The multinational Goodyear Tire & Rubber Co. is pinning millions of dollars in losses suffered this year on the current pandemic, according to a recently released financial report.
Danville’s largest private employer, with more than 1,900 employees, remains closed for now because of a decline in demand resulting from international efforts to slow the spread of the coronavirus. It announced a weeks-long shutdown in mid-March and by the end of the month extended it “until further notice.”
In a recently-released analysis of its first quarter results, the Akron-Ohio based company projects losses in stock prices, volume of products produced and large net losses.
“The company’s first quarter results were greatly affected by the economic disruption associated with the COVID-19 pandemic,” the company wrote in a news release.
During the first quarter, the company yielded a net loss of somewhere between $185 and $195 million. But the losses started before the coronavirus brought the global economy to its knees.
During the entirety of 2019, the company saw a net loss of $311 million after seeing a net gain of about $700 million in 2018. That’s a flip of more than $1 billion between the two years.
Of the projected losses during the first quarter of 2020, about $65 million of that is the result of “unfavorable impact driven by lower factory utilization and other period costs, both directly related to shutting down its manufacturing facilities,” the company wrote in a release.
The bad news is these negative market conditions and financial results reflect only a portion of the last fiscal quarter, said Quinn Curtis, a professor of law who specializes in corporate finance and law and macroeconomics at the University of Virginia.
China began shutdowns and quarantines in January, Italy followed in February and then the full-fledged shut downs and stay-at-home orders around the world didn’t become commonplace until mid- to late-March. So, the financial projection would be much worse if the situation had stretched through the entire fiscal quarter.
With most of its manufacturing plants around the world closed, Goodyear is planning “a phased restart of production during the second quarter” that includes some commercial truck tire facilities in the United States and Europe. Goodyear representatives did not respond to repeated calls and emails concerning how much longer the Danville plant will remain open and how much longer the company can endure current market conditions.
“Decisions to resume production will be based on an evaluation of market demand signals, inventory and supply levels, as well as the company’s ability to safeguard the health of its associates,” the company news release said.
Stocks plummeted to less than $5 per share in mid-March — less than a third of its high-value mark this year — when the entire stock market came crashing down before rebounding slightly during the past several weeks. The stock has hovered in the $7 range during the past few days.
That slight rebound is an indication the market thought the situation was worse than it actually was, Curtis explained.
Still, Goodyear’s stock prices have been consistently dropping for the past several years. After showing a high of $37 and a low of $28 during 2017, Goodyear’s stock has continued on a downward slope, showing a high of just $15.69 earlier this year.
Goodyear shareholder John Chevedden, who has held stock in the company since 2011, submitted a proposal earlier this month that would require any amendments to company bylaws or charter “be subject to a non-binding shareholder vote as soon as possible.”
“Goodyear now seems to be blaming all its long-standing problems on COVID 19,” he said in the proposal.
Right now, the company’s goal is to gain as much financial flexibility and available cash as possible by cutting expenses, implementing furloughs and pay cuts, and reducing discretionary spending and marketing. That is a common trend for companies across the nation,
As of March 31, Goodyear has total liquidity of about $3.6 billion, a slight increase since the same point in 2019. The company’s debt of about $6.5 billion remains unchanged since the same time last year.
Of course, the current situation Goodyear is in — facing a stark and sudden decline in demand and income because of international shutdowns — is not unique. But it is an unprecedented challenge for businesses.
“Losses this year will be very common and for companies that were profitable in recent years, they can probably manage this year,” said John Graham, a Duke University professor of finance with the Fuqua School of Business. “If the firm has been losing money for several years in a row, they may struggle to manage this year’s losses.”
Paul Mahoney, a University of Virginia law professor who studies corporations and corporate finance, agreed.
“They are used to declines in demand for their products, but not to a complete shutdown for weeks or months at a time,” he said.
Goodyear is electing to suspend its quarterly dividend for shareholders, which will preserve about $37 million in cash every quarter. Companies typically cut dividends only “when their back is against the wall,” Graham said.
“Many companies have suspended dividends in response to the sharp downturn in economic activity in the past month,” Mahoney said. “In the current environment, I don’t think investors will view that as an alarming development.”
On Thursday, President Donald Trump announced a three-phase plan that calls on states to gradually eliminate restrictions and turn their economies back on. Regardless of when social distancing guidelines and closure of non-essential business ceases, the long-term effects of the pandemic on companies like Goodyear remains to be seen, Curtis said.
“The big question is whether the economy will snap back when social distancing ends or if the damage will linger,” Curtis said. “The longer this goes one before we can get testing and tracing in place, the more likely that furloughs become layoffs and the economic damage becomes long-lasting.”
Ayers reports for the Register & Bee. Reach him at (434) 791-7981.