Ashford W. Meikle, Staff Reporter
Graham ... "We have improved our product mix. We are focusing on the high end of the market." - IAN ALLEN/STAFF PHOTOGRAPHER
GOODYEAR JAMAICA Limited has entered into a partnership with major retailer, PriceSmart, to provide a new retail store for Goodyear products, said managing director, Peter Graham, in an interview with the Financial Gleaner.
"The whole idea is to provide full-service at the retailer, where you can buy your tyres and have them fitted while you shop," said Graham. The latest partnership is part of the company's strategy to strengthen the distribution of Goodyear's products by developing "new retail stores in high-traffic shopping malls."
In addition to the new distributive agreement with PriceSmart Goodyear has about ten mono-brand stores across the island which sell the tyre company's products exclusively.
While he expressed satisfaction with Goodyear's interim nine months results (to September 30, 2005), the managing director said the company had decided to shift its focus as it pertains to its products even as it points to the 'very challenging' operating environment and the rise in raw materials costs which 'remain a major threat to the attainment of profitability objectives'.
For its nine months to September 30, 2005, Goodyear Jamaica is reporting revenue of almost $865 million - a 16 per cent increase over the comparable period last year.
The company's core operations continue to grow - indicative by the 67 per cent increase in its operating profit, which stands at almost $75 million. Goodyear's net profit which grew by almost 35 per cent, climbed to just under $53 million.
Graham identified four main factors which have contributed to the company's strong results.
The first was the shift in the company's product mix. Graham explained that Goodyear has "improved [its] product mix ... we are concentrating on high margins, low volumes."
For this reason, the company made the decision to move away from the high volume, low margin market which has clients such as taxi operators. Though sales are brisk in this market, the profit margin is thin and necessitate unnecessary inventory.
The managing director also pointed to stability in supplies from its overseas supplies. Graham noted, "We are now sourcing from our preferred market," which, in this case, is Brazil. While Goodyear sources its tyres from about fifteen different countries. About forty per cent of Goodyear's tyres are sourced from that South American country. "Our fill rate has improved ... we've gone back to the traditional levels in the mid nineties." Fill rates refers to orders shipped versus orders placed.
Graham also pointed to the solid performance of Goodyear's export segment. "Our exports continue to be strong. We now ship to every country in the Caribbean," noted the managing director. The strong growth in the company's export market is evidenced by the 47.4 per cent increase in revenue for the nine-month period. The domestic market, on the other hand, experienced a 3.7 per cent increase.
During the first nine months revenue from the export segment amounted to a little over $315 million. This represents some 36 per cent of Goodyear's total revenue. In comparison during the same period last year, exports accounted for 28.7 per cent of total revenue. However, profits form operations from the export segment amounted to $30.7 million, compared to the $11.5 million from the Jamaican market.
An important factor in Goodyear's strong performance, as pointed out by Graham, is the company's control of its expenses. For example, selling and distributive costs and administrative expenses increase by about four per cent during a period in which inflation has registered double digit growth. As a result, operating profit registered growth of 67 per cent.
Looking at the challenges facing the company, Graham noted that the company's performance could be threatened by rising oil prices. He said, "65 per cent of what goes into tyre is oil-based. Once oil goes up, it will affect us." For example, since January 2003 oil prices have gone up 99 per cent (when it was US$31 per barrel) while natural rubber price has gone up 68 per cent.
In keeping with the company's shift in its product mix, Goodyear's most immediate plans in the future is to introduce a new line of SUV tyres, the Wrangler HP.
