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Goodyear says inflationary pressures could persist over the next few quarters.
Jason Smith/Getty Images for NASCAR
Shares of
Goodyear Tire
were plummeting Friday after the company said inflationary pressures could persist over the next few quarters.
Goodyear (ticker:
GT
) was down 25% to $16.28 on Friday, putting it on pace to close at its lowest point since Sept. 22, 2021, and on pace for its largest percentage decrease since 1987, according to Dow Jones Market Data. This would be the tire maker’s worst two-day stretch since March 2020.
“Looking ahead, we expect cost pressures to persist over the next several quarters,” said CEO Richard Kramer on an earnings call with investors on Friday.
The stock drop came even as Goodyear reported the highest fourth-quarter revenue in 10 years. The company posted adjusted quarterly earnings of 57 cents a share, topping estimates for 32 cents a share, on $5.1 billion in sales, beating forecasts for $5.01 billion.
Annual earnings per share came in at $2.09 on net sales of $17.5 billion, beating consensus estimates for earnings of $1.82 a share on revenue of $17.3 billion.
The robust sales performance has helped the company overcome significant cost inflation, Kramer said on the call. Regardless, inflation was impacting the company’s business across the board, affecting the cost of raw materials, labor, transportation, and energy, he said.
“We remain focused on executing strategies to capture value and drive efficiencies while prudently managing our costs,” Kramer added.
The cost of raw materials increased more than $300 million in the fourth quarter, excluding an additional $80 million in general inflation costs, said Goodyear Chief Financial Officer Darren Wells.
The outlook for raw material cost inflation was “probably a couple hundred million dollars higher than we would’ve expected,” said Northcoast Research analyst John Healy. That unforeseen element could have surprised investors, who may now be concerned the company won’t be able to stay on top of that cost increase throughout the whole year.
“I don’t subscribe to that,” he said, adding that he believes the company has been successful at increasing prices this year and could continue to do so.
Northcoast’s Healy maintained a Buy rating on the stock, saying that the inflationary pressures were more of a “bump in the road” given that fourth-quarter results were strong.
Goodyear also was impacted by Covid absenteeism in factories and the need to hire new workers, and by semiconductor supply-chain disruptions. These disruptions were slowing down auto production, Wells said, but he was optimistic that could ease in the long run.
“This dynamic creates uncertainty for only volume in the near-term, our robust only pipeline positions us for continued share gains regardless of the level of auto production this year,” Kramer said.
Investors may also have been taken by surprise by management’s estimate that capital expenditures will rise to a range between $1.3 billion and $1.4 billion, taking a bit out of free cash flow, Healy said.
CFRA analyst Garrett Nelson maintained a Hold rating on the stock after earnings, but lowered his price target to $24, down from $25. Goodyear’s beat was driven by a stronger-than-forecast top line as revenue rose thanks to the acquisition of Cooper Tire, Nelson said. But management’s cautious outlook put a damper on the positive results.
“We maintain a Hold, as we think the crude oil price surge presents a major risk to margins going forward (two-thirds of GT’s raw materials costs and GT doesn’t hedge),” he said.
Write to Sabrina Escobar at [email protected]
