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Why Goodyear Tire & Rubber Went Flat

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of tire manufacturer Goodyear Tire & Rubber (NYSE: GT  ) skidded lower by as much as 10% earlier today following disappointing first-quarter results.

So what: For the quarter, Goodyear blamed the costs associated with refinancing activities for canceling out an increase in revenue. Ultimately, the charges resulted in a $0.05 quarterly loss, or a $0.34 adjusted profit (one-time items excluded). Sales for the quarter rose 2% to $5.5 billion while tire volume dipped a worse-than-anticipated 8%. Although EPS compares favorably to Wall Street's expectation of just $0.07, sales of $5.5 billion fell way short of the $5.83 billion the Street was looking for. In addition, management suggested that the global tire industry is growing slower than expected and it now expects to sell 2% fewer tires this year than last year.

Now what: Normally poor reports send me scurrying for the hills, but not in this case. Goodyear has a commoditized necessity item, which simply means it needs only to pass along higher prices or work on cost-controls to remain very profitable. Yes, I'm a little concerned by the steep drop-off in overall tire volume in North America, but I don't see the drop as a long-term trend. Goodyear is a well-run company that's now trading around five times forward earnings and has favorably restructured its debt. I have a suspicion it will head much higher from where it trades currently.

Craving more input? Start by adding Goodyear Tire & Rubber to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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10/28/2016 11:40 AM
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Goodyear Tire and… CAPS Rating: ***