GOODYEAR TIRE & RUBBER CO. $24.42 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 246.9 million; Market cap: $6.0 billion; Dividend yield: 0.8%) is the world’s largest tire maker, with 52 plants in 22 countries.
In the quarter ended September 30, 2013, the sluggish global economy cut Goodyear’s sales by 5.0%, to $5.0 billion from $5.3 billion a year earlier. North American sales fell 9.1%, to $2.2 billion from $2.4 billion. Sales also declined 9.2% in Asia. That offset a slight increase in Europe and a 1.3% rise in Latin America.
However, earnings per share climbed sharply, to $0.68 from $0.45. The higher profits came from the company’s North American operations, which sold more replacement tires (they’re more profitable than new factory-installed car tires), and cut its costs.
Goodyear’s costs, including rubber and other raw materials, should continue to fall. As well, it now has a favourable new labour contract with the United Steelworkers. This four-year deal, which covers about 8,000 workers at the company’s six U.S. plants, gives it flexibility to reduce staffing and continues medical-benefit cost sharing.
The company will gain from rebounding global auto sales, which hit a record 82.8 million vehicles in 2013, up 4.2% from 79.5 million in 2012. U.S sales rose 7.6%. As well, the average age of vehicles on the road in the key U.S. market is now at a record 11.4 years. That adds up to a lot of pent-up demand for high-profit replacement tires.
The stock trades at just 8.9 times the $2.75 a share that the company will likely earn in 2014. Goodyear resumed paying dividends in December 2013, with a quarterly payment of $0.05 a share. The stock now yields 0.8%.
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