February 8, 2018 / 12:49 PM / a year ago

Goodyear cuts 2020 forecast as raw material costs rise

(Reuters) - Goodyear Tire & Rubber Co (GT.O) on Thursday cut its 2020 forecast for combined earnings of its three units amid higher prices for raw materials, overshadowing better-than-expected quarterly profit and revenue.

FILE PHOTO - A man walks past the Goodyear logo at the South Pacific Tyres facility in Somerton, Victoria, about 20km from Melbourne, June 26, 2008. REUTERS/Mick Tsikas

About two-thirds of Goodyear’s raw materials are oil-based derivatives and the 19 percent rise in oil prices LCOc1 in the last year has weighed on the company’s expenses.

The company, which counts Japan’s Bridgestone Corp (5108.T) and France’s Michelin (MICP.PA) as its rivals, had hiked tire prices last year to counter these costs, which led wholesalers to hoard tires, in turn, dampening demand.

Goodyear, the biggest U.S. tire maker, expects a negative impact of $105 million due to raw materials in the current quarter. While it estimates tire sales to rise 3 percent this year, in the current quarter, it expects sales to remain flat.

The low end of the 2020 segment operating income forecast came in weaker, Northcoast Research analyst Nick Mitchell told Reuters.

Goodyear expects the metric to be $2 billion-$2.4 billion, down from its previous forecast of $3 billion, the first-ever cut since it announced the target in 2016.

Shares fell 3.2 percent to $32.41 in morning trading.

“We have a very high degree of confidence in achieving the low end of the range,” Chief Executive Richard Kramer said on a conference call.

Goodyear reaffirmed its 2018 segment operating income of $1.8 billion-$1.9 billion.

Tire unit volume rose 2 percent in the fourth quarter, benefiting from strong demand for Goodyear’s more profitable 17-inch and larger model tires and as wholesalers restocked.

The Americas, which is Goodyear’s biggest market, raked in sales of $2.18 billion in the quarter ended Dec. 31, 6 percent higher than the year-ago period.

Revenue from the Europe, Middle East and Africa region increased 11.7 percent while in Asia Pacific, it jumped 13.7 percent.

Goodyear posted a net loss of $96 million, or 39 cents per share, in the quarter, compared with a profit of $561 million, or $2.14 per share, a year earlier, due to a $299 million charge related to changes in U.S. tax laws.

On an adjusted basis, the company earned 99 cents a share, smashing past analysts’ estimate of 76 cents, according to Thomson Reuters I/B/E/S.

Total revenue rose 8.8 percent to $4.07 billion. Analysts on average had expected $3.96 billion.

Reporting by Arunima Banerjee in Bengaluru; Editing by Martina D'Couto

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