Iconic tire manufacturer Goodyear Tire (GT) has seen early success from its strategic transformation initiative. Despite experiencing a drop in tire sales, Goodyear’s recent financial performance has seen a promising surge in profits and consistent quarterly increases in the segment operating margin, thanks to its cost-saving initiatives, helping the company beat earnings expectations for Q3. The stock has jumped over 13.8% on the news, making it an intriguing option that value-oriented investors looking for a turnaround opportunity might want to keep an eye on.
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Goodyear Sees Progress from Strategic Initiatives
The Goodyear Tire & Rubber Company develops, manufactures, distributes, and sells tires and related products and services. Its portfolio features rubber tires for various vehicles and machinery under different brands. Goodyear’s global presence is supported by a network of independent dealers, regional distributors, retail outlets, and retailers. The company has roughly 71,000 employees and 54 manufacturing facilities across 21 countries.
Late last year, the company announced an initiative to increase profitability and drive shareholder value. It has focused on cost reductions and top-line growth that align with this plan. It has recently announced that it has exceeded its original target by $200 million and reached a total value creation of $1.5 billion. Goodyear anticipates gross proceeds surpassing $2 billion from portfolio optimization and remains committed to reducing net leverage to 2.0x and 2.5x by the end of 2025.
Case in point: Despite selling fewer tires in the third quarter, Goodyear has reported increased profits. This increase is primarily due to the savings initiative’s benefits, which outweighed the negative impacts of lower volume, inflation, and unfavorable price/mix. The company has seen segment operating margin expansion for four consecutive quarters, with Q3 marking a 70 basis point increase to 7.2%.
Goodyear’s Recent Financial Results
The company recently announced its financial results for the third quarter of 2024, revealing mixed performance. Revenue of $4.83 billion fell short of analysts’ expectations by $130 million. A net loss of $34 million marked an improvement from the net loss of $89 million recorded in the same quarter the previous year. The Non-GAAP earnings per share (EPS) of $0.37 surpassed consensus expectations by $0.15.
Significant factors impacting the third quarter included an intangible asset impairment of $125 million, mainly due to the reduced value of Goodyear’s tier three Mastercraft and Roadmaster brands, strategic initiative costs of $25 million, and rationalization charges of $11 million.
Is GT Stock a Buy?
The stock has been relatively range-bound, declining roughly 26% over the past year. It trades near the low end of its 52-week price range of $7.27 – $15.24, and, despite the recent price jump, it continues to show negative price momentum by trading below the 20-day (8.31) and 50-day (8.57) moving averages. It appears to be trading at a discount, with a P/S ratio of 0.14x compared to the Auto Parts industry average of 0.55x.
Analysts following the company have taken a cautious stance on GT stock. Based on the most recent recommendations from two analysts, Goodyear is rated a Hold overall. The average price target for GT stock is $10.20, representing a potential upside of 10.51% from current levels.
Bottom Line on Goodyear
In the face of declining tire sales, Goodyear has made significant strides toward financial health and stability through strategic cost-saving initiatives, focusing on profitability and a value-creation strategy. With the company projecting gross proceeds to exceed $2 billion and a pledge to reduce net leverage by 2025, Goodyear presents a promising turnaround opportunity for value-oriented investors.
