Earnings Analysis for Goodyear Tire & Rubber Company: In Maintenance Mode?

Earnings Analysis The Goodyear Tire & Rubber Company (NASDAQ:GT)

The Goodyear Tire & Rubber Company (NASDAQ:GT) reported its Q3 2013 results yesterday. The company is engaged in developing, manufacturing, distributing and selling tires and related products and services worldwide. Goodyear shares had gained .7% by market close today. Our earnings analysis for Goodyear suggests that the market expects faster growth from it than from most of its peers (see the end of this post for the peer list used for the analysis).

The Goodyear Tire & Rubber Company (NASDAQ:GT)

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Our earnings analysis for Goodyear is based on the company’s performance over the last twelve months (unless stated otherwise). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2013-09-30 2013-06-30 2013-03-31 2012-12-31 2012-09-30
Revenues 5,002.0 4,894.0 4,853.0 5,045.0 5,264.0
Revenue Growth % 2.2 0.8 (3.8) (4.2) 2.2
Net Income 173.0 188.0 33.0 7.0 117.0
Net Income Growth % (8.0) 469.7 371.4 (94.0) 27.2
Net Margin % 3.5 3.8 0.7 0.1 2.2
ROE % (Annualized) 207.5 576.9 N/A 0.0 74.8
ROA % (Annualized) 3.9 4.3 0.8 0.2 2.6

Faster Growth?

The Goodyear Tire & Rubber Company’s current Price/Book of 11.3 is about average in its peer group. Goodyear achieved a better operating performance than the average of its chosen peers (ROE of 67.9% compared to the peer average ROE of 17.8%) and the market still expects faster growth from it than from those peers (PE of 16.0 compared to peer average of 11.8).

The company’s profit margins are below peer average (currently 2.0% vs. peer average of 6.1%) while its asset efficiency is about average (asset turns of 1.1x compared to peer average of 1.0x). Goodyear’s net margin is its highest relative to the last five years and compares to a low of -2.3% in 2009.

Strategic Play

While Goodyear’s revenues have increased more slowly than the peer average (8.8% vs. 12.1% respectively for the past three years), the market currently gives the company a higher than peer average PE ratio of 16.0. The stock price may be factoring in some sort of a strategic play.

Maintenance Mode

Goodyear’s annualized rate of change in capital of 1.3% over the past three years is less than its peer average of 4.6%. This below average investment level has also generated a less than peer average return on capital of 1.9% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

Goodyear reported relatively weak net income margins for the last twelve months (2.0% vs. peer average of 6.1%). However, the company booked a level of accruals that is around peer average (3.4% vs. peer average of 3.7%) for the same period, suggesting that its reported net income is supported by a reasonable level of accruals.

Goodyear’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer average and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts for Goodyear Tire & Rubber Company

Peers for Goodyear Tire & Rubber Company

We used the following peer-set for our analysis: Continental AG (ADR) (OTCMKTS:CTTAY), Bridgestone Corp (ADR) (OTCMKTS:BRDCY), Compagnie Gnrl des Etblsmnts Mchln SCA (EPA:ML), Nokian Renkaat Oyj Unsponsored ADR (OMX NORDIC HELSINKI:NRE1V), Hankook Tire Co Ltd (KRX:161390)Cooper Tire & Rubber Company (NYSE:CTB) and Toyo Tire & Rubber Co., Ltd. (TYO:5105).

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