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The Goodyear Tire & Rubber Company GT reported a 18.2% increase in adjusted earnings per share to $1.17 in third-quarter 2016 from 99 cents recorded a year ago (all excluding special items). Moreover, earnings surpassed the Zacks Consensus Estimate by a penny. Adjusted net income surged 14.4% to $310 million from $271 million in third-quarter 2015.
Including special items, the company reported a net income of $317 million or $1.19 per share in third-quarter 2016. In the year-ago quarter, it recorded a net income of $271 million or 99 cents per share.
Revenues in the reported quarter fell 8.1% year over year to $3.85 billion. Sales also missed the Zacks Consensus Estimate of $3.97 billion. The year-over-year decline in the top line can be attributed to deconsolidation of the company’s subsidiary in Venezuela.
Tire unit volumes were 42 million, at par with the year-ago quarter after adjusting for the deconsolidation of Venezuela at the end of 2015. Replacement tire shipments inched up 1% while original equipment unit volume declined by 6% year over year.
Segment operating income dropped to $556 million in the reported quarter from $602 million a year ago. The year-over-year decline was owing to the deconsolidation of the Venezuelan subsidiary.
Revenues at the Americas segment slumped 14% year over year to $2.07 billion. The deterioration was due to 8% decrease in tire unit volumes to 18.6 million units. The decline in unit volumes primarily resulted from the deconsolidation of the Venezuelan subsidiary and the sale of the former Goodyear Dunlop Tires North America Ltd. business.
Original equipment unit volume went down 15% year over year. Replacement tire shipments were down 6%. Segment operating income plunged 19% to $305 million due to the deconsolidation of the Venezuelan subsidiary and lower volume.
Revenues from the Europe, Middle East and Africa segment were $1.24 billion, down 7% year over year. Revenues were primarily hurt by 5% decrease in sales volume resulting from the company’s original equipment sales strategy and increased competition for smaller rim diameter consumer tires. Original equipment unit volume was down 8%, and replacement tire shipments declined 3% year over year. Segment operating income edged down 1% to $152 million, primarily due to lower volume.
Revenues from the Asia-Pacific segment rose 18% to $541 million, driven by higher tire unit volume, partially offset by unfavorable price/mix. Original equipment unit volume surged 16%, while replacement tire shipments soared 47% year over year. Segment operating income improved 38% to $99 million, primarily due to higher volume.
The NGY acquisition positively impacted volumes by 1.3 million units and sales by $48 million.
Goodyear had cash and cash equivalents of $975 million as of Sep 30, 2016, down from $1.48 billion as of Dec 31, 2015. Long-term debt and capital leases amounted to $5.44 billion as of Sep 30, 2016, up from $5.07 billion as of Dec 31, 2015.
Cash flow from operations amounted to $237 million in the nine months ended Sep 30, 2016 compared with $635 million in the year-ago period. Meanwhile, capital expenditure was $711 million compared with $656 million a year ago.
During the reported quarter, Goodyear repurchased 1.7 million shares for $50 million under the previously announced $1.1 billion share repurchase program.
On Oct 24, 2016 the company announced its plan to close its Philippsburg, Germany tire manufacturing facility and realign its European capacity to increase production of high-value-added tires. The company’s focus is on capturing the high-value segments of the market and reducing its exposure to low-growth and declining segments to capture the value of its brand as well as help its customers grow profitably.
Goodyear revised its previous guidance based on the recent volatility impacting its U.S. commercial truck tire business. The company now anticipates total segment operating income for 2016 to be between $2 billion and $2.025 billion. However, the company confirmed its 2020 financial targets and capital allocation plan, which were announced on Sep 15, 2016.
Goodyear currently carries a Zacks Rank #1 (Strong Buy).
Some similarly-ranked stocks in the auto space include Cooper Tire & Rubber Co. CTB, Tata Motors Ltd. TTM and Standard Motor Products Inc. SMP, all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cooper Tire & Rubber has an expected earnings growth rate of 16.30% for the current year.
Tata Motors has a long-term expected growth rate of 3.60%.
Standard Motor has a long-term expected growth rate of 15%.
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