Job cuts in Germany and an operations shutdown in Venezuela will help this tire maker prepare for increased demand in key markets such as China and the rest of Asia.
Premium tires in particular are helping to increase the company’s profit margins and contribute to its revenue growth. The tire maker has also raised its dividend by 14.3% for an annualized yield of 3.3%.
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GOODYEAR TIRE & RUBBER CO., (Symbol GT on Nasdaq;www.goodyear.com) is one of the world’s largest tire makers, with 47 plants in 21 countries.
The company plans to cut 1,100 jobs in Germany. The Goodyear Dunlop Tires Germany GMbH’s facilities in Hanau and Fulda are the targeted plants.
This move is part of Goodyear’s strategy to modernize its operations in the country. This includes shifting production from low-profit-margin tires (where the job cuts will take place) to large-rim-diameter premium tires.
As a result of this German restructuring, the company expects total one-time charges of $135 million, with most of that likely coming in the first quarter of 2019. To put that into context, Goodyear made $163 million, or $0.68 a share, in the three months ended September 30, 2018.
The company anticipates its German restructuring will be completed by 2022.
In other operations, Goodyear will also officially halt production in Venezuela, which is now in political and economic crisis.
The company suffered tens of millions in losses in the South American country over the last few years as the Venezuelan currency, the bolivar, plummeted in value against the U.S. dollar. Goodyear moved to deconsolidate its Venezuelan subsidiary from its overall financial results starting in 2015, but the company had continued to operate in the country with a staff of about 1,100.
The company’s now-complete exit from Venezuela adds to a growing list of corporations that have ceased operations in the country. Some of those enterprises, like General Motors, have had assets, including factories and vehicles, seized by the government. Others chose to cut their losses because shortages, hyperinflation, and currency and prices controls made business difficult. Kellogg, Bridgestone, Kimberly-Clark and General Mills have all closed or reduced operations.
Venezuelan President Nicolas Maduro implemented an economic recovery plan in August of this year that included increasing the minimum wage and printing a new currency, among other measures, but it has so far failed to bring about significant improvement. In fact, annual inflation in Venezuela was expected to top 1,000,000% by the end of 2018.
Blue Chip Stocks: Revenue up and outlook is good despite challenges
Overall, Goodyear’s total revenue rose slightly to $3.93 billion from $3.92 billion, in the third quarter of 2018. While it sold fewer tires overall, the company sold more high-profit-margin premium tires.
However, the company faces a number of near-term challenges. They include rising raw material costs, a stronger U.S. dollar, which cuts the contribution of its foreign sales, and a further softening of market conditions in China.
Still, the long-term outlook for Goodyear is positive. Demand for replacement tires should rise given a U.S. vehicle fleet that is old by historical standards. As well, outside of China, Asia is an expanding market for the company.
With the December 2018 payment, Goodyear raised its quarterly dividend by 14.3%, to $0.16 from $0.14. The shares now yield 3.3%.
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