2012 Could Be a Bad Year for Goodyear (GT)
This week, tire manufacturer Goodyear (GT: Charts, News) reported strong fourth quarter earnings, with a profit of 7 cents per share, or $18 million, on revenue of $5.7 billion. This was a vast improvement over the loss of 73 cents per share, or $177 million, it posted in the prior year quarter, but missed analysts' estimates on both earnings and revenue.
On average, analysts had expected earnings of 20 cents per share on revenue of $5.88 billion. The company's results were strengthened by a one-time tax allowance boost worth 4 cents per share - without which earnings came in at a mere 3 cents. For fiscal 2011, Goodyear posted earnings of $1.26, or $343 million, per share on revenue of $22.8 billion. In 2010, the company posted a loss of 89 cents per share, or $216 million, on revenue of $18.8 billion. Daily Chart
To exacerbate its disappointing earnings, Akron, Ohio-based Goodyear gave weak guidance for 2012, anticipating flat to negative 2% sales growth in its primary North American market, caused in part by aan anticipated 5% increase in raw material costs. As a result, Goodyear is scaling back on production in the current quarter. The company sold 180 million tires in fiscal 2011. Shares have declined over 9% since the beginning of the year despite a market-wide rally. During the fourth quarter, Goodyear posted a 5% decline in sales volume attributed to declining replacement industry volumes in mature markets. Goodyear's North American unit posted a 17% increase in revenue to $2.6 billion, but tires sold dropped from 16.9 million to 16.6 million. Operating income rose from $11 million to $21 million. Across all markets, Goodyear was able to offset some losses in volume by increasing its tire prices, earning 19% more in revenue per tire. Sales of higher priced items, such as SUV and luxury vehicle tires, also balanced the company's weaker sales volume. Its Asia Pacific unit posted a 5% gain in revenue to $591 million, but the number of tires sold declined 10% to 4.9 million. Flooding in Thailand, which wiped out Japanese automakers for the majority of 2011, also caused 11% and 10% respective declines in Goodyear's original equipment unit and tire shipments volume. The temporary closure of its Thailand factory reduced the segment's operating income by $12 million. Lowered demand in Australia worsened the situation. Goodyear Chief Financial Officer Darren Wells remained cautious regarding the region's future. "We expect Thailand's related cost to affect Asia's result adversely through the first half of 2012," he stated. The company also cited the declining European and Latin American economies as additional hurdles in 2012. Goodyear's Europe, Middle East and Africa division posted 11% revenue growth to $1.9 billion, but the number of tires sold dropped from 17.7 million to 16.9 million. Its operating income also gained from $60 million to $88 million. In Latin America, revenue rose 2% to $596 million, but the number of tires sold slid 8% to 4.8 million. Operating income plunged from $93 million to $48 million. Looking forward, Goodyear stated that it plans to earn income of $1.6 billion in fiscal 2013. In addition, it forecasts $1.3 billion in gains from its capital investments over the next two years, which it plans to invest in research & development and upgrading equipment and facilities. On a cautionary note, the company recently disclosed that it reported "possible improper payments" to the U.S. Justice Department and SEC originating from a majority-owned joint venture in Kenya. Details are scarce regarding these payments, but may hint at upcoming legal trouble in 2012. Shares of Goodyear currently trade at 4.9 times forward earnings with a 5-year PEG ratio of 0.13. If the auto industry can show signs of life in 2012, investors can expect a slow turnaround for the shares, which traded as high as $66 per share before the turn of the century. Other News About GT Goodyear posts 4Q profit, but misses Street view
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Published on Feb 16, 2012
By Leo Sun