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Why Is Goodyear (GT) Down 15.4% Since its Last Earnings Report?

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It has been about a month since the last earnings report for The Goodyear Tire & Rubber Company (GT - Free Report) . Shares have lost about 15.4% in that time frame.

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

Goodyear Q4 Earnings & Revenues Beat Estimates, Up Y/Y

Goodyear reported adjusted earnings per share of 99 cents in comparison to 95 cents in the prior-year quarter. Moreover, the bottom line surpassed the Zack Consensus Estimate of 76 cents. The company reported the net loss of $96 million against net income of $561 million in fourth-quarter 2016.

Revenues in the quarter under review were $4.07 billion, beating the Zacks Consensus Estimate of $3.91 billion. The top line also comfortably rose from $3.74 billion a year ago.

During the quarter under concern, tire unit volumes were 42 million, up 2% from fourth-quarter 2016. Replacement tire shipments rose 3% while original equipment unit volume slipped 1% in comparison to the year-earlier quarter.

Segment operating income dropped to $419 million in the reported quarter from $479 million a year ago.

Fiscal 2017 Results

Goodyear reported earnings of $1.37 per share in fiscal 2017, down from $4.74 earned in fiscal 2016. The Zacks Consensus Estimate for the metric was $2.89.

Net income decreased to $346 million from $1.3 billion a year ago. Further, sales rose to $15.4 billion from $15.2 billion in fiscal 2016. Moreover, the top line surpassed the Zacks Consensus Estimate of $15.3 billion.

Segment Details

Revenues at the Americas’ segment gained 6% year over year to $2.2 billion, reflecting a 4% rise in tire unit volume and favorable price mix. Original equipment unit volume was flat in comparison to the prior-year quarter. Replacement tire shipments were up 5%, primarily driven by a rise of 8% in the United States consumer replacement.

Driven by higher raw material costs and increased costs due to lesser production, segment operating income plunged to $209 million from $295 million a year ago.

Revenues from Europe, Middle East and Africa segment were $1.3 billion, up 12% year over year. This upside is driven by an improved price mix and a favorable foreign currency translation. Original equipment unit volume was down 12% while replacement tire shipments gained 2% year over year.

Segment operating income increased to $93 million from $81 million a year ago. This upside is primarily on the back of improved price mix and cost-saving initiatives, partly offset by soaring raw material costs.

Revenues from the Asia-Pacific segment grew 14% to $623 million, reflecting an improved price mix. Original equipment unit volume gained 12% while replacement tire shipments were flat year over year. Segment operating income rose to $117 million from $103 million a year ago. This rise is driven by an improved product mix, partly offset by high raw material costs.

Financial Position

Goodyear had cash and cash equivalents of $1.04 billion as of Dec 31, 2017, down from $1.13 billion as of Dec 31, 2016. Long-term debt and capital leases amounted to $5.1 billion as of Dec 31, 2017, up from $4.8 billion as of Dec 31, 2016.

At the fiscal 2017-end, the company recorded a total cash flow of $1.2 billion from operating activities in comparison to $1.6 billion, recorded at the end of comparable quarter last year. Also, capital expenditure for the period decreased to $881 million from $996 million a year ago.

Capital Deployment

During the reported quarter, Goodyear repurchased 6.3 million shares for $195 million under the previously announced $2.1 billion share repurchase program.

Since the company’s share repurchase program inception in 2013, Goodyear repurchased a total of 44 million shares for $1.3 billion.

Outlook

Goodyear anticipates operating income within the band of $1.8-$1.9 billion, approximately, for 2018.

The company has also updated its 2020 segment operating income target and capital allocation plan. It expects to achieve a target of $2-$2.4 billion in 2020 in the segment operating income. While the capital allocation plan includes restructuring, growth capital, debt and pension payments plus a shareholder return program.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 31.2 % due to these changes.

The Goodyear Tire & Rubber Company Price and Consensus

 

VGM Scores

At this time, GT has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, GT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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