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Goodyear cuts 2017 forecast amid higher raw material costs
October 27, 2017 / 11:53 AM / 22 days ago

Goodyear cuts 2017 forecast amid higher raw material costs

(Reuters) - Goodyear Tire & Rubber Co (GT.O), the largest U.S. tire maker, lowered its full-year forecast for the third time this year, amid weak demand and higher costs of raw materials such as oil and rubber.

FILE PHOTO: A sign stands over a Goodyear Tire facility in Somerville, Massachusetts, U.S., July 25, 2017. REUTERS/Brian Snyder

Goodyear shares fell as much as 6.4 percent to $31.50 in morning trading on Friday.

The tire maker said it continued to experience “challenging industry conditions”, including lower consumer replacement volumes, production cuts by automakers and an increase of more than 30 percent in raw material costs.

Demand for its replacement tires, which account for about 60 percent of its annual unit sales, was down due to high levels of inventory with wholesalers, the company said.

Earlier in the year, Goodyear hiked tire prices twice to counter higher raw material costs, which led wholesalers to hoard tires.

Demand for Goodyear’s tires sold in the original equipment market has fallen as automakers cut production after car sales hit a record in 2016.

The company, which also makes tires for aircraft and NASCAR racing cars, said the number of tires it sold fell 5 percent in the third quarter ended Sept. 30.

Goodyear now expects this to drop 5 percent this year from its previous forecast of down about 3.5 percent.

Increased raw material cost of $300 million, up 32 percent in the quarter, more than offset a $131 million benefit from improved price and mix, the company said.

Goodyear mainly uses synthetic and natural rubber as its raw materials. The company also uses carbon black, steel cord, fabrics and petrochemical-based commodities for tire production.

The tire maker, which makes and sells brands such as Goodyear, Dunlop and Kelly, said it expects segment operating income - the combined earnings of its three business units - of about $1.5 billion in 2017, down from its previous forecast of $1.6 billion to $1.65 billion.

Sales in the Americas region, its biggest market, slipped 1.4 percent to $2.04 billion.

On an adjusted basis, Goodyear earned 70 cents a share, beating analysts’ estimate of 67 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 1.9 percent to $3.92 billion, in line with average analyst estimate.

Up to Thursday’s close, shares of the company, which counts Japan’s Bridgestone Corp (5108.T) and France’s Michelin (MICP.PA) as its rivals, had risen 9.1 percent this year.

Reporting by Arunima Banerjee and Ankit Ajmera in Bengaluru; Editing by Savio D'Souza and Supriya Kurane

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