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Goodyear (GT) to Report Q4 Earnings: What's in the Cards?

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The Goodyear Tire & Rubber Company (GT - Free Report) is set to report fourth-quarter and full-year 2016 results on Feb 8. In the last quarter, this tire manufacturer posted a positive earnings surprise of 0.86%. Let us see how things are shaping up for this announcement.

Factors at Play

Goodyear regularly launches innovative products and services to boost sales. Goodyear is trying to boost its shareholder value, strengthen balance sheet and invest in projects with a high rate of return by reallocating around $1.1 billion from its 2014–2016 cash flow.

Further, the company has been redeeming some of its outstanding senior notes using the proceeds from the offering of new senior notes with lower interest rate. These transactions will reduce the interest expense of the company. The removal of Sumitomo Rubber’s minority interest in Goodyear Dunlop Tires Europe B.V. is also expected to augment Goodyear’s earnings.

Goodyear expects tire unit volume to rise 1–2% in 2016 and raw material costs to be 4% lower than 2015. During 2016, the company expects cost savings of about $150 million.

However, the volatility impacting Goodyear’s U.S. commercial truck tire business has forced the company to reduce its total segment operating income guidance for 2016 to $2–$2.25 billion from the prior range of $2.1–$2.2 billion. This means that segment operating income will be lower than $2.02 billion recorded in 2015.

Further, Goodyear’s revenue has been declining since 2013. Revenues in the first nine months of 2016 fell 8% year over year to $11.4 billion due to unfavorable foreign currency translation and deconsolidation of the subsidiary in Venezuela.

Goodyear expects foreign currency translation to negatively affect segment operating income by $25 million in 2016.

Earnings Whispers                                      

Our proven model does not conclusively show that Goodyear is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Goodyear’s Earnings ESP is -1.16% because the Most Accurate estimate of 85 cents stands below the Zacks Consensus Estimate of 86 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Goodyear carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Price Performance

Goodyear has outperformed the Zacks categorized Rubber - Tires industry over the last three months. The company’s shares gained 14.2% over this period, compared with a 12.2% rise recorded by the industry.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Cummins Inc. CMI, slated to report fourth-quarter and full-year 2016 results on Feb 9, has an Earnings ESP of +0.99% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magna International Inc. MGA has an Earnings ESP of +0.74% and a Zacks Rank #3. The company’s fourth-quarter and full-year 2016 financial results are expected to release on Feb 24.

American Axle & Manufacturing Holdings, Inc. AXL has an Earnings ESP of +4.41% and a Zacks Rank #3. The company is expected to report fourth-quarter and full-year 2016 financial numbers on Feb 10.

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