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Why Goodyear Tire & Rubber Is Plunging 16% Thursday

By Daniel Miller – Apr 30, 2020 at 11:20AM

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Goodyear Tire's first quarter was hit by COVID-19, and the pain isn't over just yet.

What happened

Shares of Goodyear Tire & Rubber (GT -1.81%), a manufacturer of rubber tires for automobiles, trucks, buses, and aircraft, among other vehicles, are down 16% after the company reported a disappointing first-quarter result.

So what

There's no question Goodyear Tire felt the negative impact from the COVID-19 outbreak during the first quarter. Sales declined 15% to $3.1 billion, which just barely topped analysts' top-line estimates. First-quarter adjusted net loss was $0.60 per share, far worse than the prior year's adjusted net income of $0.19 per share and below analysts' estimates calling for a $0.25 per share loss. The difficult first quarter was driven by a drop in demand following stay-at-home orders and a shutdown of many manufacturing plants. Replacement tire shipments declined 16% from the prior year, while original equipment unit volume dropped 21% and tire unit volumes declined 18%. "While this unprecedented crisis continues to disrupt our business and the broader automotive industry, I am confident we will emerge from this crisis in a strong position," said Richard J. Kramer, chairman, chief executive officer, and president.

Rack of vehicle tires

Image source: Getty Images.

Now what

As with most businesses right now, amid the COVID-19 outbreak, management's focus will be on its liquidity, damage control, and developing a strategy to reopen safely. Goodyear Tire's cash and available liquidity sits at roughly $3.6 billion, and its global manufacturing facilities will begin a phased restart of production during the second quarter -- the majority of its facilities should be operating by the end of May. There has been progress in China: The company's plant in Pulandian, China, is operating with its full workforce. Investors would be wise to temper expectations for a quick rebound in parts of the auto industry, as the lost miles driven during stay-at-home orders, which would have fueled replacement tire volume and sales of other products, will likely never fully be made up -- and a rebound in total miles driven may not happen overnight, either.

Daniel Miller 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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