subject to uncertainty.
- Goodyear recorded $6 million of tax expense despite a pretax loss. It concluded U.S. deferred tax assets were more likely than not to be realized, but warned that weaker future U.S. results or tax-law changes could require a valuation allowance. Foreign deferred tax assets included about $1.2 billion of valuation allowances, including about $1.0 billion in Luxembourg.
- The company expects no material 2024 annual effective-tax-rate impact from OECD Pillar Two rules. SEC climate-disclosure rules were stayed in April 2024 pending judicial review; Goodyear was assessing their impact.
Most important facts for investors to verify
- Whether lower replacement demand, price and product mix, and regional competition continue to pressure sales and margins.
- Whether Goodyear Forward delivers the expected savings and margin improvement, and how much restructuring and execution spending is required.
- Whether cash generation improves after Q1 working-capital use, while funding planned capital expenditures, rationalization payments, and debt obligations.
- Progress on Debica’s recovery and the Malaysia closure, including costs, timing, and operational effects.
- Debt and liquidity trends, including variable-rate exposure, borrowing-base availability, and refinancing requirements.
- Developments in asbestos and other claims, insurance recoveries, and the realizability of U.S. deferred tax assets.