Goodyear (GT) Up 6.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Goodyear (GT). Shares have added about 6.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Goodyear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Goodyear Delivers Dismal Q1 Show

Goodyear Tire reported adjusted loss per share of 60 cents in first-quarter 2020, wider than the Zacks Consensus Estimate of a loss of 26 cents. The bottom line declined from earnings per share of 19 cents recorded in the prior-year quarter due to lower revenues across all segments. The company reported adjusted net loss of $140 million, deteriorating from net income of $45 million in the year-ago quarter.

It delivered net revenues of $3,056 million, lower than $3,598 million reported in the year-ago quarter. The year-over-year downside was due to lower industry volume and unfavorable foreign currency translation. However, revenues surpassed the Zacks Consensus Estimate of $2,972 million.

In the reported quarter, tire volume was 31.3 million units, down 18% from the year-ago quarter. Original equipment (OE) unit volume decreased 21% due to decline in demand, while replacement tire shipments declined 16% from the year-ago quarter due to lower demand following shelter-in-place mandates and sharp declines in consumer confidence amid the coronavirus pandemic.

Segments in Detail

Revenues in the Americas segment declined year over year to $1.67 billion from $1.88 billion. The segment’s operating income was a breakeven, down from $89 million recorded in first-quarter 2019. The year-over-year decline was because of lower volume, unfavorable foreign currency translation and weaker factory utilization.

Revenues in the Europe, Middle East and Africa segment were $995 million, down year over year from $1.22 billion. The segment’s operating loss was $53 million against operating income of $54 million recorded in the year-ago quarter. Lower volume along with unfavorable currency translations and higher conversion costs resulted in the weak performance.

Revenues in the Asia Pacific segment fell 23% to $338 million. The segment’s operating income declined year over year to $6 million from $47 million amid lower volume and reduced price/mix.

Financial Position

Goodyear had cash and cash equivalents of $971 million as of Mar 31, 2020, up from $908 million as of Dec 31, 2019. As of Mar 31, 2020, long-term debt and finance leases amounted to $5.21 billion, up from $4.75 billion as of Dec 31, 2019. The company has temporarily suspended its quarterly dividend due to the uncertainty caused by the coronavirus pandemic.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -702.91% due to these changes.

VGM Scores

Currently, Goodyear has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Goodyear has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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