The Goodyear Tire & Rubber Company (GT) 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 surpassed the Zacks Consensus Estimate of 71 cents. Adjusted net income escalated 27.4% to $242 million from $190 million in the third quarter of 2013.
Including special items, the company reported net income of $161 million or 58 cents per share in the quarter, down from $166 million or 62 cents per share a year ago.
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.
Tire unit volumes decreased 2% to 41.9 million in the third quarter of 2014. Original equipment unit volume fell 3%, primarily due to lower vehicle production in Brazil. Replacement tire shipments went down 1% due to lower sales in North America.
Segment operating income improved 21% to a record high of $520 million in the third quarter of 2014 from $431 million a year ago. The year-over-year increase was driven by significant improvement in North America; Europe, Middle East and Africa; and Asia Pacific.
Segment Details
Revenues at the North America segment declined 6% year over year to $2.1 billion. The deterioration was a function of unfavorable currency translation and a 4% decline in tire unit volume to 15.2 million units. Original equipment unit volume and replacement tire shipments fell 4% each.
Revenues from the Europe, Middle East and Africa segment decreased 8% to $1.6 billion. Revenues were hurt by a decline in tire unit volume, lower price/mix and unfavorable currency translation. Unit sales fell 1% to 16.4 million units. Original equipment unit volume was down 3% while replacement tire shipments went down 1% year over year.
Sales in the Latin America segment fell 14% to $451 million due to unfavorable foreign currency translation and a fall in tire unit volumes, partially offset by improved price/mix. Unit sales decreased 5% to 4.3 million units. Original equipment unit volume was down 27% owing to a weak performance in Brazil while replacement tire shipments improved 4% year over year.
Revenues from the Asia Pacific segment fell 1% to $531 million due to unfavorable price/mix and lower off-the-road tire sales. This was partly offset by a 7% increase in tire unit volume to 6 million units. Original equipment unit volume was up 11% and replacement tire shipments went up 4% year over year.
Financial Position
Goodyear had cash and cash equivalents of $1.74 billion as of Sep 30, 2014, down from $3.0 billion as of Dec 31, 2013. Long-term debt and capital leases amounted to $6.8 billion as of Sep 30, 2014, up from $6.2 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. Meanwhile, capital expenditure stood at $634 million compared with $734 million in the same period a year ago.
Dividend
Goodyear paid a quarterly dividend of 6 cents per share on Sep 2, 2014. The company also declared a quarterly dividend of 6 cents per share payable on Dec 1, 2014 to shareholders of record as on Oct 31, 2014.
Stock Update
Goodyear repurchased 1.2 million shares at an average price of $24.75 during the quarter under its previously announced $450 million share repurchase program. The company plans to repurchase up to $150 million of its shares during the fourth quarter of 2014.
Guidance
For the period 2014–2016, Goodyear expects annual segment operating income to increase 10–15%. The company also targets achieving positive free cash flow over this period.
Moreover, Goodyear expects a 0–1% increase in unit volumes in 2014. Segment operating income growth is expected to be close to the higher end of the guidance range of 10–15% in 2014.
Goodyear Tire is one of the largest tire manufacturing companies in the world. The company currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Toyota Motor Corp. (TM), Tata Motors Ltd. (TTM) and Gentex Corp. (GNTX), all of which sport a Zacks Rank #1 (Strong Buy).
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