+ All Categories
Home > Documents > Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment...

Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment...

Date post: 17-Aug-2020
Category:
Upload: others
View: 1 times
Download: 0 times
Share this document with a friend
27
Second Quarter 2014 Conference Call July 30, 2014
Transcript
Page 1: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Second Quarter 2014 Conference CallJuly 30, 2014

Page 2: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Forward-Looking Statements

Certain information contained in this presentation constitutes 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 implement successfully our strategic initiatives; actions and initiatives taken by both

current and potential competitors; increases in the prices paid for raw materials and energy; a labor strike,

work stoppage or other similar event; deteriorating economic conditions or an inability to access capital

markets; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; the

adequacy of our capital expenditures; our failure to comply with a material covenant in our debt obligations;

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

Page 3: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Q2 Highlights

3

• Record second quarter segment operating income of $460 million(a)

• North America second quarter earnings of $208 million, a record for

any quarter

• Europe, Middle East and Africa second quarter earnings more than

double to $117 million

• First half segment operating income of $833 million(a) up 14% from

last year

• Second quarter tire volumes increase 3%, in line with full-year

outlook

Strong Segment Operating Income performance in Q2 driven by

volume improvement and cost savings(a) See Segment Operating Income reconciliation in Appendix on page 24.

Page 4: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Reaffirming 2014-2016 Financial Targets

4

• Annual 10-15% SOI growth per year through 2016

• Annual positive free cash flow from operations

• Adjusted Debt to EBITDAP(a) ratio of 2.0-2.1x by the end

of 2016

(a) Total debt plus global pension liability, divided by net income before interest expense, income tax expense, depreciation and amortization

expense, net periodic pension cost, rationalization charges and other (income) and expense

Page 5: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

New Americas Tire Factory

New tire plant to support long-term growth

• HVA Consumer Replacement market segments and premium Consumer OEM fitments

• North America and Latin America businesses

Site selection is underway

• First tire production would be in the 1st half of 2017

Plant to be one of the world’s most technologically advanced plants

• Initial capacity of 6 million Consumer HVA tires per year; expandable over time

Required CapEx would be up to $500 million through 2016 for this phase of the project

Supports long term profitable growth in North America and Latin America

• Associated plant startup costs will not change our target to grow total company Segment

Operating Income by 10-15% per year through 2016

Exciting new world-class asset to support future growth5

Page 6: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Winning in the AmericasWhat does it take?

For winners, not an “OR”… it is an “AND”

Goodyear delivers both in an integrated manner

Iconic brand

Industry leading products

Pervasive distribution

Strong customer relations

Consumer-centric focus

Right Tire

Right Time

Right Place

Right Cost

Market-Back Approach Sufficient HVA Capacity

AND

Advantaged Value Proposition Operational Excellence

6

Page 7: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Strategy Roadmap

7

Our Destination - Creating Sustainable Value

Industry

MegaTrends

Where We Are

Key Strategies Key How To’s

Executing Plan

Innovation Leader

Record Earnings

Value Creating

Improving Volume

US Pension Fully Funded

Top Line / Bottom Line Growth

First with Customers

Innovation Leaders

Leader in Targeted Segments

1. North America: Grow Profitably

2. Asia: Win in China / Grow Asia

3. EMEA / LA: Return to Historical

Profit

Market-Back Innovation Excellence

Sales & Marketing Excellence

Operational Excellence

Enabling Investments

Top Talent / Top Teams

Competitively Advantaged

Profitable thru Economic Cycle

Cash Flow Positive

Investment Grade

Page 8: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Financial Update

Page 9: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Second Quarter 2014

Income Statement

(a) See Segment Operating Income and Margin reconciliation in Appendix on page 24.(b) See Adjusted Diluted Earnings Per Share reconciliation in Appendix on pages 19 and 20.

In millions, except EPS

9

June 30, June 30,

2014 2013 Change

Units 40.6 39.5 3%

Net Sales 4,656$ 4,894$ (5)%

Gross Margin 24.1% 21.4% 2.7 pts

SAG 698$ 691$ 1%

Segment Operating Income(a) 460$ 428$ 7%

Segment Operating Margin(a) 9.9% 8.7% 1.2 pts

Goodyear Net Income 213$ 188$

Less: Preferred Stock Dividends -$ 7$

Goodyear Net Income Available to Common

Shareholders213$ 181$

Goodyear Net Income Available to Common

Shareholders - Per Share of Common Stock

Basic 0.77$ 0.74$

Diluted 0.76$ 0.67$

Cash Dividends Declared Per Common Share 0.05$ -$

Adjusted Diluted Earnings Per Share (b)

0.80$ 0.76$

Three Months Ended

Page 10: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

1010

Second Quarter 2014

Segment Operating Results

$ In millions

(a) Estimated impact of inflation (wages, utilities, energy, transportation and other)(b) Raw material variance of $58 million excludes raw material cost saving measures of $62 million, which are included in Cost Savings above(c) Includes $15 million savings from Amiens plant closure and $15 million of pension expense savings, partially offset by $10 million incremental investments in

R&D / advertising, and other items.

$428 $20 $20

$103 ($69)$58 ($102)

($13) $15 $460 Raw

Materials(b)Cost

SavingsInflation(a)

Volume

Un-

absorbed

Fixed

Cost

Price / Mix Other(c)Currency

Q2

2013

Q2

2014

+$40 +$34 ($44)Weakness

in OTR

business

+$32

Page 11: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

1111

June YTD 2014

Segment Operating Results

$ In millions

(a) Estimated impact of inflation (wages, utilities, energy, transportation and other)(b) Raw material variance of $156 million excludes raw material cost saving measures of $119 million, which are included in Cost Savings above(c) Includes $29 million pension expense savings and $21 million savings from Amiens plant closure, partially offset by $16 million increased depreciation, $14

million incremental spending on advertising / R&D, and other items.

+$103

$730 $22

$68

$214 ($144) $156 ($183)

($29) ($1) $833

Raw

Materials(b)Cost

SavingsInflation(a)

Volume

Un-

absorbed

Fixed

Cost

Price / Mix Other(c)Currency

June

YTD

2013

June

YTD

2014+$90 +$70 ($27) Weakness

in OTR

business

+14%

Page 12: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

(a) Working capital represents accounts receivable and inventories, less accounts payable – trade.(b) See Total Debt and Net Debt reconciliation in Appendix on page 25.

Second Quarter 2014

Balance Sheet

$ In millions

12

June 30, March 31, December 31, June 30,2014 2014 2013 2013

Cash and cash equivalents 1,637$ 1,853$ 2,996$ 2,564$

Accounts receivable 2,841 2,913 2,435 2,880Inventories 3,130 3,021 2,816 3,138Accounts payable - trade (3,097) (3,112) (3,097) (3,213)

Working capital(a)

2,874$ 2,822$ 2,154$ 2,805$

Total debt(b)

6,762$ 7,120$ 6,249$ 6,529$

Net debt(b)

5,125$ 5,267$ 3,253$ 3,965$

Page 13: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Free Cash Flow from Operations

$ In millions

13

(a) Pension Expense is the net periodic pension cost before curtailments, settlements and termination benefits as reported in the pension-related note

in the Notes to Consolidated Financial Statements.

(b) See Free Cash Flow from Operations reconciliation in Appendix on page 26.

Trailing Twelve

Months Ended

2014 2013 June 30, 2014

Net Income 232$ 193$ 645$

Depreciation and Amortization 188 180 736

Change in Working Capital (18) 114 28

Pension Expense (a)

38 72 225

Other 86 20 206

Capital Expenditures (212) (222) (1,116)

Free Cash Flow from Operations (non-GAAP) (b) 314$ 357$ 724$

Three Months Ended

June 30,

Page 14: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Second Quarter 2014

Segment Results

In millions

14

2014 2013 Change 2014 2013 Change

Units 15.3 14.8 2.8% Units 15.1 14.6 3.3%

Net Sales $2,044 $2,201 (7.1%) Net Sales $1,580 $1,577 0.2%

Operating Income $208 $204 2.0% Operating Income $117 $51 129.4%

Margin 10.2% 9.3% Margin 7.4% 3.2%

2014 2013 Change 2014 2013 Change

Units 4.4 4.5 (2.4%) Units 5.8 5.6 4.9%

Net Sales $489 $531 (7.9%) Net Sales $543 $585 (7.2%)

Operating Income $59 $82 (28.0%) Operating Income $76 $91 (16.5%)

Margin 12.1% 15.4% Margin 14.0% 15.6%

North America Europe, Middle East and Africa

Latin America Asia Pacific

Page 15: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

2014 Key Segment Operating Income Drivers

Driver 2014 FY vs 2013vs. April

OutlookComments

Global Volume + ~2-3% N/C -

Price/Mix vs. Raw Materials Slightly Negative• OTR headwind impacting 2014

• Raw benefit less than expected

Overhead Absorption ~$50-$75 million • Trending to higher end of range

Net Cost Savings ~$50 million

• Cost savings to more than offset

inflation and incremental

investments in R&D and

advertising; Neutral for H2

Foreign Exchange ~($60) million N/C • Assumes current spot rates

Other Tire-Related Neutral N/C -

Start-up Costs Neutral N/C• Brazil modernization costs offset

China start-up benefit

Amiens Closure ~$40-$50 million• $75 million annualized savings,

including exit of EMEA Farm tire

Pension Expense

Savings(a) ~$90 million• Pension expense savings net of

incremental 401(k) contributions15

(a) Excludes savings impact related to corporate associates (outside of Segment Operating Income)

Page 16: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

2014 OutlookOther Financial Assumptions

2014 FY Assumptionvs. April

Outlook

Interest Expense $415 - $435 million

Financing Fees ~$60 million N/C

Income Tax~25% of international Segment

Operating IncomeN/C

Depreciation &

Amortization~$725 million

Global Pension

Expense~$150-$175 million

Global Pension Cash

Contributions~$1.3 billion in total contributions(a) N/C

Working Capital Not a significant source or use N/C

Capital Expenditures $0.9 - $1.0 billion N/C

16(a) Cash contributions include $1.2 billion for hourly U.S. pension plan prefunding

Page 17: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Appendix

Page 18: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

$942

$207

$689

$2,356

$1,017

($321)($183)

$712

($115)

$549

$1,822

$327

($985)

($275)

2008 2009 2010 2011 2012 2013 2014 Q2 YTD

Price/Mix Raw Materials

(e)

(d)

(c)

(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 $549 million includes raw material cost savings measures of $136 million. (c) Raw material variance of $1,822 million includes raw material cost savings measures of $177 million.(d) Raw material variance of $327 million includes raw material cost savings measures of $249 million.(e) Raw material variance of ($985) million includes raw material cost savings measures of $228 million.(f) Raw material variance of ($275) million includes raw material cost savings measures of $119 million.

Price/Mix vs. Raw Materials(a)

$ in millions

(f)

18

Page 19: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

$ in millions (except EPS)

19

Second Quarter 2014 Significant Items(After Tax and Minority Interest)

Net Sales 4,656$ -$ -$ -$ -$ 4,656$

Cost of Goods Sold 3,532 (2) - - 3 3,533

Gross Margin 1,124$ 2$ -$ -$ (3)$ 1,123

SAG 698 -$ -$ -$ -$ 698

Rationalizations 24 (24) - - - -

Interest Expense 102 - - - 8 110

Other Expense 8 - (10) 5 9 12

Pre-tax Income 292$ 26$ 10$ (5)$ (20)$ 303

Taxes 60 1 - (1) (7) 53

Minority Interest 19 6 - - - 25

Goodyear Net Income Available

to Common Shareholders 213$ 19$ 10$ (4)$ (13)$ 225$

EPS (Diluted) 0.76$ 0.07$ 0.04$ (0.02)$ (0.05)$ 0.80$

As

Reported

As

Adjusted

Rationalizations,

Asset Write-offs,

and Accelerated

Depreciation

Charges

Settlement of

Indirect Tax

Claims

Charges for

Labor Claims

Related to a

Closed Facility in

Europe

Net Gains on

Asset Sales

Page 20: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

$ in millions (except EPS)

20

Second Quarter 2013 Significant Items(After Tax and Minority Interest)

Net Sales 4,894$ -$ -$ -$ -$ 4,894$

Cost of Goods Sold 3,846 (5) - - - 3,841

Gross Margin 1,048$ 5$ -$ -$ -$ 1,053

SAG 691 -$ -$ -$ -$ 691

Rationalizations 13 (13) - - - -

Interest Expense 102 - - - - 102

Other Income (14) - - (5) 5 (14)

Pre-tax Income 256$ 18$ -$ 5$ (5)$ 274

Taxes 63 2 (8) - (1) 56

Minority Interest 5 3 1 - - 9

Goodyear Net Income Available

to Common Shareholders 188$ 13$ 7$ 5$ (4)$ 209$

EPS (Diluted) 0.67$ 0.05$ 0.03$ 0.02$ (0.01)$ 0.76$

As

Reported

As

Adjusted

Rationalizations,

Asset Write-offs,

and Accelerated

Depreciation

Charges

Discrete Tax

Charges

Charges for

Labor Claims

Related to a

Closed Facility in

Europe

Net Gains on

Asset Sales

Page 21: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

$1.6

$2.2

June 30, 2014

Second Quarter 2014

Liquidity Profile

(a) Total liquidity comprised of $1,637 million cash and cash equivalents, as well as $2,236 million of unused availability under various credit agreements.(b) Includes $296 million of cash in Venezuela denominated in bolivares fuertes at 10.6 bolivares fuertes per U.S. dollar at June 30, 2014.

21

Cash &

Equivalents(b)

Available

Credit Lines

Liquidity Profile

$3.9(a)

$ In billions

Page 22: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Note: Based on June 30, 2014 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt.

(a) At June 30, 2014, the amounts available and utilized under the Pan-European securitization program of $615 million (€450 million) totaled $351 million

(€256 million).

(b) At June 30, 2014, the total amount outstanding under the European revolving credit facility was $314 million (€230 million). Letters of credit issued as of

this date totaled $5 million (€3 million).

(c) At June 30, 2014, our borrowing base, and therefore our availability, under the U.S. revolving credit facility was $429 million below the facility’s stated

amount of $2.0 billion. At June 30, 2014, there were no borrowings outstanding under the first lien revolving credit facility. Letters of credit issued

totaled $374 million at June 30, 2014.

Second Quarter 2014

Maturity Schedule

$ In millions

22

$351 $314

$1,537

$1,263

$900

$700

$150

2014 2015 2016 2017 2018 2019 2020 2021 2022 ≥ 2023

Undrawn Credit Lines

Funded Debt

$615 (a)$547 (b)

$2,000 (c)

Page 23: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

2014 Full-Year Industry Outlook

23

June Full-Year

2014 Guidance

April Full-Year

2014 Guidance

NA EMEA NA EMEA

Consumer

Replacement+2-3% +3-4% +1-2% +3-5%

Consumer OE +2-3% +0-1% +3-5% +0-2%

Commercial

Replacement+3-4% +0-2% +1-2% +1-2%

Commercial OE +2-3% -3 – -4% +2-3% ~Flat

Page 24: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Reconciliation for Segment Operating Income / Margin

$ In millions

24

2014 2013 2014 2013

Total Segment Operating Income 460$ 428$ 833$ 730$

Rationalizations (24) (13) (65) (20)

Interest expense (102) (102) (207) (187)

Other income / (expense) (8) 14 (176) (112)

Asset write-offs & accelerated depreciation (2) (5) (3) (10)

Corporate incentive compensation plans (19) (35) (46) (45)

Corporate pension curtailments/settlements - - (33) -

Intercompany profit elimination 4 3 (9) -

Retained expenses of divested operations (3) (6) (7) (10)

Other (14) (28) (25) (40)

Income (Loss) before Income Taxes 292$ 256$ 262$ 306$

United States and Foreign Taxes 60 63 68 82

Less: Minority Shareholders Net Income 19 5 32 3

Goodyear Net Income 213$ 188$ 162$ 221$

Sales $4,656 $4,894 $9,125 $9,747

Return on Sales 4.6% 3.8% 1.8% 2.3%

Total Segment Operating Margin 9.9% 8.7% 9.1% 7.5%

Three Months Ended

June 30,

Six Months

Ended

June 30,

Page 25: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Reconciliation for Total Debt and Net Debt

$ In millions

25

June 30, March 31, December 31, June 30,

2014 2014 2013 2013

Long term debt and capital leases 6,677$ 7,047$ 6,162$ 6,325$

Notes payable and overdrafts 7 26 14 79

Long term debt and capital leases due within one year 78 47 73 125

Total debt 6,762$ 7,120$ 6,249$ 6,529$

Less: Cash and cash equivalents 1,637 1,853 2,996 2,564

Net debt 5,125$ 5,267$ 3,253$ 3,965$

Page 26: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Reconciliation for Free Cash Flow from Operations

a) Working capital represents total changes in accounts receivable, inventories and accounts payable – trade.

b) Pension expense is the net periodic pension cost before curtailments, settlements and termination benefits as reported in the pension-related note in the Notes to

Consolidated Financial Statements.

c) Other includes amortization and write-off of debt issuance costs, net pension curtailments and settlements, net rationalization charges, net (gains) losses on asset

sales, net Venezuela currency remeasurement loss, customer prepayments and government grants, insurance proceeds, compensation and benefits less pension

expense, other current liabilities, and other assets and liabilities.26

Trailing Twelve

Months Ended

($ in millions)

June 30,

2014

March 31,

2014

Dec. 31,

2013

Sept. 30,

2013

June 30,

2013

June 30,

2014

Net Income (Loss) 232$ (38)$ 256$ 195$ 193$ 645$

Depreciation and Amortization 188 183 183 182 180 736

Change in Working Capital (a)

(18) (590) 920 (284) 114 28

Pension Expense (b)

38 50 72 65 72 225

Other (c)

86 111 (93) 102 20 206

Capital Expenditures (212) (229) (434) (241) (222) (1,116)

Free Cash Flow from Operations (non-GAAP) 314$ (513)$ 904$ 19$ 357$ 724$

Capital Expenditures 212 229 434 241 222 1,116

Pension Contributions & Direct Payments (34) (1,223) (90) (79) (85) (1,426)

Rationalization Payments (83) (36) (12) (17) (19) (148)

Cash Flow from Operating Activities (GAAP) 409$ (1,543)$ 1,236$ 164$ 475$ 266$

The amounts below are calculated from the Consolidated Statements of Cash Flows except for pension expense, which is as reported in the

pension-related note in the Notes to Consolidated Financial Statements.

Three Months Ended

Page 27: Second Quarter 2014 Conference Call€¦ · Q2 Highlights 3 •Record second quarter segment operating income of $460 million(a) •North America second quarter earnings of $208 million,

Recommended