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Why Is Goodyear (GT) Up 6.2% Since the Last Earnings Report?

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A month has gone by since the last earnings report for The Goodyear Tire & Rubber Company (GT - Free Report) . Shares have added about 6.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Goodyear Q4 Earnings Beat, Revenues Miss Estimates

Goodyear reported a 2.2% increase in adjusted earnings per share to $0.95 in fourth-quarter 2016 from $0.93 recorded a year ago (all excluding special items). Furthermore, earnings surpassed the Zacks Consensus Estimate of $0.87 and adjusted net income declined to $249 million from $257 million in fourth-quarter 2015.

Including special items, the company reported net income of $561 million or $2.14 per share in fourth-quarter 2016. In the year-ago quarter, it recorded net income of $380 million or $1.42 per share.

Revenues in the reported quarter fell 7.9% year over year to $3.74 billion. Sales also missed the Zacks Consensus Estimate of $3.84 billion. The year-over-year decline in the top line can be attributed to deconsolidation of the company’s subsidiary in Venezuela.

Tire unit volumes were 41.1 million, down 2% from the year-ago quarter. While replacement tire shipments dropped 1%, original equipment unit volume declined by 7% year over year due to weakness in the U.S. commercial truck market.

Segment operating income dropped to $479 million in the reported quarter from $480 million a year ago as the benefits from cost savings were offset by lower price/mix net of raw material costs, lower volume and the deconsolidation of Venezuela.

2016 Performance

Goodyear posted a rise in earnings of 20.5% year over year to $4 per share for full-year 2016. The figure surpassed the Zacks Consensus Estimate of $3.90. Revenues for 2016 were down 8% to roughly $15.2 billion due to deconsolidation of the company’s subsidiary in Venezuela. The figure also missed the Zacks Consensus Estimate of $15.3 billion.

Segment Details

Revenues at the Americas segment fell 11% year over year to $2.1 billion. The deterioration was due to a 5% decrease in tire unit volumes to 18.7 million units. The decline in unit volumes primarily resulted from the deconsolidation of the Venezuelan subsidiary. Also, original equipment unit volume went down 12% year over year. Replacement tire shipments were down 3%. Segment operating income went up 4% to $295 million driven by strong performance in the consumer tire business, which was partially offset by weakness in the commercial truck tire business and the deconsolidation of Venezuela.

Revenues from the Europe, Middle East and Africa segment were $1.1 billion, down 5% year over year. Revenues were primarily hurt by 1% decrease in sales volume and unfavorable currency translation. Original equipment unit volume was down 5%, while replacement tire shipments increased 1% year over year. Segment operating income edged down 19% to $81 million, primarily due to lower volume and a reduced price/mix net of raw materials and unfavorable foreign currency translation.

Revenues from the Asia-Pacific segment decreased 2% to $548 million, owing to unfavorable currency translation. Original equipment unit volume dropped 2%, while replacement tire shipments rose 3% year over year. Segment operating income improved 7% to $103 million, primarily on higher volume.

Financial Position

Goodyear had cash and cash equivalents of $1.1 billion as of Dec 31, 2016, down from $1.48 billion as of Dec 31, 2015. Long-term debt and capital leases amounted to $5.23 billion as of Dec 31, 2016, down from $5.66 billion as of Dec 31, 2015.

Cash flow from operations amounted to $1.5 billion in 2016 compared with $1.7 billion in the year-ago period. Meanwhile, capital expenditure was $996 million compared with $983 million a year ago.

Capital Deployment

During the reported quarter, Goodyear repurchased 9.8 million shares for $300 million under the previously announced $1.1 billion program. In 2016, the company bought back 16.7 million shares for $500 million.

On Feb 2, 2017, the board of directors also authorized a $1 billion increase in the share repurchase program. With this, the company has a total authorization of $2.1 billion.

Goodyear paid a quarterly dividend of $0.10 per share on Dec 1, 2016. On Feb 1, 2017, the board declared a quarterly dividend of $0.10 payable on Mar 1, 2017.

Guidance

Goodyear anticipates total segment operating income for 2017 to be consistent with the 2016 level. However, the company confirmed its 2020 financial targets and capital allocation plan, which were announced on Sep 15, 2016.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Goodyear's stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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