On Friday, shares of Goodyear Tire & Rubber Co. (GT – Get Report) fell 9% to close at $18.69 in trading on Friday after the company posted fourth-quarter earnings and revenue below analysts’ expectations. 2019 has been a disappointing year for Goodyear so far, and including Friday’s decline, the stock of Goodyear has dropped roughly 50% from the price of $34.82 at which it opened on January 1st, 2018.
Goodyear faces a tough year due to slowdown in China
Akron, Ohio-based Goodyear reported fiscal 2018 fourth-quarter revenues of $3.88 billion, compared with $4.07 billion in the similar period last year. The Zacks Consensus Estimate was $3.93 billion for the quarter.
For the quarter ended December 2018, Goodyear reported earnings of $110 million or $0.47 a share, in comparison with $96 million or $0.39 per share in the similar period last year. Excluding charges, Goodyear reported adjusted earnings of $120 million or $0.51 per share in Q4, down from $245 million or $0.99 per share in the year-ago period. The Q4 adjusted earnings missed the Zacks earnings estimate of $0.60 per share.
Segment-wise revenues:
- Americas’ – $2.11 billion versus $2.18 billion
- Europe, the Middle East, and Africa – $1.21 billion in Q4 2018, compared with $1.264 billion in Q4 2017
- AsiaPacific – $552 million, down 11% from $623 million.
As of December 31st, 2018, Goodyear had cash and cash equivalents of $801 million, down from $1.04 billion at the end of December 31, 2017.
Tire unit volume declined 3% y-o-y to 40.7 million in the recent quarter. Sales of replacement tires remained unchanged while the volume of original equipment decreased 10% from the fourth quarter of 2017.
Goodyear’s CEO, Richard Kramer, has mentioned that falling tire sales in key markets, the negative impact of foreign exchange, and rising raw material costs as the primary reasons for its poor performance.
Kramer said, “While many of the macro challenges we faced in 2018 have extended into 2019, we continue to build on what we accomplished last year and remain focused on delivering a higher level of earnings over the longer term.”
On January 15th, Goodyear’s stock plunged 13%, representing the worst fall since 2011, after it slashed FY18 net operating income anticipations. While announcing a cut in the earnings forecast, Goodyear highlighted difficulties in maintaining operating earnings in markets such as China and India. The company also pointed out European winter and supply issues related to truck tires and ‘high-value-added clients’ as the reason for the downward revision of the operating income forecast.
Furthermore, at that time, Goodyear said that it anticipates operating income to be a few notches below $1.30 billion.
In a research report to clients, Bruce Kamich, technical analyst with Real Money, said “GT has been unable to make a turn from its downtrend. Stay defensive and watch out for lower lows in the weeks and months ahead.” He also does not expect the stock price to bounce from the current level at any time soon.
The historical price chart indicates that the stock is trading below its 50-day moving average. Furthermore, the MACD indicator is also in the negative region. As a result, we can anticipate the stock to remain bearish in the short-term.
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