The world's largest tire maker, Goodyear Tire & Rubber (NYSE:GT), says it will report earnings on Aug. 5. We've been down this road before, and investors have been run over waiting on the company's numbers. Last quarter, Goodyear waited till an hour before the conference call to postpone the release, and it has been late with its reports for more than a year. We won't hold our breath.
Yet by all appearances, Goodyear will have something good to say. Though it will be dogged for some time by its earnings restatements that reach back all the way to 1997, it looks as though the company has the potential to turn a profit this quarter. On top of an improving picture from the first quarter, that's good news for Goodyear investors who have been saddled with some pretty hefty losses since 2002.
The tire maker expects sales to hit $4.5 billion for the quarter, well ahead of analyst expectations of $4.1 billion and up 18% over last year. That's a result of selling more tires and rising prices. Cooper Tire & Rubber (NYSE:CTB) was able to raise prices earlier this year to good effect, and it's a sign of returning health that Goodyear was able to do so too. Sales of its new Assurance line of tires greatly exceeded expectations, leading to production at four plants instead of just one. That has resulted in North American operations returning to positive operating territory, along with 25% growth from its European divisions and 50% growth in Latin America.
The dark cloud still hanging over Goodyear (not to mention the dark cloud of an SEC investigation, or the one of 6,000 layoffs, or of plant shutdowns) is its debt. It has more than $5 billion in long-term debt and total liabilities -- including $2.8 billion in underfunded pension obligations -- of more than $15.5 billion. Assets run about $15.4 billion for negative shareholder equity.
The company is taking steps to address this potential nail in the tire. It's replacing a $680 million credit facility maturing in April 2005 with a new $500 million one that matures in 2007. There's still lots more debt to be refinanced. It has $1.1 billion maturing in 2005 followed by some $2 billion in 2006. The pension obligations could be the biggest drag: It needs to come up with $350 million to fund it through 2005, and it's expected that figure will jump significantly for 2006.
Still, Fitch Ratings revised Goodyear's credit rating from negative to stable in recognition of the progress the tire maker has made, even as it notes cash flows may be constrained.
If you focused only on the negative news about the company, you would have missed a fairly impressive run-up in its stock, from about $4 a share when the troubles began two years ago to where it sits currently at $10. Admittedly, it would have been hard to plunk down your hard-earned dollars in the middle of the company's accounting fiasco and expect an appreciable return on your investment. It's in those dark recesses, though, that some of the best profits can be made.
It's not green lights and open highway yet for Goodyear. We'll have to wait and see what the current numbers are. If it can get them out on time.
Fool contributor Rich Duprey hates red lights. He does not own any of the stocks mentioned in this article.
