Please ensure Javascript is enabled for purposes of website accessibility

Why Goodyear Tire & Rubber Company's Stock Just Crashed 11.1%

By Rich Smith - Jul 28, 2017 at 2:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hint: Earnings!

What happened

Shares of Goodyear Tire & Rubber (GT -1.84%) stock are down 11.1% as of 1:30 p.m. EDT.

So what

If you guessed that earnings are to blame -- ding-ding-ding! -- you're right. Goodyear reported its Q2 2017 earnings this morning, and the news failed to measure up to Wall Street expectations. Heading into earnings season, analysts had hoped Goodyear would report at least $0.72 per share in "pro forma" earnings. Instead, Goodyear reported $0.70 -- and only $0.58 per share on a GAAP (generally accepted accounting principles) basis.

Sales also failed to live up to expectations, coming in below $3.7 billion when $3.75 billion had been expected.

Woman calling on a cell phone next to a flat tire

Can someone please call AAA? Goodyear stock has a flat. Image source: Getty Images.

Now what

For the poor results, management blamed "volatile raw material costs," "weakening ... replacement demand" from both original equipment manufacturers and consumers, and "an increasingly challenging competitive environment, particularly in the United States and Europe."

As a result, despite management's observations that "trends in miles driven, gasoline prices and unemployment" are "generally supportive of our industry," Goodyear was forced to cut its guidance for the rest of this year. It now expects to earn operating profits of only $1.65 billion this year. Judging from data provided by S&P Global Market Intelligence, that looks to be down about 8% from last year's $1.8 billion in operating profit.

Assuming net income falls in tandem with operating earnings, this would be a worse result than the 6% decline in per-share profits that Wall Street has been expecting -- and helps to explain why investors are selling Goodyear stock today.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Goodyear Tire & Rubber Company Stock Quote
The Goodyear Tire & Rubber Company
$13.35 (-1.84%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.