Goodyear Reaches Deal with USW

The Goodyear Tire & Rubber Co. (GT - Analyst Report) revealed that it reached a tentative four-year agreement on a United Steel Workers (USW) deal, about three hours before a midnight deadline for expiration last Saturday. The new contract covers about 10,300 employees at seven tire plants in the U.S. The plants are in Akron, Ohio; Buffalo, New York; Danville, Virginia; Fayetteville, North Carolina.; Gadsden, Alabama; Topeka, Kansas; and Union City, Tennessee.

The three-year old contract has been extended twice. Goodyear was in talks with USW in Cincinnati since June 8. The steelworkers were adamant throughout the negotiations about maintaining their job security. However, Goodyear did not disclose any details about the deal, especially on job cuts and plant closures.

Goodyear is focused on streamlining its operations by achieving cost reductions of $2.5 billion by 2009. Of this, the company already achieved $1.8 billion by the first half of the year. Goodyear anticipated that its master labor agreement with the USW will result in savings of $300 million in 2009.

A weak industry demand negatively affected Goodyear Tire’s results in the second quarter. The company reported a net loss of $221 million or 92 cents per share for the quarter versus earnings of $75 million or 31 cents per share in the same quarter last year. Total segment operating income plummeted 93% to $24 million from $330 million in the prior-year quarter. Sales were down 25% to $3.9 billion.

We continue to recommend the shares of Goodyear as Neutral with a target price of $19.

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