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Goodyear Turns Profit on Tires, Currency Rates

Reuters
Friday, 25 Apr 2008 | 8:01 AM ET

Goodyear Tire & Rubber posted a stronger-than-expected quarterly profit Friday, driven by price hikes, sales of more expensive tires and favorable foreign exchange rates.

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Goodyear, the largest US tiremaker, said the slowing economy remained a concern, but it was on track to meet long-term cost-cutting goals. Its stock rose 5 percent in premarket trade.

Goodyear sold fewer tires worldwide due to weak demand from vehicle manufacturers in North America and from consumers in North America and Europe, but its average revenue per tire rose 7 percent over a year earlier.

Softening consumer demand was mainly in lower-priced tires that produce lower profits, it said.

Goodyear reported first-quarter net profit of $147 million, or 60 cents per share, compared with a net loss of $174 million, or 96 cents per share, a year earlier. Sales rose 9.8 percent to $4.94 billion.

Goodyear earned 67 cents per share, excluding one-time items. On that basis, analysts, on average, expected 48 cents per share, according to Reuters Estimates.

Favorable foreign currency added $341 million to sales and $27 million to operating income, Goodyear said.

North America, its largest unit, reported operating income of $32 million, compared with a loss of $20 million a year earlier. Sales declined 1 percent to $2 billion, but margins improved.

The company, in the midst of a multiyear restructuring, has raised prices to more than cover rising costs for raw materials, such as natural rubber and the petroleum-based synthetic rubbers.

Tiremakers have removed significant production capacity in North America in recent years, giving them room to cope with declines in tire shipments without resorting to price cuts.

Goodyear's strategy has sought to sell more expensive, higher-margin brands in North America, which has helped offset reductions in mostly low-margin tire sales to vehicle manufacturers.

Goodyear shares rose to $28.60 in premarket trade on Friday from a close at $27.25 Thursday on the New York Stock Exchange. In the first three months of 2008, the shares fell 8.6 percent, while the Dow Jones U.S. automobiles and parts index dropped 12.25 percent.

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