Goodyear Tire & Rubber Co. released its 2006 second quarter earnings report blaming a drop in net profit on higher raw material cost, weakness in the North American tire market, and a restructuring charge.
The Ohio-based companyâ€™s second quarter net profit dropped from $69 million last year to $2 million this year. This was a drop of $0.34 earning per share to just $0.01 for this quarter. The revenue for the quarter rose 3 percent from $4.99 billion a year ago to $5.14 billion. A large part of the loss was related to a previously disclosed restructuring charge.
â€œResults remained strong in four of our businesses, and while we are making good progress in reducing our global cost structure against our previously announced plan of $750 million to $1 billion by 2008, we know more needs to be done,â€ said Robert J. Keegan, Goodyear chairman and chief executive officer. â€œWe have raised the bar to more than $1 billion and will continue to intensify our initiatives to reduce our costs.â€
The decline in net profit was due in part to weakening demand for tires in the North American market. This could be partially attributed to the decline of consumer spending on automobiles. Dealers reported that service activity had softened, due to the slower pace of new vehicle sales in recent months, according to the Federal Reserve District in Chicago.
Another factor for the reduction was the high raw material cost, which increased 16 percent to $210 million compared to the second quarter of 2005. The company also announced that it accelerated its depreciation expenses due to plant closures around the world, including one in the United Kingdom.
The company also reported that it was pleased with recent changes to its business model. Earlier this year, the company had announced plans to stop participating in certain segments of the private label tire business in North America, while deciding to expand its network of truck service centers at Pilot Travel Center locations.
â€œOur strategy to focus on high-value-added products and key market segments resulted in market share gains for our Goodyear and Dunlop brands during the quarter. However, we were not able to offset the impact of weakness in the lower-value segments of the North American consumer replacement tire market.â€