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,
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Second Quarter 2014 Conference CallJuly 30, 2014
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
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.
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
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 $500 million through 2016 for this phase of the project
Supports long term profitable growth in North America and Latin America
• Associated plant startup costs will not change our target to grow total company Segment
Operating Income by 10-15% per year through 2016
Exciting new world-class asset to support future growth5
Winning in the AmericasWhat does it take?
For winners, not an “OR”… it is an “AND”
Goodyear delivers both in an integrated manner
Iconic brand
Industry leading products
Pervasive distribution
Strong customer relations
Consumer-centric focus
Right Tire
Right Time
Right Place
Right Cost
Market-Back Approach Sufficient HVA Capacity
AND
Advantaged Value Proposition Operational Excellence
6
Strategy Roadmap
7
Our Destination - Creating Sustainable Value
Industry
MegaTrends
Where We Are
Key Strategies Key How To’s
Executing Plan
Innovation Leader
Record Earnings
Value Creating
Improving Volume
US Pension Fully Funded
Top Line / Bottom Line Growth
First with Customers
Innovation Leaders
Leader in Targeted Segments
1. North America: Grow Profitably
2. Asia: Win in China / Grow Asia
3. EMEA / LA: Return to Historical
Profit
Market-Back Innovation Excellence
Sales & Marketing Excellence
Operational Excellence
Enabling Investments
Top Talent / Top Teams
Competitively Advantaged
Profitable thru Economic Cycle
Cash Flow Positive
Investment Grade
Financial Update
Second Quarter 2014
Income Statement
(a) See Segment Operating Income and Margin reconciliation in Appendix on page 24.(b) See Adjusted Diluted Earnings Per Share reconciliation in Appendix on pages 19 and 20.
In millions, except EPS
9
June 30, June 30,
2014 2013 Change
Units 40.6 39.5 3%
Net Sales 4,656$ 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
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
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%
(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$
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,
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
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)
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
Appendix
$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
$ 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
$ 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
$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
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)
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
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,
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$
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
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