Goodyear Tire & Rubber Co. (The) Ratings Unaffected By Second-Quarter Results

Standard & Poor's Ratings Services said today that second-quarter 2011 results for Akron, Ohio-based The Goodyear Tire & Rubber Co. (BB-/Stable/--) were overall consistent with the current rating but that cash use continued, partly because of higher working capital and capital investments. We estimate that the company used about $1.2 billion in free operating cash flow (FOCF) for the first six months, due in part to higher seasonal working capital requirements, reflecting elevated raw material prices and a weaker U.S. dollar. In the second quarter, sales were $5.6 billion, up 24.1% from the quarter a year ago, because of a better price mix and an increase in other tire-related businesses. The company's segment operating profit was $382 million, compared with $219 million a year ago, and reflects a stronger price mix of $554 million that more than offset the $428 million in rising raw material costs. The segment operating margin was 6.8% in the second quarter, compared with 4.8% a year ago. Segment operating income in North America was $137 million, compared with $16 million in the second quarter last year. We estimate that the company used about $1.2 billion in FOCF for the first six months, due in part to higher seasonal working capital requirements, reflecting elevated raw material prices and a weaker U.S. dollar. Goodyear typically generates the bulk of its FOCF in its fourth quarter. While we expect the company to offset increases in raw material costs with price mix, as we have stated previously, we could lower the ratings if we came to believe the company would use more than $200 million in free cash flow for all of 2011. The company lowered its North American industry guidance for the consumer replacement business and raised it for commercial replacement. It expects consumer replacement demand to rise 0% to 2% in North America, compared with previous guidance of 2% to 4%. On the other hand, the company expects commercial replacement demand in North America to rise 10% to 15% in 2011, compared with previous guidance of 6% to 10%. The outlook for all other regions remains the same. For 2011, the company expects global tire unit sales to increase 3% to 5%, raw material costs to increase by more than 30%, interest expense to be around $325 million to $350 million, and capital expenditures to be between $1.1 billion and $1.2 billion. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contacts: Lawrence Orlowski, CFA, New York (1) 212-438-7800 Nancy C Messer, CFA, New York (1) 212-438-7672

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