Why Goodyear Tire Shares Are on a Roll

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 Goodyear Tire & Rubber (NYSE: GT  ) jumped 10% today after a strong earnings report showed that its net income nearly doubled for the quarter.

So what: Confirming the reports of Ford (NYSE: F  ) and other automotive companies that have already posted quarterly earnings, Goodyear followed a pattern of great results in North America and miserable ones in Europe. Operating profit in North America rose 37% to $188 million, a record for the company, but sank 85% across the Atlantic to just $19 million. Companywide operating income actually declined about 12%, but other accounting-related expenses dropped significantly, boosting the bottom line. The manufacturer posted earnings of $0.57 a share, easily above analyst estimates of $0.45.

Now what: The North American recovery wasn't the only explanation for the company's improved bottom line. Overall revenue dropped 9% year over year, but increased sales of more expensive tires and the closing of a high-cost plant in Tennessee helped to drive profits. For the full year, the company expects overall tire sales to be down 5% to 7%, but while product sales may be down, margins are improving across the board. Management acknowledged near-term challenges, but at current analyst estimates the stock trades at a P/E of just 5.8 at this year's expected earnings. Now could be a great time to get in on a solid brand that seems to have finally figured out how to control its costs. Any further improvement in the global economy should only send Goodyear shares higher.

Want to know where the rubber meets the road? Stay up to date with all of Goodyear's developments by adding it to My Watchlist.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 11, 2013, at 6:13 PM, jawill123789 wrote:

    Well now the shares are so if you own them sell and if you don't wait for them to go back down before buying and watching them drop. But would you really want to invest in a company who isn't balanced internationally? 85% drop in Europe? Ouch. Guess they don't need <a href="http://www.fastechtire.com">tires</a>.

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