Thursday, April 28, 2011

Goodyear Tire & Rubber Co. (NYSE: GT): Q1 Earnings Preview 2011

Goodyear Tire & Rubber Co. (NYSE: GT) is scheduled to release its first-quarter earnings before the opening bell on Friday, April 29, 2011. Analysts, on average, expect the company to report earnings of 12 cents per share on revenue of $4.77 billion. In the year ago quarter, the company reported earnings of 18 cents per share on revenue of $4.27 billion.

The Goodyear Tire & Rubber Company engages in the development, manufacture, distribution, and sale of tires and related products and services worldwide.

In the preceding fourth-quarter, the Akron, Ohio-based company's net loss was  $177 million, or 73 cents per share, compared to net income of $107 million or 44 cents per share, in the prior-year quarter. Revenue rose 14 percent to $5.07 billion from $4.44 billion in the same quarter last year. Analysts, on average, expected the company to post a loss of 7 cents per share on revenue of $4.82 billion. 

At its last earnings call in February, Goodyear said that it expects the global tire industry to continue to grow in 2011, with volume expansion across all regions and major segments. However, it also anticipated its raw material costs in the first quarter of fiscal 2011 to increase 25 percent to 30 percent from the prior-year quarter.

Last month, the company said that said it expects its segment operating income for 2013 to increase over 74 percent from 2010, as the tire manufacturer remains focused on growth in targeted high-margin segments.Goodyear is targeting segment operating income of $1.6 billion in 2013. Operating income in its North American Tire unit is targeted to be $450 million in 2013 and segment operating income in its international businesses also is expected to improve. The company expects to make capital investments of $1.1 billion to $1.3 billion annually in 2012 and 2013, slightly higher than an expected $1.1 billion to $1.2 billion in 2011. Additionally, the company plans to focus $500 million to $600 million each year on profitable growth opportunities through plant upgrades, expansions and new construction. These investments will support a 3 percent to 5 percent annual increase in unit volume that will focus on high-value-added tires in high-margin segments.

Goodyear's fortunes are largely tied to the auto industry. As the world tries to come out of economic recession, the first sector to witness positive movement has been the Automobile sector and since its linked to related sectors like tire industry, plastics industry and metal processing, all the sub sectors are slowly witnessing a silent revival. As more and more people look at buying automobiles, the tire industry is also set to attain a positive movement from the pits, where it has been for most of last year. About a quarter of Goodyear's revenue comes from tires put on new cars. As a supplier for original tires for Ford Motor (NYSE: F), Toyota (NYSE: TM), and several GM (NYSE: GM) models among automakers, Goodyear benefits when car and truck sales rise, as they have lately.

The company has benefited from cost-saving actions. The company is targeting $1 billion of gross savings by 2012. However, rising raw material costs and pricing pressure from OEMs due to weak industry demand remain concerns. Further, its highly-leveraged balance sheet is worrisome. 

The company's stock currently trades at a forward P/E (fye 31-Dec-12) of 8.48 and PEG ratio (5 yr expected) of 0.79. In terms of stock performance, GT shares have gained 14 percent over the past year.

Full Disclosure: None.
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