The Goodyear Tire & Rubber Company (GT) is set to report third-quarter fiscal 2014 results on Oct 29, before the market opens. In the last quarter, it had posted an earnings surprise of 0.00%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
Goodyear faces challenges in terms of a volatile political and economic environment, and high currency fluctuations in Latin America. The company also expects a negative impact of around $40–$60 million on the operating income of the Latin American segment in 2014 due to the difficult business environment in Venezuela. Goodyear expects negative foreign currency exchange impact of $60 million in 2014, mainly due to fluctuation in the currency exchange rate for Venezuela.
In addition, Goodyear faces pricing pressure from original equipment manufacturers. This negatively impacts the company’s profit margins as it sells about 30% of its tires to OEMs and the quarter to-be-reported is unlikely to have been an exception.
However, for the period 2014–2016, Goodyear expects annual segment operating income to increase 10–15%. The company also targets to generate positive free cash flow (excluding pension pre-funding) over this period. Moreover, the company expects a 2–3% increase in unit sales volumes in 2014. The company also regularly launches innovative products and services to boost sales.
Earnings Whispers?
Our proven model does not conclusively show that Goodyear is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Goodyear’s Earnings ESP is -5.63% as the Most Accurate estimate stands at 67 cents while the Zacks Consensus Estimate is higher at 71 cents.
Zacks Rank: Goodyear currently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Gentherm Inc. (THRM) has an Earnings ESP of +4.65% and a Zacks Rank #1 (Strong Buy). The company will report its third-quarter 2014 results on Oct 30.
Meritor, Inc. (MTOR) has an Earnings ESP of +37.5% and a Zacks Rank #3 (Hold). It will release its third-quarter earnings results on Nov 12.
Advance Auto Parts Inc. (AAP) has an Earnings ESP of +0.54% and a Zacks Rank #2 (Buy). The company’s third-quarter financial results are scheduled to release on Nov 6.
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