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Goodyear Beats on Q4 Earnings, Boosts Buyback Program

The Goodyear Tire & Rubber CompanyGT reported a 57.6% increase in adjusted earnings per share to 93 cents in the fourth quarter of 2015 from 59 cents a year ago (all excluding special items). Moreover, earnings comfortably surpassed the Zacks Consensus Estimate of 74 cents. Adjusted net income surged 54.8% to $257 million from $166 million in the fourth quarter of 2014.

Including special items, the company reported a net loss of $380 million or $1.42 per share in the reported quarter. In the year-ago quarter, it recorded net income of $2.1 billion or $7.68 per share.

Revenues in the quarter fell 6.7% year over year to $4.06 billion. However, the figure marginally surpassed the Zacks Consensus Estimate of $4.03 billion. The year-over-year decline in the top line can be attributed to unfavorable foreign currency translation.

Tire unit volumes improved 7% to 42.1 million in the fourth quarter of 2015, driven by the acquisition of Nippon Goodyear Ltd. ("NGY") in Japan. Original equipment unit volume went up 2%, while replacement tire shipments increased 9% year over year.

Segment operating income increased 33% to $476 million in fourth-quarter 2015 from $359 million a year ago. The year-over-year rise was driven by favorable price/mix net of raw materials as well as higher volume, partially offset by unfavorable foreign currency translation and cost inflation.

Full-Year 2015 Performance

Goodyear's earnings increased significantly to $3.32 per share in 2015 from $2.83 in 2014, cruising way ahead of the Zacks Consensus Estimate of $3.11.

Revenues for full-year 2015 decreased to $16.44 billion from $18.14 billion in 2014. However, the figure beat the Zacks Consensus Estimate of $16.40 billion.

Goodyear's full-year segment operating income reached $2 billion for the first time ever.

Segment Details

Revenues at the North America segment fell 9% year over year to $1.91 billion. The deterioration was due to a 4% decrease in tire unit volume to 15.4 million units. The decline in unit volumes primarily resulted from the sale of the former Goodyear Dunlop Tires North America Ltd. business. Original equipment unit volume went down 8% year over year. Also, replacement tire shipments dropped 1%. Segment operating income surged 16% to a fourth-quarter record of $266 million, driven by favorable price/mix net of raw materials and cost-reduction actions.

Revenues from the Europe, Middle East and Africa segment decreased 9% to $1.19 billion. Revenues were mainly hurt by unfavorable currency translation. Tire unit sales increased 11% to 14.2 million units. Original equipment unit volume was up 10%. Replacement tire shipments improved 12% year over year. Segment operating income soared 233% to $100 million, primarily driven by higher volume, partially offset by unfavorable foreign currency translation.

Sales in the Latin America segment declined 8% to $401 million due to unfavorable foreign currency translation and lower volumes. Tire unit sales fell 11% to 4.2 million units. Original equipment unit volume decreased 30%, while replacement tire shipments fell 7% year over year. Segment operating income plunged 30% to $14 million, primarily due to cost inflation. Operating income from Venezuela was $22 million, up $2 million from the prior-year quarter figure.

Revenues from the Asia-Pacific segment increased 9% to $559 million due to higher tire volume, partially offset by unfavorable foreign currency translation. Tire unit volume surged 38% year over year to 8.3 million units on the back of the NGY acquisition. Original equipment unit volume was up 19%, while replacement tire shipments surged 57% year over year. Segment operating income improved 20% to a record $96 million, primarily due to higher volume and lower raw material costs.

Financial Position

Goodyear had cash and cash equivalents of $1.48 billion as of Dec 31, 2015, down from $2.16 billion as of Dec 31, 2014. Long-term debt and capital leases amounted to $5.71 billion as of Dec 31, 2015, down from $6.36 billion as of Dec 31, 2014.

Cash flow from operations amounted to $1.69 billion in 2015 compared with $340 million in the year-ago period. Meanwhile, capital expenditure stood at $983 million compared with $923 million a year ago.

Share Repurchase

During the reported quarter, Goodyear repurchased 3 million shares of its common stock for $100 million. On Feb 4, 2016, the company's board of directors authorized a $650 million increase in the share repurchase program to $1.1 billion.

Change inOrganizational Structure

On Dec 1, 2015, Goodyear announced its decision to combine its North America and Latin America businesses into one Americas business unit. The change was implemented from Jan 1, 2016, and the company will report its segment financial results according to the new organizational structure in the future.

Goodyear expects the new organizational structure to boost earnings and growth over the long term, backed by improved simplicity, speed, and a focus on customers and markets. The company will integrate processes like product development, market projection and product supply for the Americas segment, thus enhancing efficiency. The manufacturing plants in the combined region will also supply products to all customers in Mexico, Latin America and North America.

Deconsolidation of Venezuelan Subsidiary

Goodyear has deconsolidated the financial statements of its subsidiary in Venezuela from Dec 31, 2015. The company will now report its results using the cost method of accounting.

Goodyear recorded a one-time $646 million pre-tax charge ($577 million after-tax) related to the deconsolidation in the fourth quarter of 2015.

Guidance

Goodyear expects annual segment operating income to increase 10-15% in 2016. The company aims to achieve segment operating income of a record $2.1-$2.2 billion this year, following the deconsolidation of its Venezuelan subsidiary. The company also intends to generate positive free cash flow (excluding pension pre-funding) over this period.

Goodyear is one of the largest tire manufacturing companies in the world. The company currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other well-ranked automobile stocks include General Motors Company GM , Gentherm Inc. THRM and Lear Corp. LEA . All these stocks carry a Zacks Rank #2.

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GOODYEAR TIRE (GT): Free Stock Analysis Report

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GENTHERM INC (THRM): Free Stock Analysis Report

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


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

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