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Bear of the Day: The Goodyear Tire & Rubber Company (GT)

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Times have been tough for The Goodyear Tire & Rubber Company (GT - Free Report) since the start of 2018. Shares of GT tanked once again following worse-than-expected Q2 2019 earnings results on July 26. So now it’s time to see why Goodyear looks like a stock that investors likely want to shy away from for now.

Quick Q2 Overview  

Goodyear’s adjusted quarterly earnings fell from $0.62 per share in the year-ago period to $0.25 a share in the second quarter. Along with this 60% decline, GT’s earnings fell short of our $0.31 per share estimate. Meanwhile, second quarter sales slipped 5% from a year ago, with tire unit volumes down 4%.

Original equipment unit volume also dropped 11% on lower overall global vehicle production. “While second quarter results were a bit disappointing, with both volume and price and mix below where we wanted to see them, the first half overall was consistent with our expectations,” Goodyear EVP and CFO Darren Wells told analysts on the company’s recent earnings call.

“We knew that a number of macro factors would be working against us through the first half. These included higher raw material costs; a stronger U.S. dollar; weak OE volume, particularly in China and India; and increasing energy and wage inflation in Europe.”

Price Movement

We already mentioned and investors can see that GT stock has been on a significant decline over the last several years. In fact, shares of Goodyear have fallen 60% since August 2018 and have tumbled 40% in 2019 alone. GT shares are now trading at around $12, after resting at nearly $35 per share on January 1, 2018.

Goodyear is of course not alone as the broader Auto-Tires-Trucks Market has slipped as well. But that larger market is at least up 5% so far this year.




Outlook & Earnings Trends

Looking ahead, the Akron, Ohio-based company’s Q3 revenue is projected to slip 1.4% to $3.87 billion, based on our current Zacks Consensus Estimates. Goodyear’s full-year fiscal 2019 sales are expected to fall 2% to $15.16 billion. Despite the small projected downturn, 2020’s revenue looks poised to pop 2% above our current 2019 estimate to match 2018’s total.

The bottom end of the income statement is what appears far worse for the global tire giant. The company’s adjusted third-quarter earnings are projected to tumble roughly 28% to hit $0.49 per share. This expected decline, coupled with its Q2 downturn, is expected to push its full-year fiscal 2019 EPS figure down nearly 33% to $1.56 per share.

Investors should note that Goodyear’s earnings are projected to surge back in 2020, to come in nearly 40% higher than our current-year estimate. However, at $2.18 a share, GT’s adjusted 2020 EPS figure is still projected to fall below the firm’s 2018 levels.

Along with Goodyear’s expected earnings retreat, we can see just how much worse GT’s overall bottom-line expectations have become over the past 30 days. The drop-offs for Q2 and fiscal 2019 have fallen the most. And the company’s overall earnings revision trends tumbled for 2018, 2019, 2020, and 2021.



Bottom Line

Goodyear is a Zacks Rank #5 (Strong Sell) at the moment, based, for the most part, on its negative earnings estimate revision activity. The company also operates in an industry that is headed in the wrong direction. The Rubber – Tires industry currently sits at No. 246, which puts it in the bottom 4% of our 255 Zacks’ industries.

Therefore, investors should look for other options at the moment as no stock ranks above a #3 (Hold) out of this group. Those interested in the broader auto market might consider Zacks #2 (Buy) ranked Fox Factory Holding Corp. (FOXF - Free Report) . Aside from that, this market looks like one to stay away from for the time being, especially as the U.S-China trade war escalates.

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