Where the heck did that come from?
Since restructuring its business in 2009 amid arguably the worst industry downturn in auto history, Goodyear Tire & Rubber
The main driver of the company's growth was its North American business segment, which saw an 18% increase in total revenue to $2.4 billion despite a 5% drop in overall tire volume. What this means for Goodyear's bottom line is a significantly juicier gross margin and thus a much higher-than-expected quarterly profit.
Another often overlooked implication of the tire business is the greater amount of used cars now on the road. With prices on used cars healthier than they've been in a long time, dealerships like Lithia Motors
Not everything is as cut and dried as it seems, though, because it appears material costs are poised to take a major bite out of Goodyear's bottom line during the second half of the year. The company anticipates that raw-material costs are expected to rise by more than 30% for the rest of the year versus prior estimates of a 25%-30% jump in costs.
At first, traders pumped Goodyear's stock up above $18 yesterday, but shares came crashing down promptly to finish below $16 on worries of rising costs. So what's an investor to do?
I think you'd be crazy to overlook just how far Goodyear, and the entire tire industry, has come since the lows of 2009. Cooper Tire & Rubber
When the rubber meets the road, are you a buyer of Goodyear here? Share your thoughts in the comments section below and consider adding Goodyear Tire & Rubber and Cooper Tire & Rubber to your watchlist to keep up on the latest news in the tire industry.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that burns candles, not rubber.