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August 04, 2014

Goodyear fails to meet expectations, says analyst

Goodyear Tire & Rubber Co.'s reported second-quarter earnings per share was 80 cents. That was both good and not so good, at least according to industry analyst Nick Mitchell.

The adjusted EPS topped the consensus of 79 cents a share. However, it was below the estimate of Mitchell, senior vice president of research for Northcoast Research Holdings LLC.

Goodyear posted net income of $213 million on net sales of $4.7 billion for the second quarter ended June 30, 2014.

"We were pleased to see that unit sales increased 2.7% during the quarter, with gains occurring in three of the four operating segments, which was consistent with our expectations," he says. "That said, the composition of the increase was very different than what we anticipated, with the growth in replacement volumes far exceeding our expectations, OE shipments missing the mark, and consumer tires witnessing much stronger trends than commercial tires."

Mitchell says the company was not able to manage "the headline price/mix-to-raw materials spread" as well as in the recent past. At the same time, he is not concerned that increased competition in the industry is forcing Goodyear "to invest in pricing at a rate in excess of the relief it is experiencing on input costs."

"In short, we believe management's assessment that the weakness can be entirely traced back to mix, as the manufacturer sold significantly more consumer tires than commercial tires in the period relative to expectations...."

Following Goodyear's second-quarter results, Northcoast is maintaining its "Buy" rating on Goodyear's stock.

Goodyear reported a net loss of $58 million on net sales of $4.5 billion for its first quarter ended March 31, 2014.

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