Shares of Goodyear Tire & Rubber (NASDAQ:GT) fell nearly 12% last month, according to data from S&P Global Market Intelligence. The global tire manufacturer owns a portfolio of 47 manufacturing facilities in 21 countries, but that planet-spanning diversification has turned into more of a liability in recent years.
While the ongoing trade war between the United States and China weighed heavily on the stock throughout 2018, growing concerns over the health of the Chinese economy in December had shares limping into the new year. Throw in the company's decision to permanently cease operations in Venezuela -- and give workers 10 tires apiece as severance -- and geopolitics was not very kind to Goodyear Tire & Rubber last month.
The decision to pull the curtains on operations in Venezuela was long overdue, and tires are a valuable product in the country, so investors can largely look beyond that announcement and the bizarre severance package. China is a bigger problem, and Mr. Market's worries aren't entirely misplaced. As Chinese consumers pull back on purchases ranging from iPhones to cars, that's bound to hit the bottom lines of smartphone developers and tire manufacturers.
Consider that total revenue and operating income from the Asia-Pacific region grew 7.5% and 16.9%, respectively, from 2015 to 2016. Year-over-year revenue growth slowed slightly 6.2% in 2017, while the business earned 8.3% less operating income in that span. It deteriorated even further through the first nine months of 2018. Year-over-year revenue growth slowed to just 3.1%, while operating income dropped 22% in that span.
As China struggles under the weight of ballooning debt and being bullied around by its bigger brother Uncle Sam, things could continue to deteriorate for Goodyear Tire & Rubber in the Asia Pacific region. That said, despite struggling to adapt to quickly shifting geopolitical risks in recent years, the business could stand to reap significant cost reduction benefits from falling energy prices in 2019. Considering the Asia-Pacific region was responsible for only 14% of sales and 21% of operating income in the first nine months of 2018, upside from lower raw material costs could outweigh any slowdown in China -- unless the contagion spreads to the global economy, of course.
Check out the latest Goodyear Tire & Rubber earnings call transcript.