Goodyear’s earnings continue as cash flow lags

Detroit — goodyear tires & rubber CEO Mark Stewart is sitting in a tire shop’s vehicle storage area where the company is launching a new retail experience for customers.

The renovated Detroit store has a newly painted black facade with the words “Motor City” added in white letters on either side of Goodyear’s winged paw logo. It has been dressed up for a private event in conjunction with an annual car festival nearby called the Woodward Dream Cruise.

However, despite its stylish atmosphere, this is a tire shop. The smell of rubber and oil lingers in the air, and the sounds of employees changing tires mix with DJ music in the store’s waiting room.

This scene symbolizes Stewart’s ongoing plan to rebuild Goodyear Forward. He’s trying to make tires, a historically dirty business, more attractive to investors and friendlier to consumers.

“We’ve made tremendous progress. If you think about it in terms of the Goodyear Forward program, this was really about getting us back on the ground towards the iconic company that we’ve always been,” Stewart, wearing an unbuttoned navy blue Goodyear technician shirt, told CNBC in an interview at the shop.

But while Goodyear is well known for burning rubber, it’s also burning cash as it restructures, attempts to refinance and pays off years of debt.

The company’s capital expenditures are expected to be about $2 billion in 2024 and 2025, rising to $725 million this year. Debt remained above $7 billion at the end of the second quarter.

Goodyear’s net loss for the first half of this year was $453 million, with operating income of $131 million and a profit margin of 1.6%.

Under his turnaround plan, Mr. Stewart had hoped for Goodyear to reach an operating profit margin of 10% by the end of last year. Instead, it was 8.5% in the fourth quarter, and hitting that mark is still a good goal for the company.

“We are committed to achieving double-digit margins and we are committed to meaningfully generating cash flow,” Stewart said. “It’s been a long time since Goodyear has done that. It’s something we absolutely have to do.”

Auto industry veteran named CEO of Goodyear after leaving Chrysler’s parent company Stellantis Since then, the company’s stock has fallen more than 50%, even though Goodyear has achieved many of the milestones it had set out to achieve.

Like many companies, Goodyear’s business has been affected by tariffs, rising raw material costs and the expansion of cheaper Chinese products, but Mr. Stewart makes no excuses for not meeting his goals.

“We still face and are dealing with a lot of geopolitical headwinds. A lot of headwinds on the raw materials index and some negative impact from the tariff environment,” he said, adding that foreign manufacturers continue to have cost advantages compared to Goodyear.

Goodyear’s raw material costs are expected to be about flat from a year ago, but the company and Wall Street analysts say it will face a $200 million headwind in the second half of the year, largely due to higher commodity costs stemming from the Middle East conflict.

“Goodyear has faced a number of significant challenges over the past several years, from weak consumer (and commercial) demand, to rising raw material costs, increased capital expenditures (capex), low-cost imports from Asia (to the U.S.), and most recently, trade and tariff legislation,” Argus analyst Bill Selesky said in an Aug. 17 note to investors. “It hasn’t been easy for Goodyear.”

Goodyear’s price target is unchanged at $7.60, according to the average analyst rating compiled by FactSet. The company’s shares closed at $6.35 on Friday, down 27% since the beginning of the year.

Goodyear Forward’s turnaround strategy was initially expected to be a two-year plan that was completed last year, but the CEO stuck with it as he and management plan what’s next for the 128-year-old Akron, Ohio-based company.

“We will announce it at the appropriate time,” Stewart said. “We continue to take on the next challenge and strive to develop our business in the right areas.”

The Goodyear Forward plan had already been announced when Stewart was named the company’s next CEO, but he made it his own by adding layoffs and cost cuts. The company said the turnaround plan reduced annual costs by approximately $1.5 billion.

Part of Stewart’s plan includes pushing Goodyear further into the premium tire segment, including selling units such as the Dunlop brand. It also plans to launch more than 1,600 new products this year, most of them in the higher-margin high-end segment.

Stewart said the product restructuring comes as non-U.S. brands, particularly Sumitomo and Yokohama in Asia, are expanding globally with lower-priced products.

Just as Chinese automakers have grown overseas, tire makers are also looking to increase exports, including to the United States.

“We’re not going to compete with tires that cost $6 or $10. That’s not who we are as Goodyear,” Stewart said, referring to the manufacturing costs involved in converting raw materials into finished tires.

Despite global challenges, Goodyear’s Asia Pacific region is a bright spot for the company. Segment operating income for the second quarter was $63 million, with an operating margin of 12.7%.

The US business has a major impact on the company’s finances. Stewart is trying to turn things around as consumer demand slows.

The company said its cash burn is expected to continue through 2027, but will moderate as the closure of its Fayetteville, North Carolina, plant next year is announced and the Americas division’s operating profit is expected to improve by $270 million annually.

“We had to make a very difficult decision, but it was a necessary one to announce the closure of our facility in Fayetteville, North Carolina. We did not take this lightly, but there was simply no path for us to be competitive from that facility,” Stewart said.

The Goodyear Forward plan was sparked by activist investor Elliott Investment Management’s announcement that it would invest in the company in 2023. A spokeswoman for Elliott, which supported Goodyear’s three new directors, declined to comment on the company or its current ownership.

Part of Goodyear Forward’s strategy is to focus on marketing and advertising to strengthen connections with customers and strengthen the brand.

Much of that, both physically and financially, is due to the company’s iconic Goodyear blimp, which has flown as a giant advertisement for more than a century.

“The airship team and the marketing team have been very receptive to it, so we literally do a lot of activity around airships to sell tires,” Stewart said. “When you’re serious about airship media marketing, it’s always in the context of, ‘How do we tie this to a tire?'”

Stewart said Goodyear is doubling down on the promotion, using its social media platforms to promote the relationship between its aircraft and its tires and launching a “buy to fly” campaign where tire retailers and consumers can win tickets on one of the company’s blimps.

The company was unveiling the revamped store in conjunction with an event in Detroit that draws hundreds of thousands of car enthusiasts along 26 miles of roadside each year. According to the company, the exterior of a rare double airship was displayed to commemorate this occasion and to advertise in front of tire buyers. A collection of small “mini airships” was also on display.

“We’ve always made tires worth being proud of,” Stewart said. “We’re just reminding people right now, and that also relates to our marketing and advertising.”

Correction: An earlier version of this article incorrectly stated that two Japanese companies, Sumitomo and Yokohama, were based in China.