Goodyear Sees Higher Capex

Goodyear Tire & Rubber Co. (GT - Analyst Report) announced that it expects to make capital expenditures of $1.1 billion–$1.3 billion in 2012 and 2013. This is up slightly from $1.1 billion–$1.2 billion in 2011.

Of the total capex, $500 million–$600 million will be spent on modernizing and expanding plants as well as on new construction every year. In 2010, the company’s capital expenditures were $944 million, up from $746 million in the previous year.

The enhanced capex is aimed at boosting tire output by 5% annually. The company intends to focus on production of high-end products in order to catch up with the likely demand trend in the industry in the next 5 to 10 years.

Goodyear also anticipates operating income of $1.6 billion in 2013 and segment operating income of $450 million in its North American tire unit in the same year.

Few days back, Goodyear announced to raise prices of its commercial truck tires by 15% and the price of tread rubber by as much as 7% from the next month. The price increases were driven by soaring prices of raw materials.

Goodyear Tire, a Zacks #3 Rank (Hold) stock, revealed a 32% decline in profit to $21 million or 7 cents per share (excluding special items) in the fourth quarter of 2010 from $31 million or 14 cents per share in the same quarter of 2010. However, the company fared well compared with the Zacks Consensus Estimate of a loss of 7 cents per share during the quarter.

The decline in profit was primarily attributable to higher raw material costs, increased selling, administrative and general expenses and unfavorable currency translation effects. The company’s cost of goods sold increased 17% to $4.19 billion, while selling, administrative and general expenses rose12% to $715 million.

Sales during the quarter appreciated 14% to $5.07 billion, higher than the Zacks Consensus Estimate of $4.88 billion. It was backed by a 4% increase in tire volume to 45 million units, which positively affected sales by $130 million.

Total segment operating income ebbed $25 million to $224 million in the quarter. This was attributable to $397 million in net higher raw material costs ($430 million before raw material cost reduction actions) and negative impact of $17 million due to unfavorable foreign currency translation effects that more than offset the benefit of $315 million due to improved price/product mix.

For 2010, Goodyear posted a narrower loss of $216 million or 89 cents per share in 2010 compared with $375 million or $1.55 per share in 2009. This compared with the Zacks Consensus Estimate of a profit of 37 cents per share.

Sales in the year zoomed 16% to $18.8 billion reflect an 8% improvement in tire unit volume, increase in sales in other tire-related businesses, primarily third-party chemical sales by North American Tire and better price/mix, offset partially by unfavorable currency translation effects.

Segment operating income was $917 million compared with $372 million in 2009 reflecting higher sales, positive impact from cost reduction actions and a significant recovery in under-absorbed fixed costs. These factors more than offset higher marketing costs, wage inflation and unfavorable foreign currency translation effects.

(Source: http://www.zacks.com/stock/news/50047/Goodyear+Sees+Higher+Capex)