Is Goodyear (GT) Likely to Miss on Earnings this Season? - Analyst Blog

By Zacks Equity Research,

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The Goodyear Tire & Rubber Company ( GT ) is set to report second-quarter 2014 results on Jul 30. Last quarter, it posted a -6.67% surprise. However, the tire manufacturer managed to beat earnings by an average of +18.04% over the last four quarters. Let us see how things are shaping up for this announcement.

Factors Affecting the Past Quarter

Goodyear regularly launches innovative products to boost sales. The company expects a 2-3% increase in unit volumes in 2014. Moreover, the company is focusing on increasing its market share, expanding in emerging markets and improving productivity over the next three years to improve margins. Further, Goodyear is trying to boost shareholders' value by capital deployment strategies.

However, the company is facing challenges in terms of volatile political and economic environment and high currency fluctuations in Latin America. The company's debt balance is also increasing. Goodyear's long-term debt and capital leases increased to $7.1 billion as of Mar 31, 2014 from $6.2 billion as of Dec 31, 2013. However, the company will be allocating $400 million for debt reduction to improve its leverage metrics and help achieve an investment grade credit rating.

Earnings Whispers?

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

Zacks ESP: Goodyear has an earnings ESP of +6.25%. That is because the Most Accurate estimate is 85 cents and the Zacks Consensus Estimate is 80 cents per share.

Zacks Rank: Goodyear currently has a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

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

Meritor, Inc. ( MTOR ) has an earnings ESP of +26.67% and a Zacks Rank #1 (Strong Buy). The company will report second-quarter earnings on Jul 31, 2014.

BorgWarner Inc. ( BWA ), with an earnings ESP of +1.15% and a Zacks Rank #2 (Buy), will post second-quarter earnings on Jul 31, 2014.

American Axle & Manufacturing Holdings Inc. ( AXL ) has an earnings ESP of +8.45% and a Zacks Rank #2. The company will release second-quarter financial results on Aug 1, 2014.

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GOODYEAR TIRE (GT): Free Stock Analysis Report

MERITOR INC (MTOR): Free Stock Analysis Report

BORG WARNER INC (BWA): Free Stock Analysis Report

AMER AXLE & MFG (AXL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: GT , MTOR , BWA , AXL

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