It has been about a month since the last earnings report for Goodyear (GT). Shares have added about 9.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Goodyear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Goodyear Q3 Earnings Miss Estimates, Deteriorate Y/Y
Goodyear reported adjusted earnings per share of 68 cents compared with 70 cents in the prior-year quarter. The bottom line missed the Zack Consensus Estimate of 76 cents. The company reported net income of $351 million, up from $129 million in the year-ago quarter.
The company delivered net revenues of $3.93 billion, slightly higher than $3.92 billion in the year-ago quarter. The top line was almost in line with the Zacks Consensus Estimate.
During the quarter, tire unit volumes were 40.5 million, up 2% from the year-ago quarter. Replacement tire shipments rose 4% while original equipment unit volume fell 4% from the prior-year quarter.
Segment operating income was $362 million, almost flat year over year.
Revenues at the Americas segment improved slightly year over year from $2.04 billion to $2.10 billion, which reflects increased price/mix, higher volume and higher third-party chemical sales. Segment operating income came in at $194 million, nearly flat year over year. Modest decline was due to higher conversion costs, impact of reduced price/mix, unfavorable foreign currency translation and increased cost of raw material.
Revenues at the Europe, Middle East and Africa segment were $1.3 billion, down 2% year over year due to unfavorable foreign currency translation, partially offset by increased volume and favorable price/mix. The segment's operating income increased 23% to $111 million. This was mainly driven by lower raw material costs, favorable price/mix, partially offset by unfavorable foreign currency translation and higher selling, administrative and general (SG&A) expenses.
Revenues at the Asia-Pacific segment declined 7% to $531 million, reflecting a drop in tire volumes and adverse foreign currency translation. The segment's operating income declined to $57 million year over year due to higher SG&A expenses, partially because of higher bad debt expense, lower price/mix and reduced volume.
Goodyear had cash and cash equivalents of $896 million as of Sep 30, 2018, down from $1.04 billion as of Dec 31, 2017. Long-term debt and capital leases amounted to $471 million as of Sep 30, 2018, up from $391 million as of Dec 31, 2017.
As of Sep 30, 2018, the company recorded total cash outflow of $24 million from operating activities in comparison with total outflow $154 million as of Sep 30, 2017. Also, capital expenditure for the period fell to $615 million from $683 million a year ago.
During the reported quarter, Goodyear repurchased 4.2 million shares for $100 million under the previously announced $2.1-billion share buy-back program.
Since the program's initiation in 2013, the company bought back 52 million shares for $1.5 billion.
Goodyear revised its segment operating income expectation for 2018 to reflect the challenging industry environment. The company expects segment operating income to exceed $1.3 billion, down from previous guidance of $1.45-$1.5 billion. The revised guidance reflects the impact of higher raw material costs, headwinds from unfavorable currency translation, soft market conditions in China and economic volatility in Brazil.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -37.1% due to these changes.
At this time, Goodyear has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Goodyear has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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