Goodyear (GT) Q3 Earnings Beat Estimates, Down 39.3% Y/Y

The Goodyear Tire & Rubber Company (NASDAQ:GT) reported 39.3% decrease in adjusted earnings per share to 71 cents in third-quarter 2017 from $1.17, recorded a year ago. However, the bottom line surpassed the Zacks Consensus Estimate of 67 cents. Adjusted net income declined to $177 million from $310 million in third-quarter 2016.

Revenues in the reported quarter were $3.92 billion, marginally ahead of the Zacks Consensus Estimate of $3.91 billion. The top line also comfortably rose from $3.85 billion, recorded a year ago.

Tire unit volumes were 39.8 million, down 5% from 2016. Replacement tire shipments fell 4%, while original equipment unit volume declined 9% year over year due to lower volume sales.

Segment operating income dropped to $357 million in the reported quarter from $556 million a year ago.

Segment Details

Revenues at the Americas’ segment slipped 1% year over year to $2 billion. Original equipment unit volume went down 11% year over year, primarily due to a decrease in auto production in the United States. Replacement tire shipments were down 6%, primarily due to increased competition and a weak industry demand.

Driven by raw material costs and the impact of lower volume, segment operating income plunged to $189 million from $305 million, a year ago.

Revenues from the Europe, Middle East and Africa segment were $1.3 billion, up 6% year over year. This upside is due to an improved price mix and a favorable foreign currency translation, partly offset by 4% decrease in tire sales volume. Original equipment unit volume was down 12%, while replacement tire shipments declined 1% year over year.

Segment operating income decreased to $87 million from $152 million, a year ago. This downside is primarily due to higher raw material costs and declining volume sales, partially offset by a better price mix and cost savings.

Revenues from the Asia-Pacific segment grew 5% to $569 million, reflecting an improved price mix. Original equipment unit volume slid 1%, while replacement tire shipments dipped 2% year over year. Segment operating income came down to $81 million from $99 million, a year ago. This decline is driven by continued high raw material costs, partly offset by an improved product mix.

Financial Position

Goodyear had cash and cash equivalents of $822 million as of Sep 30, 2017, down from $1.1 billion as of Dec 31, 2016. Long-term debt and capital leases amounted to $5.7 billion as of Sep 30, 2017, up from $4.8 billion as of Dec 31, 2016.

In the first nine months of fiscal 2017, the company recorded a total cash flow of ($154) million from operating activities, relecting a deterioration from $290 million, recorded in the same period last year. Also, capital expenditure for the same period decreased to $683 million from $711 million, recorded a year ago.

Capital Deployment

During the reported quarter, Goodyear repurchased 5.6 million shares for $175 million under the previously announced $2.1 billion share repurchase program.

On Sep 1, the board announced a quarterly dividend of 14 cents payable on Dec 1 to shareholders of record on Nov 1.

Outlook

Goodyear anticipates operating income of approximately $1.5 billion for 2017, down from the previous guidance of $1.6-$1.65 billion.

Zacks Rank & Other Key Picks

Goodyear currently carries a Zacks Rank #2 (Buy).

Other top-ranked companies in the auto space include Daimler AG (OTC:DDAIF) , BorgWarner Inc. (NYSE:BWA) and Lear Corporation (NYSE:LEA) . All stocks also carry the same bullish Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Daimler has an expected long-term growth rate of 2.8%.

BorgWarner has an expected long-term growth rate of 8.9%.

Lear has an expected long-term growth rate of 7.1%.

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