Goodyear is thinking of selling its chemical business, Dunlop tire brand and off-the-road business

By Ciara Linnane

Tire maker is planning an overhaul that aims to raise more than $2 billion from portfolio optimization

Goodyear Tire & Rubber Co.'s stock rose 2.4% Wednesday after the company unveiled a transformation plan that includes exploring its strategic options for its chemical business, Dunlop brand and off-the-road specialty-tire business.

The announcement came after a review by a special committee created by the board to evaluate all options to maximize value. The review was driven by Paul Singer's activist hedge fund, Elliott Investment Management, which struck a cooperation agreement with the tire maker in July.

Goodyear agreed to add three directors to its board and to conduct the review as part of that deal. Elliott has said the stock price could get back to $32, a level it hasn't traded at since January of 2000.

The company also said Chief Executive Richard J. Kramer would retire in 2024, and that it has hired an executive-search firm to find a successor.

"The Review Committee explored all value maximizing opportunities and identified specific, detailed initiatives to streamline our portfolio, expand margins and fortify our balance sheet, and do so with expediency," Kramer said in a statement.

On a call with analysts, Kramer said the changes are needed.

"As a company and arguably as an industry, we're facing a unique moment in time where fundamental changes to cost structures and competition are reinforcing why Goodyear needs to position itself differently for the future," he said, according to a FactSet transcript.

Fixed costs have climbed since the outbreak of COVID-19, and while inflation appears to be moderating, costs for wages and energy, among other things, remain high relative to historical norms, the executive added.

The migration from combustion engines to electric vehicles is proving disruptive, given the amount of capital investment and restructuring required, Kramer said.

Competition, meanwhile, now extends to new global EV entrants. And low-cost tires from Asia are gaining traction in Europe and Latin America, he said.

"These challenges will, in one form or another, float downstream to suppliers," Kramer said.

The plan, dubbed "Goodyear Forward," aims to raise more than $2 billion in proceeds from portfolio optimization and to generate a positive benefit of $1.3 billion by the end of 2025.

That's divided between $1 billion of cost cuts and top-line action that's expected to drive an annual run-rate benefit of $300 million. Cost cuts will including footprint actions and plant optimization, as well as supply-chain and research-and-development cutbacks.

The company expects operating income margin to double to 10% by the end of 2025. It's targeting net leverage of 2.0 times to 2.5 times in the same time period, which would get it closer to an investment-grade rating.

It expects debt reduction of about $1.5 billion, net of about $1.1 billion for restructuring.

The news comes after Goodyear last week reported mixed third-quarter results but said raw-materials costs fell, helping its bottom line.

Goodyear lost $89 million, or 31 cents a share, in the quarter, contrasting with earnings of $44 million, or 16 cents a share, in the same period a year earlier. Adjusted for one-time items, Goodyear earned 36 cents a share. Sales fell to $5.14 billion, from $5.31 billion a year ago.

Analysts polled by FactSet expected adjusted earnings of 19 cents a share on sales of $5.3 billion.

"This was the first quarter in two years where the benefits of price/mix vs. raw materials exceeded inflation," Goodyear executives said in a letter to shareholders.

The stock has gained 37% in the year to date, while the S&P 500 has gained 17%.

-Ciara Linnane

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11-15-23 1207ET

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