What happened
Goodyear Tire & Rubber (GT -1.59%) missed Wall Street expectations in the third quarter, as macroeconomic challenges including inflation and strong-dollar concerns weighed on results. Investors were disappointed, sending shares of Goodyear down as much as 15% on Tuesday. As of 12:16 p.m. ET, shares were still down 14.7%.
So what
Goodyear earned $0.40 per share in the third quarter on revenue of $5.31 billion, falling short of the $0.54-per-share earnings consensus despite posting a slight beat on sales. As the results suggest, the issue was costs, with the company blaming "persistent inflation" and unfavorable currency conversion rates due to the strong dollar for the miss.
"Uncertainty and volatility have defined our operating environment since the onset of COVID," CEO Richard J. Kramer said in a statement.
Goodyear is also dealing with sluggish demand due to issues that automakers are having producing cars.
But the news was not all bad. Despite the headwinds, Goodyear managed to grow net sales by 8% year over year, or 15% on a constant currency basis. The company has had some luck passing on price increases to customers, with revenue per tire up 16% excluding currency fluctuations.
Now what
Goodyear is forecasting raw material costs to be up as much as $500 million year over year in the current quarter, which includes higher commodity prices, higher transportation costs, and the impact of the strong dollar. The company hopes cost inflation will peak before year's end, but still expects upward of $400 million in year-over-year cost increases in the first half of 2023.
Shares of Goodyear have now lost about half of their value year to date on issues largely outside of the company's control. The good news for investors is that there are no signs of structural weakness or reasons for long-term concern about Goodyear. But given the extent of the challenges, and the uncertainty over when they will be resolved, there's no real compelling reason to rush in and buy as the stock declines.
