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Why Shares of Goodyear Tire Are Falling Today

By Lou Whiteman – Feb 11, 2020 at 10:02AM

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It was a tough quarter for the tire manufacturer.

What happened

Shares of Goodyear Tire & Rubber (GT -3.81%) fell more than 10% on Tuesday morning after the company reported weaker-than-expected year-end results. Volumes were down and foreign currency exchange took its toll, but overall the company sees stable conditions in the U.S. heading into 2020.

So what

Goodyear reported fourth-quarter adjusted earnings of $0.19 per share before markets opened on Tuesday, well short of the $0.52 per share consensus estimate. Revenue came in at $3.7 billion, down 4.4% year over year and shy of the $3.88 billion estimate.

Close-up of a car tire.

Image source: Getty Images.

Tire unit volume totaled 39.6 million, down 2% from the year prior, with original equipment unit volume down 10% driven by lower global vehicle production. Replacement tire shipments were up slightly, but not enough to offset the drop in original equipment sales. The issue, according to Goodyear, is a sluggish international economy.

"In the U.S., market conditions remained largely stable and our consumer and commercial replacement businesses delivered strong performances this year, as they benefited from the strength of our brand, new product introductions, and the steps we have taken to align our distribution," chairman and CEO Richard J. Kramer said in a statement. "We continue to face a challenging global environment, including recessionary demand trends in many international markets."

Segment operating margin fell by 280 basis points to 3.3% in Europe and the Middle East, and by 100 basis points to 7.5% in the Americas.

Now what

Goodyear pointed to a growth in global commercial truck shipments in 2019 as a green shoot headed into 2020, but the company faces a number of challenges outside of its control. The company has a large operation in China that has been impacted by the coronavirus, though Goodyear said it is not yet clear what the full financial impact of the virus disruption will be.

More broadly, many of the auto stocks are behaving as though the new car cycle has peaked, which would eat into demand for new tires.

Shares of Goodyear are now down more than 36% over the past year, and down 65% in three years. Company management is doing all they can to adjust to economic conditions, but until the macro environment improves it is going to be difficult to get Goodyear out of neutral any time soon.

Lou Whiteman has no position in any of the 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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