By Jeff Bennett
Of THE WALL STREET JOURNAL
DETROIT (Dow Jones)--After years of cost-cutting, Goodyear Tire & Rubber Co.
(GT) now expects its global business units to generate a record operating
profit in 2013 as the company invests billions in its plants to boost
production around the world.
Goodyear's business units will achieve an operating income of $1.6 billion in
2013, with about $450 million coming from its core North America business
segment, the company said Tuesday. A total operating income figure for the
company wasn't provided.
North America's largest tire maker also expects to make $1.1 billion to $1.3
billion worth of capital investments in both 2012 and 2013. Half will go toward
expanding technology and developing new products, with the remainder used to
modernize equipment or expand facilities.
(This story and related background material will be available on The Wall
Street Journal Web site, WSJ.com.)
The financial forecast, a rarity for Goodyear, underscores the company's
confidence in the ongoing recovery in the automotive industry and consumer
sector.
Chief Executive Richard Kramer, betting on current demand trends, wants to
boost tire production by as much as 5% annually over the next three years. He
aims to take Goodyear's overall production capacity to 195 million tires in
2013 from 173 million in 2010.
Most of that output increase will be in Goodyear's high-end tires. Those
tires, usually bought by owners of sport-utility or luxury vehicles, are more
complex and costly to make but are also sold at higher prices than entry-level
tires where there is more competition and thinner profit margins.
Current trends show sales of cars and commercial trucks continuing to rise,
driving demand especially in emerging markets, Kramer said during an analyst
presentation in New York on Tuesday.
Car makers are also now equipping their midlevel vehicles with high-end tires
to improve performance and attract customers, Kramer said. Tires are also
becoming an important factor for improving fuel efficiency, which more shoppers
are noting when buying new cars.
To respond to the demand, some of Goodyear's plant investments include
spending a total of $225 million on its Lawton, Okla., and Fayetteville, N.C.,
facilities to convert some low-end tire production to high-end tires. The two
plants combined will churn out 9 million high-end tires once the upgrades are
completed in 2013.
A plant in Chile and one in Brazil will receive a combined $700 million
investment. These facilities will also begin producing a total of 9 million
high-end tires in 2013.
"Having momentum coming out of the deep economic recession, we are now
positioned to confidently drive higher levels of performance across our
businesses," Kramer said in a statement.
Aside from its financial forecast, Goodyear said it will improve its balance
sheet by cutting its underfunded pension obligations by more than half to $1.2
billion by 2013. The company expects to make pension contributions of $550
million in 2012 and $525 million in 2013, in addition to contributions of about
$275 million in 2011.
These moves are expected to decrease Goodyear's pension expense by $100
million a year by 2013, the company said in the statement.
Shares of Goodyear fell 46 cents, or 3%, to $14.93 recently.
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