Goodyear To Close U.K. Plant To Reduce Production Costs

The Goodyear Tire & Rubber Company (GT- Analyst Report) announced that it will close the mixing and retreading facility in Wolverhampton, U.K. The production line of this facility will be shifted to the existing manufacturing facilities across Europe, the Middle East and Africa (“EMEA”). The company expects that this strategy will help reduce cost of production.

Goodyear also declared that it would relocate consumer tire production from the Wittlich, Germany plant to the EMEA region. These actions undertaken by the company are estimated to result in job loss for 360–390 employees. However, these job cuts are subject to consultation with employee representative bodies.

Goodyear expects these plans to be completed by the end of next year. However, the company will incur a charge of $70–$80 million ($60–$70 million after taxes and minority interest) due to these actions. Of the total charges, $55–$60 million will be cash charges mainly associated with severance payments and contractual obligations, and around $15–$20 million will be non-cash charges associated with accelerated depreciation and other asset-related charges. It is expected that Goodyear will record charges of about $30 million in second-quarter 2015 due to these plans. In the second half of 2015, the company expects to incur charges of around $10 million.

Goodyear expects that after completion of the transfer, operating income from the EMEA segment will be around $30 million annually, starting 2017. Goodyear has 17 manufacturing plants in EMEA. In terms of revenue generation, EMEA comes second for the company, following North America. However, revenues from the EMEA segment decreased 21% to $1.3 billion in the first quarter of 2015. Revenues were mainly hurt by unfavorable currency translation, along with a decline in tire unit volume.

Goodyear is one of the largest tire manufacturing companies in the world. It currently sports a Zacks Rank #1 (Strong Buy). Better-ranked stocks in the auto industry include Meritor, Inc. (MTOR - Analyst Report), Fox Factory Holding Corp (FOXF - Snapshot Report) and Autoliv, Inc. (ALV - Analyst Report), all carrying a Zacks Rank #2 (Buy).