CFO: Contract savings worth strike's costs
The new Goodyear contract will save the company 300 million a year.
CLEVELAND (AP) -- The world's third-largest tire maker said Tuesday the multimillion-dollar cost of a three-month strike by union workers is well worth the long-term savings Goodyear expects to see from the new labor deal.
During a conference call with analysts and reporters, Goodyear Tire & amp; Rubber Co. chief financial officer Richard Kramer said the strike that began Oct. 5 and ended last week drained between 30 million and 35 million a week from the company.
At 12 weeks long, that means the work stoppage by the United Steelworkers union representing some 15,000 workers could cost Goodyear between 360 million and 420 million, most of it in the fourth quarter ended Dec. 31.
Kramer and Goodyear Chief Executive Robert Keegan cushioned the news by saying the company plans to save 610 million over three years because of the agreement reached with the union two weeks ago and annual savings of about 300 million after that.
Most of the savings will be through job cuts, lower wages and benefits for new hires and more efficient tire production in North America, the executives said.
Stocks hit new high
Wall Street welcomed the message as Goodyear shares hit a new multiyear high, rising 3.8 percent, or 91 cents, to 24.95 in trading Tuesday on the New York Stock Exchange. Shares had been as low as 9.75 over the last 52 weeks.
In a research note released after the call, JPMorgan analyst Himanshu Patel rated Goodyear shares "overweight," meaning they are expected to improve, citing the savings the company outlined, including possibly cutting its health-care costs for nonunion retirees.
"We see 3/share of earnings power in 2008, and potentially higher," Patel wrote.
Most of the hit from the strike will be absorbed in the quarter ended Dec. 31 and the first half of 2007, Kramer said.
Analysts surveyed by Thomson Financial on average predict Goodyear will post a fourth-quarter loss of 40 cents a share. Annual earnings were expected to be down 35 percent to 92 cents a share on about 20 billion in sales.
Keegan called the agreement a milestone for the Akron-based company and said it allows Goodyear to become more globally competitive.
Kramer said the contract and related moves to cut jobs at nonunion plants in the United States and abroad allows Goodyear to save by reducing its tire production by about 21 million tires. Goodyear made 226 million tires in 2005.
Besides closing a plant in Tyler, Texas, that employs 1,100 people, the pact allows the company to cut up to 10 percent of the jobs at other union plants and to eliminate up to 411 jobs at Goodyear's Engineered Products division -- which Keegan predicted would be sold in the first half of the year -- through employee buyouts.
But the executives said the company does not plan a large-scale buyout offering similar to what some automakers have launched. It expects much of its employee savings to come by replacing veteran employees with new workers who make 24 an hour less in wages and benefits.
The three-year deal was overwhelmingly approved by USW members two weeks ago. It also creates a 1 billion health-care fund for retirees that, if approved by federal courts as law requires, will start with a company contribution in stock and cash.