On Dec 6, 2013, we downgraded
The Goodyear Tire & Rubber Company
) to Neutral from Outperform. The downward revision was based on
lower revenues, increasing debt and capital leases, high
competition and rising operating cash outflows.
Reasons for Downgrade
Goodyear's revenues in the third quarter slipped 5% to $5
billion, missing the Zacks Consensus Estimate of $5.3 billion.
The year-over-year decline in revenues reflects lower sales in
other tire related businesses, decline in price/mix and
unfavorable foreign currency translation, partially offset by
increase in tire unit volumes.
Goodyear's long-term debt and capital leases rose to $6.5
billion as of Sep 30, 2013 compared with $5.0 billion as of Dec
31, 2012. Cash outflow from operations in the first nine months
of 2013 dropped to $298 million from $329 million in the year-ago
Moreover, Goodyear faces pricing pressure from original
equipment manufacturers (OEM) due to weak industry demand. This
negatively impacts the company's profit margins as it sells about
30% of its tires to OEMs.
However, on the positive side, Goodyear regularly launches
innovative products to boost sales. The company is implementing a
three-point plan to return its business to historical margin
levels and to retain its position as a strong long-term player in
At present, Goodyear expects its operating income for 2013 to
surpass the previous guidance of $1.5 billion. The company
predicts that the segment operating income will grow 10%-15%
annually till 2016. Goodyear also aims to attain positive cash
flow (excluding pension pre-funding) till 2016.
Other Stocks to Consider
Goodyear currently carries a Zacks Rank #2 (Buy). Other stocks
that are worth looking out for in the same industry include
Tower International, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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