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Goodyear Beats, Earnings Rise 33.3%

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Goodyear Tire & Rubber Company (GT - Analyst Report) reported a 33.3% rise in earnings per share to 76 cents in the second quarter of 2013 compared with 57 cents a year ago (all excluding special items). The reported earnings outpaced the Zacks Consensus Estimate of 48 cents. Net income escalated 36.5% to $202.0 million from $148.0 million in the second quarter of 2012.

Including special items, the company reported a profit of $181.0 million or 67 cents per share in the quarter compared with $85.0 million or 33 cents a year ago. The improvement was attributable to higher earnings across the company’s business segments.

Revenues in the quarter slid 5% to $4.89 billion, but beat the Zacks Consensus Estimate of $4.85 billion. The year-over-year decline in revenues reflect $131 million lower sales in other tire related businesses, $75 million lower price/mix and $60 million in unfavorable foreign currency translation. These were partially offset by a 1% increase in tire unit volumes to 39.5 million.

Operating income grew 27% to $428 million. The improvement was driven by favorable price/mix, cost-saving activities and higher tire unit volumes. These were partially offset by unabsorbed overhead due to lower production and adverse impacts of unfavorable foreign currency translation.

Segment Details

Revenues from the North American Tire segment dipped 10.2% to $2.2 billion due to a 4% fall in tire unit volumes to 14.8 million, lower price/mix and lower third party chemical sales. However, operating income improved 8.5% to $204 million or 9.3% of sales from $188 million or 7.7% a year ago, driven by favorable price/mix net of raw materials.

Revenues from the Europe, Middle East and Africa Tire segment dropped 1.2% to $1.57 billion. Tire unit volumes improved 2% to 14.6 million, offset by lower price/mix. Segment operating income jumped to $51 million from $19 million a year ago, driven by favorable price/mix and higher tire unit volumes.

Revenues from Latin America increased 5.6% to $531 million on the back of a 4% increase in volumes to 4.5 million units and improved price/mix, partially offset by unfavorable foreign currency translation. Operating income went up 41.4% to $82 million from $58 million a year ago, driven by price/mix improvements and lower raw material costs, partially offset by higher conversion costs and unfavorable currency translation.

Revenues from the Asia-Pacific Tire segment fell 2.5% to $585 million due to lower price/mix, reduced sales in other tire-related businesses and unfavorable foreign currency translation, partially offset by higher volumes. However, operating income improved 28.2% to $91 million from $71 million a year ago, driven by favorable price/mix, lower factory start-up costs and higher tire unit volumes.

Financial Position

Goodyear had cash and cash equivalents of $2.6 billion as of Jun 30, 2013, up from $2.3 billion as of Dec 31, 2012. Long-term debt and capital leases were $6.5 billion as of Jun 30, 2013 compared with $5.0 billion as of Dec 31, 2012.

Cash outflow from operations in the first half of 2013 escalated to $462 million from $451 million in the first half of 2012. Capital expenditure amounted $493 million compared with $490 million in the same period a year ago.

Guidance

Goodyear expects full-year tire unit volume to be flat compared with 2012. The company expects unit volume to increase 3% to 5% in the third quarter of 2013 due to improvements in emerging markets and recovery in mature markets.

In North America, the company expects consumer replacement as well as commercial replacement and commercial original equipment markets to be flat compared with 2012. However, it expects consumer original equipment volumes to be up 5% in North America.

In Europe, Goodyear anticipates consumer replacement industry to be flat and consumer original equipment to be down 5%. The company also expects commercial replacement demand to increase 5% and original equipment volumes to be flat to up 5% for the year.

Goodyear provided its operating income guidance of $1.5 billion for 2013, which is in line with the high end of the previously announced range of $1.4 billion to $1.5 billion.

Our Take

Goodyear Tire & Rubber Company is one of the largest tire manufacturing companies worldwide, selling its products under the Goodyear, Kelly, Dunlop, Fulda, Debica, Sava and various other “house” brand names as well as private-label brands. The company currently retains a Zacks Rank #2 (Buy).

Stocks that are worth looking for in the same industry include Visteon Corp. (VC - Snapshot Report), Denso Corp. and Gentex Corp. (GNTX - Snapshot Report). They carry a Zacks Rank #1 (Strong Buy).
 

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