Goodyear Long-Term Debt Rated BBB
Press Release: Goodyear Tire and Rubber Company, The
Aug 29, 2001
Rates at BBB
David Schroeder, Kam Hon / (416) 593-5577 ext.232, ext.243 / e-mail:
dschroeder@dbrs.com
Rating Trend Rating Action Debt Rated
BBB Stable New Rating Senior Long-Term
Debt
The Goodyear Tire & Rubber Company ("Goodyear" or "the Company") is
assigned a senior long-term debt rating of BBB with a Stable trend. The
tire industry is a thin margin, mature, low growth industry and is
particularly sensitive to the cyclical automotive industry. Goodyear has
produced disappointing earnings in the recent past with earnings falling
to near break-even for the first half of 2001. However, it is the
largest player in a concentrated global industry, which should allow it
to improve results in the future. Goodyear's brands are well established
and have strong acceptance from both consumers and OEM's controlling the
leading share position in North America and South America and the number
two positions in Europe and Asia. Raw material costs have stabilized in
2001 and two price increases in North America have recently been made
which appear to be holding. Product availability issues in North America
have improved since the 1999 Gadsden plant closure and opening stressed
the system and inventory reduction initiatives are proving more
successful. The Company is improving its mix with fewer private label
sales and is increasing its efforts on marketing. The Firestone recall
presents an opportunity for Goodyear to gain market share and increase
profits in the near term, but the long-term impact may well be negative
for the industry if new regulations add to costs. At over 50%, debt
levels are high for a cyclical Company. However, Goodyear is committed
to returning to more historical debt levels of around 30% which should
be achievable with a combination of higher cash flows, lower capital
expenditures, better working capital management and no more
acquisitions. Going forward, it is unclear how long it will take for the
balance sheet to recover since the cycle has turned negative and working
capital management will have to significantly improve.