Goodyear Tire & Rubber (GT)

Q2 2012 Earnings Call

July 31, 2012 9:00 am ET


Gregory A. Fritz - Vice President of Investor Relations

Richard J. Kramer - Chairman of The Board, Chief Executive Officer and President

Darren R. Wells - Chief Financial Officer and Executive Vice President


Itay Michaeli - Citigroup Inc, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Elizabeth Lane - BofA Merrill Lynch, Research Division

Aditya Oberoi - Goldman Sachs Group Inc., Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division



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Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear Tire and Rubber Co. Second Quarter Earning Conference Call. [Operator Instructions] It is now my pleasure to hand the program over to Mr. Greg Fritz, Vice President of Investor Relations.

Gregory A. Fritz

Thank you, Christy, and good morning, everyone, and welcome to Goodyear second quarter conference call. Joining me today are Rich Kramer, Chairman and the CEO; and Darren Wells, Executive Vice President and CFO. Before we get started, there are a few items I would like to cover.

To begin, the webcast of this morning's discussion and the supporting slide presentation can be found on our website at Additionally, a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning.

If I can now direct your attention to the Safe Harbor statement on Slide 2. Our discussion this morning may contain forward-looking statements based on our current expectations and assumptions that are subject to risks and uncertainties. These risks and uncertainties, which can cause our actual results to differ materially are outlined in Goodyear's filings with the SEC and in the earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Turning now to the agenda. Rich will provide a business overview, including perspective on our second quarter results and our progress on Goodyear's key strategic objectives. After Rich's remarks, Darren will discuss the financial results and outlook before opening the call to your questions.

With that, I will now turn the call over to Rich.

Richard J. Kramer

Great. Thanks, Greg, and good morning, everyone. We look forward to discussing our business which continues to do well in this uncertain environment. For the past several months, we have all seen increasing uncertainty in the global economy and its effect in virtually every industry and business. Beginning with the great recession of late 2008, and continuing with today's volatility in Europe, this has been a time of immense challenges. Yet our second quarter results gives us confidence that we have the right strategies in place and we are successfully building our business to better withstand the fluctuations of the tire industry, the marketplace and the global economy.

In the second quarter, we delivered $336 million of segment operating income and $85 million in net income. This is a strong result and one that I'm very proud of, given that industry volumes declined to levels similar to those we saw during the depths of the great recession.

Now during my remarks this morning, I'll take you through an overview of the second quarter results, offer my perspective on our outstanding performance in North America, address the business situation in Europe and offer an outlook for 2013.

I'll begin by taking a look at some of the positives and negatives that stood out during the second quarter. Our North America business delivered record results for any quarter. I'll elaborate on this further in a few moments, but I want to emphasize that these results were not based on volume but rather the structural change we have been implementing to our business model aimed at creating consistent earnings, positive cash generation and most importantly, industry-leading customer service.

For the total company, our gross margin also improved year-over-year, reflective of continued strong price/mix, offsetting what continue to be historically high raw material cost increases. This is a strategy we have been executing consistently over many quarters, critical, given our expectation of rising raw materials over the long term.

In our Asia Pacific business, our record second quarter earnings was $71 million, even with the startup cost associated with our Pulandian facility, demonstrate progress toward our strategy to win in China. Our progress there is bolstered by investments in innovative products, building brands, enhancing our distribution and developing our team.

Those efforts are supported by our newest and most modern production facility, now up and running ahead of plan. As a result, we continue to gain share in China, focused in on our targeted market segments.

During the second quarter, we also continue to strengthen our financial position and our balance sheet. We completed the refinancing of our U.S. credit facilities in April, which now extends our maturity schedule considerably and gives us significant flexibility to drive our strategy even in the midst of economic uncertainty. And when coupled with the new U.S. legislation to stabilize pension contributions, our near-term cash and liquidity position have improved substantially.

We also saw several challenges in the second quarter. Volumes softness driven by economic weakness, particularly in Europe, combined with destocking and dealer challenge globally hurt our volumes and resulted in higher inventories despite aggressive actions to reduce European production and to manage working capital. I'll add more thoughts about Europe in a few moments as well. We also were negatively impacted by the effect of weaker currencies against the U.S. dollar, which for the first time since early 2009, significantly affected our international sales and segment operating income.

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