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

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

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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.

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

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