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Goodyear meets expectations, says analyst

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Despite soft pricing in June, Goodyear Tire & Rubber Co. has met performance expectations, according to Nick Mitchell, senior vice president of Northcoast Research Holdings LLC.

"While the industry has remained relatively disciplined from a pricing perspective since the expiration of Tariff 421 last September, our research suggests that price declines at retail continued in the second quarter of 2013, largely reflecting the downward trend in raw material prices.

"That said, we are not overly concerned with the results of our recent pricing study, as the trend was fairly consistent with our expectations," he says. "Additionally, our high-level channel work has not revealed anything compelling enough for us to modify our expectations for a 2% sequential price decline in Goodyear's North American segment in 2Q13."

Mitchell says prices on the top 10 passenger tire sizes were roughly flat during the second quarter. "Our analysis suggests that the tire brands experiencing the least price degradation since March 2013 were Dunlop, Goodyear, Hankook, and Michelin." In contrast, low-cost Chinese tires, Yokohama and Pirelli have seen the most price degradation.

"The pricing activity at retail (during the second quarter) implies that the pricing realignments were more pronounced on the light truck tire side, as replacement truck tire prices fell 1.5% since March 2013. This drop accounted for the entire decline in the value of the average tire during 2Q13."

While he expects only modest improvements in the global operating environment in 2013, Mitchell anticipates that Goodyear's volumes will accelerate as the year continues.

"As such, we are maintaining our 'Buy' rating, as we believe the risk/reward ratio associated with shares remains attractive as we expect a sustainable pick-up in replacement activity will occur in the near future and anticipate the company will continue to make progress in positioning itself for long-term growth in the OE market as well in certain targeted international markets."

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