Akron based tyre maker, Goodyear Tire & Rubber Company, revealed in its preliminary first quarter results that it is expecting to lose $185 million or more for its first quarter.
Goodyear released these details and more on Thursday morning while reporting its preliminary first quarter results. It also revealed some of the operational and financial decisions taken by the company at the backdrop of the COVID-19 pandemic.
On the financial front, the company outlined its decisions to suspended paying a dividend and the successful refinancing of its primary revolving credit facility in the U.S. Both the steps have been taken to better prepare the company for the consequences of the COVID-19 pandemic, it said.
As far as production and plant operations are concerned, the company is planning a phased restart of production during the second quarter, beginning in April with some of its commercial truck tyre facilities in the U.S. and Europe. The decision though will depend on several underlying factors like the market demand signals, inventory, supply levels, as well as the company's ability to safeguard the health of its associates.
Speaking about the preliminary first quarter results, Goodyear explained that it's 2020 first quarter results “were greatly affected by the economic disruption associated with the COVID-19 pandemic.”
The company expects to report a loss before taxes of $185 million to $195 million on revenue of $3 billion for the first quarter, which ended March 31. A huge rise in comparison to the $61 million loss it took a year ago on revenue of $3.6 billion. The adjusted 2020 loss is anticipated to be $175 million to $185 million, the company said.
Goodyear underscored that it has sufficient liquidity but the company wishes to be far sighted and strengthen itself financially in these testing times. The changes announced are only to better position the company for any new economic uncertainties. The temporary suspension of the dividend is expected to save the company about $37 million in cash a quarter.
Tyre unit volume totaled about 31 million for the first quarter of 2020, down 18% from a year ago. That reflects significant declines in global original equipment shipments after auto manufacturers halted production, plus weak replacement tyre demand caused by mandates for people to shelter-in-place, the company said.
“During this challenging time, our top priority continues to be the health and wellbeing of our associates,” Richard J. Kramer, chairman, chief executive officer and president, said in a news release. “I am proud of the courage and resilience of our associates around the world as they continue to service our customers and consumers during this unprecedented time. I am confident we will weather this crisis and that, as we continue to focus on our strategic priorities, we are positioning the company to win in our markets when the auto industry and broader economy recovers.”
The tyre maker also outlined its plans for operational changes adding that it is taking swift action to aggressively reduce operating costs and capital expenditures as industry demand continues to nosedive. These decisions come after the company's plants in the Americas and Europe had to be temporarily shut which eventually also helped the company reduce conversion costs, improve inventory levels and preserve cash.
As a result of current conditions, Goodyear expects 2020 capital expenditures to be no more than $700 million. Furthermore, it has also implemented measures to reduce its payroll costs through a combination of furloughs, temporary salary reductions and salary deferrals covering over 9,000 of its corporate and business unit associates, including substantial salary reductions and deferrals for the company's CEO, officers and directors.
The company is also working on reducing discretionary spending, including marketing and advertising expenditures. All these steps put together are definitely going to help the company dampen the financial impact from the fall in industry demand.
Also See: Goodyear's Connected Tyres Cut Stopping Distances By 30%
As of March 31, the company said it had total liquidity of about $3.6 billion, including about $970 million of cash and cash equivalents. Total debt was approximately $6.5 billion, largely unchanged from a year ago.
Here are some more details that the company revealed:
‒ It continues to evaluate global production plans. Most of its factories in the Americas and Europe, as well as several tyre plants in Asia Pacific, remain closed.
‒ The company plans a phased restart of production beginning this month with some of its commercial truck tyre facilities in the United States and Europe. Decisions to resume production will be based on market demand signals, inventory and supply levels, as well as the company’s ability to safeguard the health of its associates.
‒ The company’s plant in Pulandian, China, is operating with 100% of its workforce. The facility is expected to continue ramping up production in the second quarter.
‒ The company expects 2020 capital expenditures to be no more than $700 million.
‒ The company is evaluating opportunities to accelerate restructuring actions to further improve costs and position the company for recovery.
The company has not said when it will formally report first quarter earnings. It historically does so in late April.
