‘Surprise’ at Goodyear performance – Morgan Stanley
Analysts at Morgan Stanley have reported their “surprise” at Goodyear’s performance in the second quarter of the financial year. The reason they gave for being caught unaware by the US tyre maker’s 24 per cent increase in sales (to US$5.6 billion) and 66.7 per cent rise in net profit (to $40 million) is that “it came in a quarter of weak shipments and rising raw material headwinds.” Despite unit demand being slightly down, Goodyear’s price/mix of $552 million “comfortably beat” Morgan Stanley’s estimate of $450 million and segment operating income for its North American Tire business was $137 million with a margin of 5.7 per cent, which Morgan Stanley notes is the highest level in a decade and in line with the company’s medium-term target.
Morgan Stanley’s outlook for the rest of 2011 is that margin levels in the second half will be closer to those in the first quarter than those in the second. A stated area of potential weakness for the tyre maker is Latin America, where analysts note competition is increasing and margins and cash flow are expected to increase. Earnings per share for 2011 have been revised to $1.57 and $2.35 in 2012. Morgan Stanley also opines that Goodyear (and the rest of the industry) is “capitalising on an undersupplied market to push through price increases, which more than offsets and potential trading down by consumers.” It further notes tyre maker is also improving its operating efficiency by closing high cost capacity and restructuring actions, with more to come. In summary, the analysts say they believe Goodyear can “get to its 2013 operating targets ahead of schedule, potentially by the second half of 2012.