The transformation plan that the Goodyear Tire & Rubber Company unveiled on Nov. 15 includes news that the company will retain its retail store network.
As you may recall, Elliott Investment Management, an activist fund, went public in the spring with demands for changes at the tiremaker, including the sale of its retail store network.
Outgoing Chairman, President and CEO Rich Kramer stated on a Nov. 15 conference call that the strategic and operational review committee of the Goodyear board of directors reviewed accelerated growth plans for the company’s U.S. retail footprint and saw significant profitability growth potential.
VALUABLE … On the call, Executive Vice President and CFO Christina Zamarro provided a rationale for why the review committee concluded that retail has more value as part of Goodyear than it would likely create if sold.
“Our retail presence reinforces our strong brand and bolsters our leading industry positions in the U.S. consumer replacement business, our most profitable,” Zamarro said. “Additionally, our retail footprint represents an outlet for premium tire’s fleet services and B2C e-commerce installations.”
She noted that, as part of the review committee’s work, it developed an operating plan for the U.S. retail business, which management thinks will generate significant value.
“Just as one example, we are rapidly expanding retail service volume with mega fleet customers who value our national footprint and consistent service as well as the confidence that comes with Goodyear standing behind the commitment,” Zamarro stated. “This relatively recent trend is driven by last-mile and direct-to-consumer growth and not only improves the throughput in our retail stores, but it also enables us to increase the sales of Goodyear tires as we service these fleet customers at retail. As last-mile continues to grow in the coming years, these services will help us win with fleet customers and benefit from this industry opportunity.”
Another key factor about the U.S. retail store group is how it would be viewed by the outside.
“All our stores are essentially leased; there’s really no real estate value there,” Kramer pointed out on the call. “And, on top of that, the Goodyear brand wouldn’t be as valuable to a multi-brand purchaser of the business.”
THE REVIEW … The transformation plan unveiled Nov. 15, titled “Goodyear Forward,” is designed to optimize Goodyear’s portfolio, deliver significant margin expansion and reduce leverage to drive sustainable and substantial shareholder value creation.
This follows an evaluation by the aforementioned review committee, which was tasked with assessing all strategic, operational and financial opportunities to maximize value.
“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. “Building on our strengths, this plan will enable Goodyear to enhance and expand our leadership position, deliver profitable growth across markets, create significant value for our shareholders and ultimately lay the foundation for success for the next 125 years.”
According to Laurette Koellner, independent lead director, “the full board supports this plan and is confident it will deliver substantial and durable value creation for shareholders.”
On behalf of Elliott, Senior Portfolio Manager Marc Steinberg and Portfolio Manager Austin Camporin stated: “We believe the ‘Goodyear Forward’ transformation plan represents a significant set of steps toward a stronger and more profitable Goodyear. We thank Rich for his leadership and the review committee for its collaborative engagement, and we look forward to continuing our dialogue with the company as it implements these initiatives and works to deliver the substantial upside value that we see for all Goodyear shareholders.”
According to Goodyear, the full board will oversee the execution of the new plan and remains committed to the “ongoing assessment of value-enhancing opportunities.”
THE PLAN … Key aspects of the plan are …
• Actively pursuing “strategic alternatives” for Goodyear’s chemical business, the Dunlop brand and the off-the-road equipment tire business.
• A cost-reduction plan encompassing footprint actions and plant optimization, purchasing, SAG, supply chain, and R&D.
• Opportunities in North America to optimize brand and tier positioning (Goodyear premium and Cooper mid-tier), rationalize its lower-tier SKU portfolio, reduce exposure to lower-tier products and lower-margin customers, use price and/or mix to increase customer and channel profitability, exit product lines where margin potential is structurally limited, enhance coverage in Goodyear premium product lines, and build on the company’s position in all terrain.
Evercore, Lazard and Goldman Sachs acted as financial advisers to Goodyear. — Reporting by Marc Vincent, Editor