Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Goodyear Tire & Rubber Fell 11.9% in December

By Maxx Chatsko - Updated Apr 15, 2019 at 11:15AM

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

Worries over China's slowing economy hit the global tire manufacturer, but falling crude oil prices could provide some much-needed relief.

What happened

Shares of Goodyear Tire & Rubber (GT 4.19%) 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. 

A declining chart drawn on a chalkboard.

Image source: Getty Images.

So what

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.  

Now what

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.

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
GT
$11.68 (4.19%) $0.47

*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
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

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.