Is A Surprise In The Cards For Goodyear (GT) In Q1 Earnings?

The Goodyear Tire & Rubber Company (NASDAQ:GT) is set to report first-quarter 2017 results before the market opens on Apr 28. In the last quarter, the tire manufacturer posted a positive earnings surprise of 9.20%.

Let us see how things are shaping up for this announcement.

Factors at Play

Goodyear regularly launches innovative products and services to boost sales. The company is trying to boost its shareholder value. During 2017−2020, the company plans to make a capital deployment of $3.5 billion to $4 billion. In first-quarter 2017, the board of directors authorized a $1 billion increase in the share repurchase program.

Further, the company has been redeeming some of its outstanding senior notes using the proceeds from the offering of new senior notes with lower interest rate. These transactions will reduce the company’s interest expense.

However, in Latin America, Goodyear is facing challenges in terms of a volatile political and economic environment, lower production volume in Venezuela and Brazil, and high currency fluctuations. Moreover, the recession in Brazil is expected to adversely impact the operating income from the region.

Goodyear faces pricing pressure from original equipment manufacturers (OEMs). This is likely to have a negative impact on the company’s profit margins as Goodyear sells about 30% of its tires to OEMs. The company anticipates total segment operating income for 2017 to be consistent with the 2016 level. Results will be adversely affected due to higher raw material costs and pricing of certain customers.

Earnings Whispers

Our proven model does not conclusively show that Goodyear is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Goodyear’s Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 64 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Goodyear carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Price Performance

Goodyear underperformed the Zacks categorized Rubber - Tires industry over the last three months. The company’s shares gained 13.1% over this period, compared with a 15% rise recorded by the industry.

Stocks that Warrant a Look

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CNH Industrial N.V. (NYSE:CNHI) has an Earnings ESP of +33.33% and a Zacks Rank #2. The company is scheduled to report first-quarter 2017 results on Apr 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Autoliv Inc. (NYSE:ALV) has an Earnings ESP of +1.97% and a Zacks Rank #3. The company’s first-quarter 2017 financial results are scheduled for release on Apr 28.

Delphi Automotive PLC (NYSE:DLPH) has an Earnings ESP of +2.06% and a Zacks Rank #2. The company is scheduled to report first-quarter 2017 financial numbers on May 3.

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