Goodyear to invest up to US$ 300 million in Mexico
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Goodyear is budgeting nearly US$ 800 million through 2019 to boost production capacity for high-value-added (HVA) tires in a bid to stay ahead of the demand curve for such tires. Out of that budget, up to US$ 300 million would go over the next years to its facility in San Luis Potosi, Mexico, still under construction and set to open on July 2017.
Officials at the Akron-headquartered company disclosed the expansion projects —slated at plants in the U.S., Mexico, South Africa, China and India— during a briefing with financial analysts in Boston.
Goodyear's top executives also unveiled a growth and capital allocation plan that targets US$ 3 billion in operating income by 2020 and between US$ 4.3 billion and US$ 4.9 billion in free cash flow through 2020. The firm's operating income goal is up from US$ 2.1 billion in 2016.
It expects to have US$ 7 billion to US$ 7.4 billion available for capital allocation during the 2017-20 fiscal year periods.
Of that, the firm is budgeting US$ 1.8 billion to US$ 1.9 billion for capital expenditures targeted for capacity expansions, US$ 700 million to US$ 800 million for restructurings, US$ 3.5 billion to US$ 4 billion for dividends and share repurchases, and US$ 800 million to US$ 900 million for debt repayment.
The tire industry is healthy and growing with opportunities to grow further, according to Richard J. Kramer, chairman, CEO and president.
Increased tire demand
In terms of the firm's investments for high-value-added (HVA) tires—essentially those with rim diameters of 17 inches and greater— Goodyear projects demand for HVA passenger tires will double worldwide by 2020 to 444 million units. That growth follows a doubling in demand from 2010-15 to 222 million units, said Laura Thompson, executive vice president and chief financial officer.
She also noted the industry margins on 17-inch and larger tires is US$ 16 per tire higher than on tires smaller than 17 inches. Taken together, Goodyear's expansions will result in 20 million units of additional annual capacity for the larger-rim tires, Thompson said.
Specific projects outlined at the briefing include:
US$ 125 million through 2018 to add 2 million units of annual capacity at plants in Lawton, Okla., and Fayette-ville, N.C., for original equipment customers. Goodyear declined to provide a breakdown between the two plants;
US$ 210 million through 2019 to increase capacity at its Pulandian, China, plant by 3 million units a year;
US$ 115 million to add 1 million units of HVA capacity at its facility in Aurangabad, India;
US$ 290 million to US$ 300 million through 2019 to install 6 million units of annual capacity at its factory in San Luis Potosi, Mexico; and
US$ 20 million in 2017 to add 1 million units at the firm's Uitenhage, South Africa, plant, which is part of a US$ 50 million investment disclosed in September 2015.
Goodyear also added 3 million units of annual capacity for the larger-rim tires at plants in Europe in projects wrapping up in 2016.