Goodyear Tire & Rubber reported huge gains in 2021, turning last year’s Cooper Tire acquisition into a boost that helped the company achieve a 42% net sales increase over 2020. Despite rising inflation and supply chain challenges plaguing the industry, Goodyear cashed in a cool $17.5 billion. However, Goodyear stock prices dipped by about a quarter of its market value following its investor call on Feb. 11. Goodyear CFO Darren Wells indicated the company’s free cash flow will roughly break even in 2022 due to rising inflation and high operating costs.
2021 Yearly Results
According to Goodyear, tire unit volumes totaled 169.3 million, up 34% from 2020. Replacement tire shipments also increased 41%. This growth also included tire unit volume related to the Cooper Tire merger, the benefit of stronger industry demand and improved market share. The company said original equipment volume was also increased by 13%, due to higher global vehicle production in the second quarter and market share gains. Goodyear’s 2021 net income was $764 million compared to a net loss of $1.3 billion in the prior year’s period.
Rich Kramer, chair, president and CEO of Goodyear, said he felt the company’s push to win original equipment bids justified their Cooper Tire acquisition alone. He added it could not have come at a better time, as the need for OE has been growing in recent years.
“That justifies the investment,” Kramer said. “[We needed] to make sure we had the capability in our factories to support the tires that we’re gonna be designing and building, [especially] for electric vehicle platforms. The Cooper integration is off to a strong start, and we’re driving the innovation necessary to ensure we continue leading our industry through the mobility revolution and beyond,” he said.
During the presentation, Wells addressed the reasons he sees why Goodyear will break even in 2022.
“Inflation, including incremental wage benefit, transportation and energy costs will result in higher operating expenses and will continue to be at levels beyond what we could offset with efficiency, at least through the first half,” Wells explained. “Transportation alone will impact Q1 earnings by 20 to 30 million more than it did in Q4.
“This includes a working capital investment of around $300 million, including the rebuild of America’s inventory that we were not able to complete in 2021. It also reflects an increase in capital expenditures,” Wells continued. “This spend will include upgrades for more complex tire designs, including those required for electric vehicle fitments.”
Following this presentation, Goodyear stock dropped from $22.61 to $17.05, an almost 25% decrease, according to NASDAQ.
Kramer says that though 2021 was successful, 2022 may come with additional challenges.
“The real challenge in terms of 2022 earnings is going to be addressing inflation in other costs – non-material costs,” said Kramer. “U.S. inflation gauges are at 40-year highs, reflecting the impact of higher labor, transportation, energy and commodities.”
While this affects Goodyear’s business, there is optimism and a commitment to taking the steps necessary to counter the impact, says Kramer.
Fourth-Quarter 2021 Results
Though the increase in the cost of goods and services in the country through 2021 is affecting all walks of life and nearly every business, Goodyear reported an increase in numbers for the fourth quarter in 2021 compared to 2020.
“Our fourth-quarter sales increased nearly 40% to just over $5 billion, reflecting both the addition of Cooper Tire and the benefit of higher selling prices, particularly in the US,” said Kramer. “This marks our highest fourth-quarter revenue in nearly 10 years.”
Because of their increased sales performance, Goodyear was able to perform this well despite the significant cost of inflation due to supply chain issues.
“These were simply excellent results for our teams who stuck to our strategy in an environment of rising costs,” said Kramer.