GOODYEAR TIRE & RUBBER CO. $13.48 (NewYork symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 244.7 million; Market cap: $3.3 billion; No dividends paid) is the world’s largest tire maker, with over 60 plants in 25 countries.
In the three months ended June 30, 2012, the company’s sales fell 8.4%, to $5.15 billion from $5.62 billion a year earlier.
North American sales rose 1.7%, to $2.5 billion from $2.4 billion, but weak economic growth cut sales by 21.4% in Latin America; 17.9% in Europe, the Middle East and Africa; and 4.2% in Asia. Unfavourable foreign currency moves also lowered Goodyear’s overall sales by 6%.
But even with the lower sales, the company’s earnings jumped 112.5%, to $85.0 million, or $0.35 a share, from $40.0 million, or $0.16 a share.
More drivers bought premium tires in the quarter: the company sold 9% fewer tires overall, but its revenue per tire rose 8%. That, plus cost-cutting measures, let it show improved profits despite the lower revenue.
Sales of highly profitable replacement tires have lagged, but the average age and mileage of vehicles on the roads has risen. That adds up to a lot of pent-up demand for replacement tires, which should push up Goodyear’s sales volumes, likely as early as next year.
The stock trades at just 6.6 times this year’s forecast earnings per share of $2.05 and 5.5 times next year’s estimate of $2.45.
Goodyear Tire is a buy.
