Will Goodyear's (GT) Earnings Disappoint Investors in Q3?
The Goodyear Tire & Rubber Company GT is set to report third-quarter 2015 results on Oct 29. In the last quarter, this tire manufacturer had posted a positive earnings surprise of 13.51%. Let us see how things are shaping up for this announcement.
Factors Influencing this Quarter
Goodyear is benefiting from lower raw material costs, strong economic trends in North America and continued cost savings, partially offset by a challenging international environment and unfavorable foreign currency translation due to the ongoing strength of the U.S. dollar. Consequently, the company attained record high segment operating income in 2014 and first-half 2015. We expect this trend to continue in the third quarter as well. Moreover, Goodyear regularly launches innovative products and services to boost sales.
However, Goodyear’s revenues have been declining over the years due to unfavorable foreign currency translation, lower sales in other tire-related businesses, a decline in price and product mix, and lower tire volume. This trend of declining revenues is expected to continue in the third quarter. Moreover, the continuing economic and political uncertainty, difficulty in importing raw materials and finished goods, fluctuating foreign currency exchange rates, government price and profit margin controls in Venezuela, are expected to adversely impact Goodyear’s operating income from Latin America.
Earnings Whispers
Our proven model does not conclusively show that Goodyear is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Goodyear has an Earnings ESP of -13.27%. This is because the Most Accurate estimate is pegged at 85 cents, while the Zacks Consensus Estimate stands at 98 cents.
Zacks Rank: Goodyear’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are some companies in the automobile sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Cooper Tire & Rubber Co. CTB has an Earnings ESP of +5.26% and a Zacks Rank #2. The company’s third-quarter 2015 financial results are scheduled for release on Nov 2.
American Axle & Manufacturing Holdings Inc. AXL has an Earnings ESP of +1.49% and a Zacks Rank #3 (Hold). The company is expected to release third-quarter 2015 earnings results on Oct 30.
Magna International Inc. MGA has an Earnings ESP of +1.82% and a Zacks Rank #3. The company is expected to report third-quarter 2015 results on Nov 5.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
GOODYEAR TIRE (GT): Free Stock Analysis Report
AMER AXLE & MFG (AXL): Free Stock Analysis Report
COOPER TIRE (CTB): Free Stock Analysis Report
MAGNA INTL CL A (MGA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
