On Dec 9, 2014, we issued an updated research report on The Goodyear Tire & Rubber Company (GT). This Zacks Rank #2 (Buy) stock had reported a positive average surprise of 8.3% in the last four quarters.
Goodyear reported a 27.9% rise in adjusted earnings per share to 87 cents in the third quarter of 2014 from 68 cents a year ago (all excluding special items). Earnings also surpassed the Zacks Consensus Estimate of 71 cents.
Revenues in the quarter fell 6% year over year to $4.7 billion, missing the Zacks Consensus Estimate of $4.95 billion. The drop in revenues can be attributed to unfavorable foreign currency translation and a decline in sales volume.
Goodyear regularly launches innovative products and services to boost sales. It is also trying to boost shareholder value through capital deployment strategies. The company plans to reallocate around $1.1 billion of its 2014–2016 cash flow to enhance shareholder value, strengthen the balance sheet and invest in projects with high rates of return.
However, in Latin America, Goodyear faces challenges in terms of a volatile political and economic environment and high currency fluctuations. In the first nine months of 2014, sales and operating income from the Latin America segment fell 13.3% and 35.1%, respectively. The decline resulted from unfavorable foreign currency translation, particularly in Venezuela and Brazil, along with lower tire volumes, higher conversion costs and increased selling, general and administrative expenses.
Further, cash and cash equivalents declined to $1.74 billion as of Sep 30, 2014, from $3.0 billion as of Dec 31, 2013. Cash used in operations in the first nine months of 2014 increased to $939 million from $298 million in the year-ago period.
Goodyear expects annual segment operating income to increase 10–15% over the period 2014–2016. In 2014, operating income is expected to increase on the higher end of the 10–15% guidance range.
Key Picks from the Sector
Investors interested in the auto industry could consider better-ranked stocks like Gentex Corp. (GNTX), Douglas Dynamics, Inc. (PLOW) and STRATTEC Security Corp. (STRT), all sporting a Zacks Rank #1 (Strong Buy).
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