Ohio-based Goodyear Tire & Rubber Co. (GT) is the largest tire-producing company in the United States. With 72,000 employees worldwide and 64 production facilities in 25 countries, Goodyear’s operations impact and are impacted by economic conditions throughout the world.
The company’s fortunes are particularly intertwined with the health of the auto industry.
It comes as no surprise, therefore, that the company is suffering in tandem with the dramatic decline in auto sales.
Goodyear reported 2008 fourth-quarter and full-year results which were slightly worse than analysts had projected.
Fourth-quarter sales declined by 21% from the fourth quarter of the previous year. Total revenue for the quarter dropped from $5.2 billion in the fourth quarter of 2007 to $4.1 billion this year. The loss of $1.37 per share in the quarter occurred in spite of the trimming of $1.8 billion in operating cost during the previous two years.
Goodyear is responding to the retrenchment by announcing a cut of 5,000 jobs on top of the 7,000 jobs eliminated earlier. The company will also freeze salaries and cut production by 15 to 25 million tires.
This reduction in output is in addition to the 25 million-tire cut made by Goodyear in the previous year.
The changes announced by the company are intended to align production with demand, a substantial portion of which comes from the purchase of replacement tires. As consumers opt to retain their existing vehicles rather than purchase new ones, replacement tire sales are expected to increase, though not at a rate that will replace the loss of sales for new vehicles.
Traders initially reacted to the earnings announcement by depressing the stock price. The stock has rallied to recover the initial loss and is trading up as of midday. The market is apparently pleased with the restructuring announcements made by the company.
Goodyear is a highly liquid company. With $1.9 billion in cash and equivalents, $1.7 billion in unused capacity in its existing credit lines and $71 million in reserve balances, Goodyear has nearly $3.7 billion in liquidity. The company’s current ratio is 2.07-to-1.
The company has nearly $5 billion in long-term debt. Slightly more than $500 million comes due in 2009 and the remaining 90% of the debt matures in 2011 and later. Goodyear has a long term debt-to-equity ratio of 1.68, which is relatively modest for a manufacturing company of this type.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
