Goodyear sees sales stabilizing in Europe; lower costs boost margins

Tue Jul 30, 2013 3:07pm EDT

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(Reuters) - Goodyear Tire & Rubber Co (GT.O) said sales in Europe showed signs of stabilizing as more customers bought summer tires, while lower raw material prices and cost cutting helped the company post stronger-than-expected quarterly results.

Shares of the No. 1 U.S. tire maker rose as much as 15 percent on the Nasdaq on Tuesday after the company's profit more than doubled.

Economic woes across much of Europe had sent auto sales there to 20-year lows, hitting tire makers along with the rest of the automobile industry.

"We anticipate ... a 3-5 percent (volume) increase in the third quarter driven by continued improvement in emerging markets and slow but steady recovery in mature markets," Chief Executive Officer Richard Kramer said in a statement.

Ford Motor Co (F.N) said last week that an improving consumer sentiment in Europe suggested the beginning of a "stabilization" in the region.

Goodyear said it expects operating income across its four business units this year to be at the higher end of its previous forecast of between $1.4 billion and $1.5 billion.

The company's second-quarter results also benefited from better margins, helped by lower raw material prices and cost-cutting initiatives such as plant closures.

Gross margins improved 1.8 percentage points to 21.4 percent in the quarter ended June as raw material costs fell 9 percent to $177 million.

The company said it has been supplying excess volumes from Europe to underserved emerging markets to improve margins.

Excess supply and weak demand in the auto industry have kept rubber prices low. The price of natural rubber, which despite synthetic alternatives still constitutes a majority of a typical tire, is trading near three-year lows.

Kramer warned, however, that raw material prices will go up as volumes increase.

Net income doubled to $181 million, or 67 cents per share, in the second quarter, from $85 million, or 33 cents per share.

Excluding items, Goodyear earned 76 cents per share, 28 cents ahead of what analysts had expected.

Revenue decreased 5 percent to $4.89 billion, but was above analysts' expectations of $4.88 billion, according to Thomson Reuters I/B/E/S.

Volume rose 1 percent to 39.5 million tires.

Goodyear shares touched a high of $19.60 before easing back to $18.66. They have risen about 23 percent from the start of the year to Monday's close.

(Reporting by Mridhula Raghavan in Bangalore)

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