Goodyear profit drops on weak demand, higher raw material costs

(Reuters) - Goodyear Tire & Rubber Co's GT.O quarterly profit dropped more than 50 percent due to weaker demand and it warned that higher raw-materials costs would weigh on the company for the remainder of the year, sending its shares down 5 percent.

FILE PHOTO: The Goodyear Tire and Rubber Co. company logo is seen in Westminster, Colorado August 27, 2013. REUTERS/Rick Wilking/File Photo

The tiremaker said it expects second quarter earnings to be reduced by about $65 million from last year, partly because of the raw-materials costs.

The forecast was “indicative of pricing pressure we’ve observed in the market recently,” Longbow Research analyst Anthony Deem said, adding that the company was having a tough time setting prices high enough to offset raw material costs.

Most of Goodyear’s raw materials are oil-based derivatives and crude prices, which have risen nearly 43 percent in the past year, could continue to be a factor this year.

The company expects a $50 million increase in raw material costs this year, compared with last year.

Rising raw material costs have pressured tiremakers who have countered it by hiking prices. Goodyear raised its tire prices last year, while rival Michelin MICP.PA, which has also increased prices earlier, said in February it would raise prices further.

Steel prices, which have been further lifted by U.S. President Donald Trump’s move to set tariffs on imported steel and aluminum, could also potentially translate to higher costs for Goodyear as it uses steel cord as a key raw material, among others.

However, the Akron, Ohio-based company reiterated full-year forecast for segment operating income - combined earnings of its three units - of $1.8 billion to $1.9 billion, excluding impacts from its recently announced joint venture. It also reaffirmed 2020 forecast of $2 billion to $2.4 billion for the metric.

The company, whose brands include Kelly and Dunlop, sold fewer tires in two of its biggest markets, the Americas region and Europe, Middle East and Africa (EMEA). But, sales in EMEA rose, boosted by a strong euro.

On Wednesday, the company reported net income of $75 million, or 31 cents per share, down from $166 million, or 65 cents per share, a year earlier.

On an adjusted basis, it earned 50 cents a share, beating estimate of 46 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 3.5 percent to $3.83 billion, edging past estimate of $3.81 billion.

The company, which expects to benefit from its recently announced joint venture, said demand for its more expensive 17-inch and larger model tires was strong in the United States and Europe.

Reporting by Arunima Banerjee in Bengaluru; Editing by Shailesh Kuber