Goodyear (GT) Unveils Transformation Plan to Maximize Value

Goodyear GT announced a transformation plan called “Goodyear Forward.” The plan will help the company optimize its portfolio, expand margins and reduce leverage to create significant value for its shareholders.

Per Laurette T. Koellner, independent lead director of Goodyear's board, the review committee performed a comprehensive, bottom-up assessment of Goodyear's business to devise this plan, which is backed by the entire board.

Per Richard J. Kramer, CEO of Goodyear, the company has been struggling with climbing fixed costs since the outbreak of Covid-19 and while inflation has slowed down, costs for wages and energy show no signs of recovery.

Growing competition from new global EV entrants and low-cost tires from Asia are posing new challenges to Goodyear. The transformation plan will help the company overcome these challenges.

The Goodyear Forward plan aims to raise over $2 billion in proceeds from portfolio optimization. After a comprehensive assessment of all assets, it is actively pursuing strategic alternatives for its chemical business, the Dunlop brand and the Off-the-Road equipment tire business.

The tire manufacturer plans to generate a run-rate benefit of $1.3 billion by the end of 2025. It will achieve this by $1 billion in cost cuts. The top-line action is expected to drive the remaining annual run-rate benefit of $300 million.

Considering the benefits of cost reduction and top-line action and the net effect of asset sales and inflation, Goodyear expects to double its operating margin from nearly 5% in 2023 to 10% by the end of 2025.

In an effort to move closer toward an investment-grade rating, Goodyear aims to consolidate its financial profile via improved earnings, strong cash flow generation and debt reduction. It expects to achieve around $1.5 billion of debt reduction by 2025, targeting net leverage of 2.0-2.5 times in the same period.

Zacks Rank & Key Picks

GT currently carries a Zacks Rank #3 (Hold).

Some top-ranked players in the auto space are Toyota Motor Corporation TM, Volvo VLVLY and Modine Manufacturing Company MOD, each sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TM’s 2023 sales and earnings implies year-over-year growth of 10.6% and 29.7%, respectively. The EPS estimates for 2023 and 2024 have increased by 46 cents and 26 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for VLVLY’s 2023 sales and earnings indicates year-over-year growth of 4.2% and 65.6%, respectively. The EPS estimates for 2023 and 2024 have increased by 32 cents and 11 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for MOD’s 2023 sales and earnings indicates year-over-year growth of 6.5% and 55.9%, respectively. The EPS estimates for 2023 and 2024 have increased by 16 cents and 9 cents, respectively, in the past 30 days.

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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.

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