Goodyear Bursts Through Raw Material Costs by Selling Higher End Tires

Aug 13, 2011
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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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