Firestone Will Write Down $78 Million in 4th Quarter
Firestone Tire & Rubber signaled further retrenchment and a fourth-quarter loss on Tuesday, even as it moved to head off hostile suitors and buy back more of its common stock.
The No. 2 tire maker said it will take a fourth-quarter writedown of about $78 million to cover an unspecified restructuring, which “may involve” further plant sales and closings and a narrowing of its line of products.
Firestone, of Akron, Ohio, acted on the takeover front as rumors continued to swirl about an attempted takeover of Goodyear Tire & Rubber, the largest tire producer, driving up the price of its stock.
As in some other old-line manufacturing industries that have cut costs and trimmed down in the past few years, investor attention has recently been focused on tire manufacturers as potential bargains that stand to benefit from today’s low oil prices and weaker dollar.
Goodyear stock leaped by $1.875 per share on Tuesday, closing at $42.25, and was the most actively traded issue on the New York Stock Exchange. There are persistent rumors that GAF Corp. of Wayne, N.J., was preparing a takeover offer. GAF declined to comment.
Good Marks for Cost Cutting
Firestone has won generally good marks on Wall Street for its previous cutbacks, including the padlocking of factories in Iowa and Georgia last year that accounted for an estimated 35% of its remaining U.S. tire production.
In previous years, it had shut nine U.S. plants and has just five left.
But as Chairman and Chief Executive John Nevin had previously warned, Tuesday’s announcement illustrated that the retrenchment isn’t over.
“It’s a lot more of the same,” said analyst Mike Walker of the Legg Mason Wood Walker investment firm in Baltimore.
Firestone said its board approved a “shareholder rights plan,” which has the effect of encouraging any potential suitor to negotiate with the board before attempting a takeover. It also authorized the repurchase of up to 5 million shares of its common stock. Since 1981, Firestone has already bought back 20 million shares, leaving 39 million outstanding.
The company also said it is negotiating the sale of Firestone Steel Products, a truck wheel and rim manufacturing unit in Henderson, Ky., and the Canadian city of London, Ontario, to a management group.
Firestone offered few details of the additional restructuring except to say that the associated costs will require a charge against earnings of about $2 a share, leaving the company in the red for the current quarter.
Withdrawal From Part of Market
It “may involve the closure or sale of one or more tire plants and a withdrawal by Firestone from one of more segments of the North American tire market,” the company said.
Analysts say Firestone and other tire makers can earn more money from fewer tires now that costs have been slashed and the price of petroleum products--accounting for as much as half of the cost of making a tire--has plummeted. Moreover, the weakening of the dollar against the Japanese yen has slowed the onslaught of tire imports that have been a big part of the domestic industry’s troubles.
Meanwhile, Firestone has expanded its retail store chain to 1,500 tire and auto service outlets in recent years and claims sharply improved profits from that unit. While the tire business shrinks, the auto service business is growing, Firestone says.
Though the fourth-quarter charge could dash hopes for a full-year profit, Firestone earnings climbed to $55 million from $45 million for the nine months ended July 31 despite a slippage in dollar sales.
“These older, heavier industries are capable of being ‘cash cows’ and their share prices can be pretty cheap,” analyst Walker said. “Firestone is capable of creating a lot of cash.”
