Stock of the Day
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Goodyear Tire & Rubber Co. (GT)
Goodyear, Even Better Quarter
America's largest tiremaker, Goodyear Tire & Rubber Co, posted record-breaking sales and reported the best profit it's seen during the first-quarter in several years, thanks to a shift in strategy that is really paying off. Goodyear's timing in changing its production focus has proven to be quite advantageous, leading to higher margins while industry rivals and other players in the auto sector struggle under economic pressures. With the company's automaker customers cutting their tire orders, will this quarter's winning formula keep the good times rolling?
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| Stock Analysis |
Goodyear rolled over analyst estimates, not only beating expectations, but also posting record results in its first quarter earnings statement which was released today. The company declared earnings of $147 million, or 60 cents per share, to turn around its loss of $174 million, or 96 cents per share, during the same period last year. Sales rose an impressive 10 percent over first quarter 2007 to reach $4.94 billion. Analysts had forecasted earnings of 47 cents per share excluding special items while Goodyear's adjusted earnings excluding these one-time items was 67 cents per share. Last year's poor performance mostly hinged on the costly a 12-week United Steelworkers strike in late 2006 that halted production in several of Goodyear's U.S. plants.
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Buy Goodyear Tire & Rubber Co. for just $4
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Goodyear attributes its reversal of fate to a strategy shift that has refocused production on higher-priced tires made for luxury and crossover vehicles. The new strategy has also included cost-cutting measures which have combined with the higher prices to increase margins. This means that although tire sales in North America decreased by one percent from last year, the company's operating income actually increased to post a profit from the loss reported a year ago. Strong performance in international markets also buoyed sales, making up for the lower figures in North America. The business division including sales in Europe, Africa, and the Middle East rose 16 percent over last year while sales in Latin America and the Asian Pacific were up 29 and 21 percent, respectively.
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Robert J. Keegan, chairman and CEO, noted, "Our excellent first-quarter results demonstrate the success of our strategies to grow our higher-margin premium product lines, reduce costs and pay down debt. Each of our four businesses improved margins and operating income as we capitalized on attractive growth opportunities in targeted market segments." Goodyear glossed over the potential strain that the economy could pose on future quarters stating, "We continue to be confident about the opportunities we see in the market and our ability to take advantage of them."
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This quarter's success has led company management to set new goals for saving $1.8 billion to $2 billion by the end of 2009, based on the $1.2 billion in cost savings that the company has realized at the end of the first quarter. Investors are optimistic as well, boosting Goodyear's stock nearly 7 percent in morning trading.
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