Disappointing Results and Negative Outlook, Despite Swinging to a Profit

Goodyear Tire & Rubber Co. (NYSE: GT) fell 5% after missing fourth quarter analyst estimates, despite posting its first annual profit in three years. GT’s net profit for the quarter swung to $18 million or $0.07 a share, from a loss of $177 million or $0.073 a share. Management indicated that fourth quarter volumes declined 5% on challenges in Latin America, flooding in Thailand and due to declining replacement industry volumes in mature markets. GT also cautioned that global tire industry growth will be slower in the near-term than previously forecasted due to difficulties in European and Latin American economies. Management now expects that its full-year tire unit volume for 2012 will be essentially flat. They also anticipate raw material costs will rise about 5% during the year. Even though the company has improved over the past year, disappointing fourth quarter results and negative 2012 outlook for the company dragged down market expectations even further.

At a P/E’ of 15.4x and an EV/IC’ 1.0x, the market appears to be pricing in 6% ROI’ with 2% IC’ growth over the next five years, in line with consensus driven projections for ROI’ and IC’ growth.

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