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Original Source: FD (FAIR DISCLOSURE) WIRE
. Greg Dooley, Goodyear Tire & Rubber, Analyst Contact . Bob Keegan, Goodyear Tire & Rubber, Chairman and CEO . Mark Schmitz, Goodyear Tire & Rubber, Executive Vice President and CFO . Himanshu Patel, JPMorgan, Analyst . Darren Wells, Goodyear Tire & Rubber, SVP, Finance and Strategy . Rod Lache, Deutsche Bank, Analyst . Kirk Luedtke, CRT Capital, Analyst . Monica Keany, Morgan Stanley, Analyst . John Murphy, Merrill Lynch, Analyst
GT reported 3Q07 revenues of $5.1b and net income from continuing operations of $159m or $0.67 per share.
A. Key Data From Call 1. 3Q07 revenue = $5.1b. 2. 3Q07 net income from continuing operations = $159m. 3. 3Q07 EPS from continuing operations = $0.67. 4. 3Q07 GM = 20% 5. First nine months of 2007 CapEx = $450m. 6. Cash balance = $2.9b. 7. At 09/30/07, total debt = $5.1b.
S1. Business Review (B.K.) 1. Opening Comments: 1. Product brand, customer, and geographic mix continues to be richer each qtr.
1. In 3Q07, this drove significant margin expansion despite weak market conditions. 2. Achieved this outcome by specifically targeting attractive high-margin market segments and opportunities.
3. Future planned investments will continue to be directed toward available high-return opportunities. 2. Mark Schmitz is GT's new CFO. 2. 3Q07 Highlights: 1. Revenue grew more than 3% to record $5.1b despite lower unit sales resulting from:
1. Generally weak markets. 2. Strategic decision in 2006 to exit segments of the private label tire business in North America.
2. Revenue per tire grew 7% driven by continuing price mix
improvements. 1. Robust demand for premium products resulted in supply constraints in many of its markets. 2. As a result, Co. is accelerating its planned investments to increase capacity to produce high value-added tires and thereby increase margins.
3. GM increased to 20% representing 260 BP increase over 3Q06 and
reflects: 1. Price mix improvements. 2. Structural cost actions. 3. Significant growth in operations outside US.
4. Total segment operating income grew 35% generating corporate
wide return on sales of 7.5%. 1. Strike in North America started on 10/05/06 and did not affect "3Q" results. 5. Five out of five strategic business units posted double digit or better increases in segment operating income vs. 3Q06. 1. North American Tire segment operating income is the highest since 3Q01.
6. Emerging markets business in Eastern Europe, Latin America,
and Asia-Pacific continued to perform well. 1. In aggregate, these businesses grew revenue 15% and segment operating income 24% vs. 3Q06 following strong performance in each of the past several years. 7. Made further progress against its 4-Point Cost Savings Plan and remains on track to achieve [past goals]. 8. Completed the sale of its engineered products business in late July receiving $1.4b in net proceeds. 1. Sale resulted in $517m after-tax gain in 3Q07 and represented completion of capital structure improvement plan introduced in 2003. 9. Continued to strengthen its leadership team. 1. Appointed Mark Schmitz as CFO. 2. In Sept., Co. announced Mark Purtilar would join GT as Chief Procurement Officer replacing Gary Miller, who is retiring after 40 years of contribution as GT associate. 1. Mark will oversee global procurement strategy and be responsible for approx. $10b in annual purchases. 3. Business Platforms: 1. Continues to focus intensively on five business platforms
previously discussed. 2. Remains focused on achieving profitable topline growth. 1. New Products: 1. Bringing innovative new products to the marketplace is key to achieving this goal. 2. New product success continued during 3Q07. 3. In North America, Co. leveraged the success of a recent European product launch by introducing the Goodyear Eagle F1 Asymmetric tire. 4. In Europe, new products continue to receive top recognition for their performance in major magazine tests. 5. New product engine will be supported by investments to align global mfg. capacity with demand trends seen in this
industry. 2. Investment plans are clearly focused on high-return
projects. 1. Investing goal is to expand high value-added (HVA)
capacity by 40% and low-cost capacity to approx. 50% of total capacity by 2012. 2. Consistent with its goal of expanding HVA capacity, Co. began investing in its plants in Fayetteville, North Carolina and Gadsden, Alabama and has commitments for significant local and state government incentives to help fund these projects. 3. Continuing its evaluation of potential new plants in Eastern Europe and Asia, which will support low-cost and HVA capacity expansion plans and allows Co. to capitalize on significant market growth in those regions. 3. Continuing demand for new products supported by increased marketing investment allowed Co. to drive price-mix
improvements in 3Q07. 1. Price-mix gains more than offset raw material costs in 3Q07 and YTD. 3. Cost Savings: 1. Executing well against 4-Point Cost Savings Plan, having now achieved nearly $900m toward its target of $1.8-2.0b of cost savings by 2009.
2. Remains focused on further deleveraging and reducing interest expense, most of which is not tax deductible. 4. VEBA Trust for Current & Future Steelworker Retirees: 1. Parties have signed required settlement agreement, which was filed in Federal Court on 10/29/07. 2. Given the required steps in the legal process, including
required 90-day notice period following preliminary approval, Co. now anticipates having process completed during 1H08. 3. While this delays cost savings, Co. expects to achieve full annual run rate savings of $110m once the process is complete. 5. Completed the sale of engineered products in late July, which allows Co. to: 1. Lower debt. 2. Lower legacy costs. 3. Grow core consumer and commercial tire businesses. 6. Evaluating remaining non-core businesses as part of its own ongoing strategy review, but has no definitive plans to announce at this point. 4. Addressing Challenges: 1. Recognizes that it will continue to face challenges in this competitive business. 2. Operates in a competitive industry. 1. Innovative new product engine, focus on building brand portfolio, advantaged supply chain, rapidly improving
marketing capabilities, and aggressive cost actions are keys to sustaining the momentum established. 3. Raw material costs rose nearly 5% through first nine months of 2007 and are likely to remain volatile. 1. Driving price and product mix improvements and increasing ability to substitute lower cost materials to offset future increases. 4. While the global economy remains uncertain, Co. is reducing fixed cost structure and positioning capital cost structure to enable GT to compete more effectively throughout the ups and downs of the economic cycle. 1. North American business is improving earnings in 2007 despite substantially lower volumes. 5. Experiencing short-term supply constraints in some key products. 1. To meet robust demand for premium products, Co. is accelerating its investment HVA capacity and making major
supply chain improvements. 2. To meet demand for products, investment plans will require higher dollar levels of investment than in the past. 6. Will drive additional cash generation in the business through cost reduction actions and working capital improvements to help fund those requirements. 7. Remains confident that execution against its business platforms will enable Co. to achieve next-stage metrics, which are: 1. 8% segment operating income return on sales globally. 2. 5% segment operating income return on sales in North America. 3. Target 2.5x debt to EBIDTA.
S2. 3Q07 Financial Review (M.S.) 1. Income Statement: 1. Revenue grew by more than 3% driven by continuation …