Goodyear Bursts Through Raw Material Costs by Selling Higher End Tires

Aug 13, 2011
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Goodyear Bursts Through Raw Material Costs by Selling Higher End Tires

It was announced late Friday that shares of Goodyear Tire and Rubber Co had jumped considerably after chief financial officer Darren R Wells expressed confidence in the group that it would be able to stay ahead of ever-rising raw material costs - but how, you ask? Apparently Goodyear, being spoken about again by its chief financial officer Darren R Wells at the J.P. Morgan Auto conference in Detroit, is staying ahead of the curve with "a strategy of pricing and a focus on selling higher end tires." Meanwhile the price of milk remains stagnant.

Goodyear is an Akron, Ohio maker of tires, a place and a business where sensitivity to the cost of raw materials is key. In particular the cost of rubber and steel affects the way Goodyear does business 24 hours a day, 7 days a week. Goodyear has recently passed on costs to customers through both tire price increases and a push for the purchase of higher-end tires. This strategy they say has been the reason why the company has been able to report that it has successfully offset a recent increase of $428 million USD in the cost of raw materials.

The mix of prices and pushes for higher end tires has brought the tire group's operating income up by $554 in the second quarter of 2011. Wells continued his talk in Detroit by noting that raw materials were reaching $600 million in the third quarter of 2011 but that the company is confident after seeing July results that they'd have no trouble overcoming the cost once more:

"I can tell you, in July, we continued to have good performance in price/mix. And in fact now, I think we're feeling very good, I think we feel confident that for the third quarter, we'll be able to fully offset raw material cost increases with price/mix." - Wells

Goodyear shares year-to-date are up 14.7 percent while shares yesterday rose $1.22, or nearly 10 percent to $13.78. How about that? Do you own any Goodyear stock? Do you wish you did? What do you think about raw materials?


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