Shares of Goodyear Tire & Rubber are surging today — 14%! — thanks to lights-out earnings that spell good news for the global economy.
We were curious, though, about its commodity situation, given its dependence on rubber and other components of tires.
What the company said on its conference call was this:
As a result of the first quarter performance, our confidence in our ability to manage raw material cost increases at these levels is increased. We expect price mix to offset raw material costs in Q2.
However, the challenge will be more significant in the second half, as we expect to face unprecedented raw material increases that will exceed $500 million per quarter. While our goal remains to recover raw material increases over time. This does not mean we can offset increases within the same period. We’re confident in our strategy and are focused on offsetting raw materials with price mix over time, which is essential for obtaining our 2013 profit target.
Something we’ve seen several times this season is companies citing higher costs offset by “efficiencies” which means turning the screws to the workforce.
A question, then is: Have companies used up their efficiency gains for the year, or was this a one time thing. Goodyear isn’t sure.