Goodyear outlines three-year plan to increase segment operating income

By Lisa Kerner

Charlotte, N.C., Sept. 20 - Goodyear Tire & Rubber Co. chairman and chief executive officer Rich Kramer highlighted three things he wanted investors to keep in mind on Friday during the company's annual investor day in New York.

"We're reconfirming our 2013 outlook at the high end of our guidance, (and) secondly, we're setting new targets for the next three years," said Kramer.

In addition, Goodyear announced the reinstatement of a quarterly cash dividend on its common stock and a $100 million share repurchase program.

The company last paid a common stock dividend in December 2002.

Goodyear's directors declared a quarterly dividend of five cents per share of common stock, payable Dec. 1, 2013 to shareholders of record as of Nov. 1.

Fixing the balance sheet

Executive vice president and chief financial officer Darren Wells outlined the ups and downs of the Akron, Ohio-based tire manufacturer's last several years, from 2001 to 2003 when operating was more about survival through a period of turnaround through 2007. Goodyear achieved record results during the years 2010 through 2013. Looking ahead, Kramer said the company is targeting consistent segment operating income from 2014 through 2016.

Kramer spent some time discussing the company's capex projects before moving on to capital allocation.

Cumulatively, for the three years 2014 to 2016, Goodyear expects SOI earnings growth of $5.5 billion to $5.8 billion, or annual growth of 10% to 15%. Subtracting corporate costs and adding in both depreciation and pension expenses, the company expects EBITDAP of between $7.8 billion and $8.2 billion.

For 2013, Goodyear's outlook for segment operating income is about $1.5 billion.

According to Kramer, for those three years it will take between $4 billion and $4.6 billion to maintain the business, leaving about $3.6 billion to $3.8 billion of cash available for deployment.

The cumulative cash would most likely be deployed as follows, he said: $300 million to $400 million to the shareholder return program, $1.1 billion to $1.3 billion for growth capex, $1.4 billion to $1.7 billion towards debt repayment/pension funding and $500 million to $700 million for restructurings.

"Fixing the balance sheet is an objective we've had for many years," said the CFO.

In 2013, Kramer said spending will be focused on three areas: achieving the 2.5 times leverage objective, getting out from under the unfunded pension obligation, which may mean looking to the market next year, and working on running the business with less cash on the balance sheet.

Reaching the 2.5 times leverage objective is not just about "hitting the target," Kramer said. It also means getting the cost of capital now, gaining consistent access to low-cost capital as well as placing debt overseas, and improving balance sheet efficiency.

Kramer reiterated that questions about pension funding were answered earlier in the year but noted that money for funding the hourly workers' pension fund would come from debt, financing or a combination of cash and debt.

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