The Goodyear Tire & Rubber Company (GT) reported a 33.3% rise in earnings per share to 56 cents in the first quarter of 2014 from 42 cents a year ago (all excluding special items). Earnings missed the Zacks Consensus Estimate of 60 cents. Net income escalated to $156 million from $118 million in the first quarter of 2013.
Including special items, the company reported a net loss of $58 million or 23 cents per share in the quarter, plunging form a net profit of $26 million or 10 cents per share a year ago.
Revenues in the quarter fell 8.2% year over year to $4.5 billion, missing the Zacks Consensus Estimate of $4.75 billion. The drop in revenues can be attributed to a $202 million impact of lower sales in other tire-related businesses, specifically due to a decline in third-party chemical sales in North America.
In addition, revenues include the negative impact of $98 million from lower price/mix due to lower raw material costs and $126 million as a result of unfavorable foreign currency translation. These were partially offset by a $44 million increase due to higher tire unit volumes.
Operating income improved 24% to $373 million in the first quarter of 2014.
Segment Details
Revenues from the North America segment dipped 13.3% year over year to $1.88 billion. The decline in revenues includes a negative impact of $201 million from lower sales in other tire-related businesses, especially a drop in third-party chemical sales, along with a 1% declined in tire unit volumes and a lower price/mix. Meanwhile, original equipment unit volume fell 5% and replacement tire shipments remained flat year over year.
Revenues from the Europe, Middle East and Africa segment increased 4% to $1.68 billion. Revenues benefited from increased tire unit sales and a favorable foreign currency translation, which was partially offset by lower price/mix.
Sales in Latin America fell 18% to $422 million due to unfavorable foreign currency translation and a fall in tire unit volumes.
Revenues from the Asia-Pacific segment fell 13% to $492 million due to lower price/mix, reduced sales in other tire-related businesses and unfavorable foreign currency translation. These were partly offset by an increase in tire volume.
Financial Position
Goodyear had cash and cash equivalents of $1.85 billion as of Mar 31, 2014, down from $3.0 billion as of Dec 31, 2013. Long-term debt and capital leases amounted to $7.1 billion as of Mar 31, 2014, against $6.2 billion as of Dec 31, 2013.
Cash used in operations in the first quarter increased to $1.5 billion from $937 million in the year-ago quarter. Capital expenditure stood at $229 million compared with $271 million in the same period a year ago.
Dividend
Goodyear paid a quarterly dividend of 5 cents per share on Mar 3, 2014. The company also declared a quarterly dividend of 5 cents per share payable on Jun 2, 2014 to shareholders of record on May 1, 2014.
Stock Update
Goodyear repurchased 0.85 million of its shares at an average price of $27.12 during the quarter. Additionally, the company converted all the outstanding 5.875% mandatory convertible preferred stock to equity shares on Apr 1, 2014. For each share of preferred stock, 2.7574 equity shares were issued.
Guidance
For the period 2014–2016, Goodyear expects annual segment operating income to increase 10–15%. The company also targets achieving positive free cash flows per annum during this period. Moreover, the company expects a 2–3% increase in unit volumes in 2014.
Goodyear Tire is one of the largest tire manufacturing companies in the world. The company currently retains a Zacks Rank #4 (Sell).
Some stocks that are performing well in the auto sector include Fox Factory Holding Corp (FOXF), PACCAR Inc. (PCAR) and Harley-Davidson Inc. (HOG). All these stocks carry a Zacks Rank #2 (Buy).
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