April 27, 2012
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.