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The Goodyear Tire & Rubber Company (GT - Analyst Report) reported a 28.3% rise in earnings per share to 68 cents in the third quarter of 2013 compared with 53 cents a year ago (all excluding special items). The reported earnings beat the Zacks Consensus Estimate of 66 cents. Net income escalated 28.9% to $183 million from $142 million in the third quarter of 2012.

Including special items, the company reported a profit of $166 million or 62 cents per share in the quarter compared with $110 million or 41 cents a year ago.

Revenues in the quarter slipped 5% to $5 billion, missing the Zacks Consensus Estimate of $5.3 billion. The year-over-year decline in revenues reflects $178 million lower sales in other tire related businesses, specifically a decline in price and volume of third-party chemical sales. In addition, $89 million lower price/mix and $77 million unfavorable foreign currency translation adversely affected the revenues of the company. These were partially offset by 82 million increases in tire unit volumes.

Operating income grew 24% to $431 million from $348 million a year ago. The improvement was driven by favorable price/mix and lower unabsorbed overhead due to higher production and higher tire unit volumes. These were partially offset by adverse impacts of foreign currency translation and higher SAG expenses.

Segment Details

Revenues from the North American Tire segment dipped 9.1% to $2.2 billion. However, tire unit volumes increased marginally to 15.8 million from 15.6 million a year ago. The year-over-year decline in revenues was driven by lower sales from other tire-related businesses, mostly third-party chemical sales and lower price/mix. This offset the favorable impacts from increased tire unit volumes.

Revenues from the Europe, Middle East and Africa Tire segment increased marginally to $1.8 billion. Revenues benefited from 3% increase in tire unit volumes to 16.7 million and favorable foreign currency translation, partially offset by lower price/mix.

Revenues from Latin America increased 1.3% to $527 million on the back of improved price/mix and higher sales in other tire-related businesses, partially offset by unfavorable foreign currency and decrease in tire unit volume to 4.5 million.

Revenues from the Asia-Pacific Tire segment fell 9.3% to $537 million due to lower price/mix, reduced sales in other tire-related businesses and unfavorable foreign currency translation, partially offset by volumes increasing to 5.6 million units.

Financial Position

Goodyear had cash and cash equivalents of $2.5 billion as of Sep 30, 2013, up from $2.3 billion as of Dec 31, 2012. Long-term debt and capital leases were $6.5 billion as of Sep 30, 2013 compared with $5.0 billion as of Dec 31, 2012. This translated into a long-term debt-to-capitalization ratio of 84.4% as of Sep 30, 2013 compared with 88.9% as of Dec 31, 2012.

Cash outflow from operations in the first nine months of 2013 dropped to $298 million from $329 million in the first nine months of 2012. Capital expenditure was $734 million compared with $788 million in the same period a year ago.


Goodyear expects consumer replacement as well as commercial replacement and commercial original equipment markets to be flat in North America compared with 2012. 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 flat to 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.

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 Oshkosh Corporation (OSK - Snapshot Report), Denso Corp. (DNZOY) and Gentex Corp. (GNTX - Snapshot Report). They carry a Zacks Rank #1 (Strong Buy).

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