Goodyear Tire Company

Goodyear Puts the Pedal to the Metal

The main driver of the company's growth was its North American business segment , which saw an 18% increase in total revenue to $2.4 billion despite a 5% drop in overall tire volume. What this means for Goodyear's bottom line is a significantly juicier gross margin and thus a much higher-than-expected quarterly profit.

Another often overlooked implication of the tire business is the greater amount of used cars now on the road. With prices on used cars healthier than they've been in a long time, dealerships like Lithia Motors ( ) are looking to cash in. One way Goodyear may capitalize on that trend is through increased tire volume. Trust me, it's great getting premium tires on a brand new vehicle, but with used cars lasting longer every year, there are big margins to be made for Goodyear in the used-car market. Perhaps that's one reason Goodyear claims it's on track to turn $1.6 billion in operating income by 2013.

Not everything is as cut and dried as it seems, though, because it appears material costs are poised to take a major bite out of Goodyear's bottom line during the second half of the year. The company anticipates that raw-material costs are expected to rise by more than 30% for the rest of the year versus prior estimates of a 25%-30% jump in costs.

At first, traders pumped Goodyear's stock up above $18 yesterday, but shares came crashing down promptly to finish below $16 on worries of rising costs. So what's an investor to do?

I think you'd be crazy to overlook just how far Goodyear, and the entire tire industry, has come since the lows of 2009. Cooper Tire & Rubber ( http://widgets.surphace.com/widgets/sphereit/content?siteid=blogsmith_inpage_dailyfinance&url=http://www.dailyfinance.

Goodyear posts record sales, big earnings ... - Tire Club of America

CLEVELAND, Ohio — Tire sales were down during Goodyear’s second quarter, but people who did buy paid a lot, pushing the company to its highest quarterly sales ever and its best North American profits in 13 years.

Goodyear Tire Rubber Co. Chairman and Chief Executive Richard Kramer said the Akron-based company sold fewer store-brand tires and fewer tires to automakers during the quarter. So most of its tires went to retail customers who paid a premium for them.

“There is really not any weakness in what we’re seeing in our premium branded tires,” Kramer said during a conference call with analysts and reporters. “We actually continue to gain [market] share there.”

During the quarter, Goodyear earned $40 million, up 43 percent from the $28 million earned during 2010′s second quarter. In North America, the company had operating profits of $137 million, up from $16 million a year ago. Operating profits do not tax payments, interest and some other expenses.

“Their operating performance, particularly the $137 million in North America, far exceeded expectations,” said Saul Ludwig, an analyst with Northcoast Research in Cleveland.

Goodyear spokesman Keith Price said the strength in this region came from higher prices and customers choosing more premium offerings such as the company’s fuel-saving tires. He said the average price per tire was up about 20 percent.

“New products with consumer-driven innovations have been a key part of the strategy to” increase profitability, Price said.

Dominic Umek, general manager for Conrad’s Tire Express and Total Car Care, said all tire makers have been raising prices this year to offset higher costs for their main raw materials – steel, rubber and petroleum products. But he said Goodyear has done a better job than many of its competitors in managing its inventories.

“They’re focused on making sure that their premium products, their anchor products, have been available,” Umek said.

He added that many customers are choosing more premium tires because they expect to own their cars longer.

“They seem to grasp the fact that the service life of that product is longer with less maintenance, so they spend less over the long haul,” Umek said.

Despite posting numbers that easily trounced Wall Street expectations, Goodyear shares plummeted on Thursday.

Goodyear Tire and Rubber Company

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