26 Mar 2020
Posted in Business Fundamentals
Goodyear’s sentiments slide in Q4 2019 due to challenging environment
Goodyear Tire & Rubber Co.’s (Goodyear) sentiments declined in the fourth quarter (Q4) of 2019 (Quarter ending December 31, 2019) compared to Q3 2019, due to the automotive industry’s challenging environment and distributor concerns, says GlobalData, a leading data and analytics company.
GlobalData’s Company Filing Analytics platform found that Goodyear’s overall sentiment score declined by 15% in Q4 2019 compared to Q3 2019.
In the Q4 2019 earnings transcript, discussion around ‘challenging environment’ weighed heavily. Goodyear incurred a net loss of US$392m in Q4 2019. The global downturn in automotive original equipment manufacturer (OEM) volumes and weak Europe, Middle East and Africa (EMEA) sales contributed to the erosion in Goodyear’s profitability. Sales were affected by the challenges faced by its major customers – Ford and General Motors.
Aurojyoti Bose, Lead Analyst at GlobalData, says: “The slowdown in automotive production was a primary reason for Goodyear’s sluggish performance and the slight growth in replacement tire shipments was not enough to offset declines in the original equipment volumes.”
EMEA’s overall tire sales volume declined 4% (year-on-year) in Q4 2019, as both the replacement and OEM tire segment volumes dwindled in the region. The poor performance was a consequence of declining European winter tire sales.
To mitigate future impacts, the company is focusing on a restructuring plan in Germany by driving automation in its plants and expects the strategy to save US$60-$70m in the EMEA region by 2022.
Distribution struggles during the quarter also led to unstable sales volumes in EMEA, where a lack of brand focus in distribution channels negatively impacted sales.
The company is currently signing service deals with new brand focused distributors. In Europe, Goodyear expects to shift nine million tire units sold via e-commerce channels to full-service distributors.
Goodyear also started a restructuring plan in the US due to increasing labor costs and the company expects larger (than EMEA) savings and further improved margins in the Americas segment.
Furthermore, mentions of ‘Low Cost’ and ‘Cost Savings’ rose significantly in 2019 transcripts, which suggests rising focus on its regional restructuring plans.
Transcript mentions of ‘Electric Vehicles’ and ‘EVs’ also rose rapidly in 2019 – another initiative to address the issues in EMEA is Goodyear’s plan to drive EV tire volumes.
Goodyear will suspend tire and chemical manufacturing in its Americas region until at least April 3 or until further notice in response to the sudden decline in market demand, resulting from the rapid spread of the coronavirus (COVID-19) pandemic.
Bose adds: “Prior to the coronavirus outbreak, the company was already walking on a tight rope in APAC and EMEA and with March 18th 2020’s announcement of halting manufacturing of tires and chemical in the Americas region, situations may further worsen.
“Although, Goodyear’s strong initiatives of restructuring, brand focused distribution, and EV tire launches are likely to improve margins in the future, it will also be interesting to see what other strategies Goodyear might adopt to mitigate the impacts of production shutdown amid the COVID-19 outbreak.”