NEW YORK (CNNfn) - Goodyear Tire & Rubber Co. warned Thursday its second-quarter profits would fall well short of analysts' expectations. The company blamed weak overseas sales and the "disappointing execution" of North American restructuring programs.
The Akron, Ohio-based manufacturer, a Dow Jones industrial average component, predicted second-quarter earnings of between $64 million and $80 million, or 40 cents to 50 cents per share. Analysts surveyed by First Call Corp. had projected the leading tire and rubber company would earn 77 cents per share.
Goodyear (GT), the world's No. 3 tire maker, blamed the earnings shortfall on extremely sluggish sales and higher than anticipated costs related to several programs.
The company expects overall sales to be roughly 2 percent below the $3.1 billion it posted during the second quarter last year, when it earned $199 million or $1.25 a diluted share. It attributed much of that decline to turbulent overseas economic conditions, resulting in significantly lower operating income levels in Latin America and European emerging markets.
Goodyear said currency translations, higher interest expenses and higher estimated annual effective tax rates in overseas markets also all hurt top line growth.
Wall Street reacted warily to the news, sending Goodyear's stock down 1-5/16 to 55-5/16 in mid-morning trading, as analysts questioned whether the worst was now behind the company.
"I'm wondering if this is the bulk of the bad news and is it past us?" said Efraim Levy, an analyst at S&P Equity Group in New York. "I was looking for something like this, but not quite this bad."
Restructuring slower, costly
Restructuring programs in several North American plants, including the phase-out of tire production in one of the company's largest and oldest tire plants in Gadsden, Ala., also faltered during the quarter, resulting in higher than expected product costs and impacting the company's sales mix.
The restructuring programs, which included the elimination of 2,800 jobs worldwide, or 3 percent of the company's global workforce, were announced in conjunction with a February alliance with Japan's Sumitomo Rubber.
Keith Price, a Goodyear spokesman, said the restructuring costs have grown higher than expected, while the company has yet to realize any financial benefits from the Sumitomo alliance -- scheduled to become effective during the third quarter.
"This is just a bump in the road," Price said. "It's costing more than expected because we are doing so many things at once. But the plans we put in place are still in place and are all moving forward."
That includes a global effort, launched in 1997, to realign Goodyear's production capacity and inventories in North America and Europe. Costs associated with that program were likewise higher than expected during the second quarter while capacity utilization was down significantly compared to the same period last year.
Company officials said they expect all three factors to right themselves as the year progresses. Although Goodyear officials declined to comment on whether Wall Street's year-end earnings estimate of $3.77 was still attainable, they did predict second half earnings would be higher than the ultimate first half tally.
After listening to management's optimistic outlook during a conference call with analysts, Levy said he was reevaluating his "sell" recommendation on the company's stock.
"Management is typically an optimistic group," Levy said. "That's definitely one of the concerns I'm looking at right now."