On Sep 11, 2014, we issued an updated research report on The Goodyear Tire & Rubber Company (GT). This Zacks Rank #3 (Hold) stock has an average earnings surprise of +4.6% over the last four quarters.
Goodyear recorded a 5.3% rise in earnings per share to 80 cents in the second quarter of 2014 from 76 cents a year ago (all excluding special items). Earnings were in line with the Zacks Consensus Estimate. Net income escalated 7.7% to $225 million from $209 million in the second quarter of 2013.
Revenues in the quarter fell 4.9% year over year to $4.66 billion, missing the Zacks Consensus Estimate of $4.74 billion. The drop in revenues was owing to decline in original equipment unit volume by 4%, primarily in Latin America.
Goodyear’s capital deployment strategy, innovative product launches and efforts to improve margins are yielding results. However, we are concerned about weakness in Latin America and deteriorating financials of the company.
Goodyear’s long-term debt and capital leases increased to $6.8 billion as of Jun 30, 2014 from $6.2 billion as of Dec 31, 2013. Cash and cash equivalents fell to $1.6 billion as of Jun 30, 2014, from $3.0 billion as of Dec 31, 2013. Cash used in operations in the first half of 2014 increased to $1.1 billion from $462 million in the year-ago quarter.
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.
The Zacks Consensus Estimate for Goodyear’s 2014 earnings per share is pegged at $2.83, reflecting year-over-year growth of 8% .
Key Picks from the Sector
Stocks worth considering in the auto sector include Tesla Motors, Inc. (TSLA), Nissan Motor Co. Ltd. (NSANY) and Tata Motors Limited (TTM). All these sport a Zacks Rank #1 (Strong Buy).
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