third quarter 2010 conference call ... - goodyear corporate · robust winter tire demand drives...
TRANSCRIPT
Third Quarter 2010 Conference Call
October 28, 2010
Forward-Looking Statements
Certain information contained in this presentation may constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors, many of which are beyond our control, that affect our operations, performance, business strategy and results and could cause our actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to: our ability to realize anticipated savings and operational benefits from our cost reduction initiatives or to implement successfully other strategic initiatives; increases in the prices paid for raw materials and energy; actions and initiatives taken by both current and potential competitors; deteriorating economic conditions or an inability to access capital markets; pension plan funding obligations; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; a labor strike, work stoppage or other similar event; our failure to comply with a material covenant in our debt obligations; the adequacy of our capital expenditures; potential adverse consequences of litigation involving the company; as well as the effects of more general factors such as changes in general market, economic or political conditions or in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
2
Agenda
3
•
Business Review
•
Q3 Financial Results
•
2010 Outlook
•
Q&A
Executive Summary
•
Industry recovery firmly established
•
Strong third quarter operating performance–
Higher unit sales, branded share gains
–
Improved capacity utilization
–
Significant price/mix benefits, product successes
–
Segment operating income improved from second quarter despite increase in raw material costs
•
Continued confidence in Next Stage Metrics
4
Third Quarter Financial Highlights
•
Tire shipments increased 6%
•
Sales increased 13% to $5 billion
•
Price/mix drives 8% revenue per tire increase
•
Commercial truck volumes increase 15%
•
Cost savings of $70 million (about $350 million YTD)
•
Segment operating income of $234 million
•
Completed $1 billion debt refinancing to extend maturities
5
Third Quarter Business Highlights
•
Market and brand strength in Latin American business mitigating Venezuela impact
–
Brazil recovery remains strong
•
North American business profitable despite raw material increases
–
Revenue per tire up 7% on strong price / mix
–
Stronger-than-expected demand pressuring fill rates
–
Mix improving, branded share growth / selective OE
–
Successfully implementing supply chain strategy / 2009 USW agreement
6
$0.50
$1.00
$1.50
$2.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5,000
8,000
11,000
14,000
2003 2004 2005 2006 2007 2008 2009 2010 2000 2005 2010 2015 2020
Natural Rubber
Source: Sicom
2010
20092007
2008
Continue to see ample supply•
Despite recovery, demand at approximately 2007 and 2008 levels
•
Inclement weather in SE Asia adversely influencing views on near-term supply
•
Supply expected to increase as plantings have risen (2005 – present) among top producing countries
–
Trees produce natural rubber after 6 to 8 years
Supply Increasing
*Source: International Rubber Study Group (IRSG)** 2010 demand reflects June YTD actual consumption straight lined for the full year. June YTD was 5,016 7
Worldwide Natural Rubber Demand*(‘000 tonnes)
Worldwide Natural Rubber Production Forecasted by IRSG*
(‘000 tones)
5,000
8,000
11,000
14,000
2**
Natural Rubber (TSR20) Average Monthly Spot Price(U.S. Dollars per pound)
$596
$746$639
$942
$207
$374
$526
$829
$195
$712
($115)
$152
2005 2006 2007 2008 2009 SeptemberYTD 2010
Price/Mix Raw Materials
(b)
Price/Mix Improvements
(a) Reflects impact on Segment Operating Income. Raw Materials include the impact of raw material cost savings measures.(b) Raw material variance of $152 million includes raw material cost savings measures of $104 million.
Price/Mix vs. Raw Materials(a)($ in millions)
8
$322(net benefit)
Third Quarter Innovation Highlights
•
Assurance Fuel Max passes 3 million mark – earns Good Housekeeping seal
•
Eagle F1 Asymmetric and Dunlop SP Sport Maxx GT top ultra high performance category – earn Best Buy recommendations
•
Goodyear / Dunlop dominate German winter tire tests leaderboard
•
63” OTR development completed, first tire to ship in Q4
9
Eagle F1 Asymmetric
UltraGrip 7+
Selective Investment Strategy
•
Goodyear investments focused in three areas:
–
Increase low cost footprint
–
Improve capability to supply tires with increasing levels of consumer relevant technology
–
Drive profitable growth in emerging markets
•
Capex level of $1.0 to $1.1 billion in 2010–
About $400 million above level to sustain business
–
Incremental investments drive capability and capacity
•
Maintain disciplined process for allocation of capital–
High return requirements
–
Balance with cash flow and improving capital structure
10
Q3 Financial Results
Third Quarter 2010Income Statement
a) Segment operating income and margin reconciliation in Appendix on page 29.12
Total Company(In millions, except Margin and EPS)
Third Quarter2010 2009 Change
Units 47.7 45.0 6.0%
Net Sales $4,962 $4,385 13.2%
Gross Margin 17.0% 19.7% -2.7 pts
SAG $640 $617 3.7%
Segment Operating Income(a) $234 $275 -14.9%
Segment Operating Margin(a) 4.7% 6.3% -1.6 pts
Goodyear Net (Loss) Income ($20) $72
Goodyear Net (Loss) Income per Share - Diluted ($0.08) $0.30
Q1 2 0 0 9
Third Quarter 2010 Segment Operating Results
13
1. Reduction in NAT pension expense.2. Raw material variance of $412 million excludes raw material cost saving measures of $31 million, which is included in Cost Savings above.3. Estimated impact of inflation (wages, utilities, energy, transportation and other).
($ in millions)
Q3 2009
$275
Cost Savings
$50
$75
$67
$234
Unabsorbed Fixed Cost
Volume
Price/Mix
Pension(1)
Raw Materials(2)
Inflation(3)Currency Other
(Primarily Advertising,
Transportation and Incentive
Compensation)
($412)
($59)
($20) ($19)
$252
Q3 2010
($41)
$25
a) Working capital represents accounts receivable and inventories, less accounts payable – trade.b) Total Debt and Net Debt reconciliation in Appendix on page 30.
14
Third Quarter 2010 Balance Sheet
($ in millions)
September 30,2010
Cash and cash equivalents 1,665$ 1,683$ 1,922$ 2,590$
Accounts receivable 3,461 2,840 2,540 3,065
Inventories 2,993 2,901 2,443 2,543
Accounts payable - trade (2,813) (2,613) (2,278) (2,042)Working capital(a) 3,641$ 3,128$ 2,705$ 3,566$
Total debt(b) 4,972$ 4,604$ 4,520$ 5,910$
Net debt(b) 3,307$ 2,921$ 2,598$ 3,320$
September 30, December 31,2009 2009
June 30,2010
Undrawn Euro R/C Facilities
Management for Cash Debt Maturities
2010 2011 2012 2013 2014 2015 2016 > 2016
($ in millions)
Note: Based on balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt.(a) Includes $483 million of letters of credit issued under the U.S. revolving credit facility and $13 million under the European revolving facility.(b) Borrowing base reduced by $22 million at September 30, 2010.(c) $1,256 million due in 2020 and $149 million due in 2028.
Utilized 1st Lien R/C Undrawn 1st Lien R/C2nd Lien TL
Utilized Euro R/C Facilities
Bonds
$446
$995
$539
$1,200
$1,405(c)$1,478(b)
$688
$483(a)
Euro A/R Facility
15
$964
$149 (a)
2020 & Beyond
U.S. Pension Funding Relief
•
U.S. Pension funding relief legislation signed June 25, 2010
–
Provides for reduction in near-term funding
•
Conducted comprehensive analysis of 6 qualifying plans in Q3
•
Selected 9-year (2+7) contribution period
•
2011 now at about 2010 levels
16
Third Quarter 2010Segment Results
17
North American Tire(In millions) Third Quarter
2010 2009 ChangeUnits 18.0 17.1 4.8%Net Sales $2,176 $1,862 16.9%Segment Operating Income $5 $2 Margin 0.2% 0.1%
•
Higher Consumer and Commercial volumes−
Strong replacement market share improvement−
Consumer OE strong; unfavorable mix impact continues
•
Revenue per tire up 7% on strong price/mix
•
Raw material cost pressures significant ($148 million)
•
Improved factory utilization
•
Reduced pension expense
Third Quarter 2010 Segment Results
18
•
Higher Consumer and Commercial volumes
–
Robust winter tire demand drives consumer sales
–
Emerging market volume up 17%, gaining share
•
Revenue per tire up 7% on strong price/mix
•
Raw material cost pressures significant ($154 million)
•
Improved factory utilization and productivity
Europe, Middle East and Africa Tire(In millions) Third Quarter
2010 2009 ChangeUnits 19.1 17.8 7.2%Net Sales $1,696 $1,581 7.3%Segment Operating Income $77 $106 (27.4%)Margin 4.5% 6.7%
Third Quarter 2010 Segment Results
19
Latin American Tire(In millions) Third Quarter
2010 2009 ChangeUnits 5.2 5.0 4.4%Net Sales $569 $486 17.1%Segment Operating Income $95 $99 (4.0%)Margin 16.7% 20.4%
•
Segment operating income ex-Venezuela up $20 million
–
Improved Consumer and Commercial volumes, especially Brazil
•
Price/mix more than offset higher raw material costs
•
Improved factory utilization
•
Venezuela adverse impact $(24) million versus the prior year
Third Quarter 2010 Segment Results
20
•
Record units and sales
–
Consumer replacement market share growth in China and India
•
Price/mix improvement of $23 million
•
Raw material cost increase significant ($35 million)
•
Investments underway to drive future growth
Asia Pacific Tire(In millions) Third Quarter
2010 2009 ChangeUnits 5.4 5.1 7.8%Net Sales $521 $456 14.3%Segment Operating Income $57 $68 (16.2%)Margin 10.9% 14.9%
2010 Industry Outlook
Consumer Replacement
October versus July Guidance
October versus July Guidance
Consumer OE
Commercial Replacement
Commercial OE
October Full Year Guidance
October Full Year Guidance
NAT: ~ +4%
EMEA: ~ +5%
NAT: ~ +30%
EMEA: ~ +10%
NAT: ~ +15%
EMEA: ~ +15%
NAT: ~ +25%
EMEA: ~ +65%
21
No Change
No Change
2010 Outlook Items
Raw Materials
Interest Expense
Tax Rate
Capex
Current (October) Outlook
Current (October) Outlook
•
Q4 approximately 30% •
Q4 at least 35%
•
$325 to $350 million •
FY about $325 million
•
No change •
FY 25% to 30% of international SOI
•
No change •
FY $1.0 to $1.1 billion
22
Previous (July) Outlook Comparison
Previous (July) Outlook Comparison
Appendix
2010 Cash Flow
a) Includes amortization and write-off of debt issuance costs.b) Working capital represents total changes in account receivable, inventories and accounts payable – trade.c) Cash flows from operations reconciliation on page 31. 24
($ in millions)Nine Months Ended
September 30, September 30,
Net Income (Loss) $2 ($499) Depreciation and amortization(a) 509 485 Working capital(b) (806) 287 Pension contributions and direct payments (248) (304) Venezuela currency devaluation 110 - Other (including compensation and benefits) 516 460
Total Cash Flows from Operating Activities(c)$83 $429
Memo: Capital Expenditures $618 $502Effect of exchange rates on cash and cash equivalents ($162) $44
20092010
Legacy Costs and Interest Expense
25
(a) 2010E reflects only estimated contributions to global pension plans, and does not include estimates for direct benefit payments which were for 2006-2009 (’06 at $34 million, ’07 at $42 million, ’08 at $56 million and ’09 at $59 million).
(b) Expense is actuarially based and excludes one-time charges. There is approximately a one quarter lag until changes in pension expense are realized in COGS in the Statement of Operations.
(c) Net of participant contributions.
(d) Reflects settlement of liability related to VEBA funding. Benefit payments do not include $1 billion contribution to VEBA.
($ in millions)2006 2007 2008 2009 2010E
Global pension contributions and direct payments(a) $708 $719 $364 $430 $300 - $325
Pension expense (global)(b) $388 $276 $181 $387 $300 - $325
Postretirement benefit payments(c) $228 $225 $169(d) $64 $60 - $70
Postretirement benefit expense(d) $205 $126 $78(d) $4 < $10
Interest Expense $447 $450 $320 $311 [$315 - $330]~ $325
$1.7
$2.4
$0.1
September 30, 2010
Third Quarter 2010 Liquidity Profile
26
$4.2(a)
Cash & Equivalents(d)
$1 billion required for operations
Available Credit Lines (c)
Liquidity Profile
(a) Total liquidity comprised of $1,665 million cash and cash equivalents, $2,357 million of unused availability under various credit agreements, and the additional $168 million committed under the Pan-European securitization program.
(b) Committed Pan-European securitization program of $614 million (€450 million) subject to available receivables. As of September 30, 2010, $446 million (€327 million) available and fully utilized.
(c) Includes $459 million of financing related to relocation and expansion of manufacturing facility in Dalian, China.(d) Includes $164 million of cash in Venezuela denominated in bolivares fuertes.
Pan European Securitization (b)
($ in billions)
Unabsorbed Fixed Costs
27
(in millions)
(a) Production variance versus standard volume.
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Production Variance(a) 13.4 14.2 12.8 11.2 51.6 7.7 7.5 7.7
Unabsorbed Fixed CostRealized from Current Period Production:- Result of Period Costing (formerly SFAS 151) 134$ 116$ 67$ 25$ 7$ 4$ 5$ -Through COGS (not SFAS 151 related) 20 21 22 14 2 12 16 Realized from Prior Period Production 46 102 144 152 124 152 137
Total 200$ 239$ 233$ 191$ 863$ 133$ 168$ 158$
2009 2010
Reduced by$75
Third Quarter Significant Items (after taxes and minority interest)
28
2010•
Cash premiums and write-offs of deferred financing fees resulting from the early redemption of debt, $56 million (23 cents per share)
•
Rationalizations, asset write-offs and accelerated depreciation, $10 million (4 cents per share)
•
Costs related to a supply disruption, $4 million (2 cents per share)•
Costs resulting from a strike in South Africa, $3 million (1 cent per share)•
Net tax benefits related to employee benefit plans, $13 million (6 cents per share)•
Insurance recovery, $8 million (3 cents per share)2009•
Rationalizations, asset write-offs and accelerated depreciation, $29 million (12 cents per share)
•
Non-cash loss on liquidation of a subsidiary in Guatemala, $18 million (8 cents per share)
•
Charge to correct first-half earnings attributable to minority shareholders, $9 million (4 cents per share)
•
Expenses related to the company’s new USW labor contract, $5 million (2 cents per share)
•
Net tax-related benefits, $22 million (8 cents per share)•
Gain on asset sales, $6 million (3 cents per share)
Reconciliation for Segment Operating Income / Margin
29
($ in millions)
2010 2009Total Segment Operating Income $234 $275
Rationalizations (8) (16) Interest expense (90) (85) Other expense (62) (4) Asset write-offs and accelerated depreciation (4) (18) Corporate incentive compensation plans (18) (15) Intercompany profit elimination (3) 16 Other (7) (13)
Income before Income Taxes $42 $140United States and Foreign Taxes 55 38 Less: Minority Shareholders Net Income 7 30 Goodyear Net (Loss) Income ($20) $72
Sales $4,962 $4,385Return on Sales -0.4% 1.6%Total Segment Operating Margin 4.7% 6.3%
Three Months EndingSeptember 30,
Reconciliation for Total Debt and Net Debt
30
($ in millions)September 30, June 30,
2010 2010
Long term debt and capital leases 4,595$ 4,288$ 4,182$ 5,020$
Notes payable and overdrafts 259 184 224 243
Long term debt and capital leases due within one year 118 132 114 647
Total debt 4,972$ 4,604$ 4,520$ 5,910$
Less: Cash and cash equivalents 1,665 1,683 1,922 2,590
Net debt 3,307$ 2,921$ 2,598$ 3,320$
Change in Net Debt vs. Prior Period 386$
December 31, 2009
September 30,2009
Reconciliation for Cash Flow
31
($ in millions)2010 2009
Cash Flows From Operating Activities:Net Income (Loss) 2$ (499)$
Adjustments to reconcile Net Income (Loss)to cash flows from operating activities: Depreciation and amortization 487 471 Amortization and write-off of debt issuance costs 22 14 Net rationalization charges 16 207 Net (gains) and losses on asset sales (26) 33 Pension contributions and direct payments (248) (304) Rationalization payments (49) (183) Venezuela currency devaluation 110 - Changes in operating assets and liabilities, net of asset acquisitions and dispositions: Accounts receivable (858) (419) Inventories (547) 1,160 ` Accounts payable - trade 599 (454) Compensation and benefits 333 312 Other current liabilities 202 82 Other assets and liabilities 40 9 Total Cash Flows from Operating Activities 83$ 429$
Nine Months EndedSeptember 30,
32