Goodyear's stock price has hovered around $10 since an analyst upgraded the stock Jan. 21 in anticipation of a Feb. 6 tire launch, but obstacles still remain in the tire maker's turnaround path, the analyst warned.
Akron-based Goodyear's stock hit $10.74 Jan. 21-up from $9.51 Jan. 20-after analyst Saul Ludwig of McDonald Investments Inc. in Cleveland upgraded Goodyear from ``underweight'' to ``hold.''
In his report, Mr. Ludwig said he made the adjustment because of recent positive indicators that have pushed the scales back to neutral. Among those, the analyst cited improved dealer relations, improved market share of branded tires, a surging truck tire business and the possibility Goodyear will refinance its debt.
A major nugget of potential, however, is the coming product launch Feb. 4-5 which will precede Goodyear's dealer meeting Feb. 6-7 in Orlando, Fla. Mr. Ludwig said he has learned the new tire line, dubbed Assurance, will be a high-end, all-season tire.
``In our opinion, this is (Good-year's) most important product launch in the last 10 years,'' he wrote. ``We believe the Aquatred line will be phased out, and the Assurance will be its new, high-end tire for the consumer market.''
Goodyear declined to comment on the tire in advance of its launch, saying only that the company is always working on new products. However, in an advertisement in the Jan. 5 issue of Tire Business, Goodyear touted the all-weather, all-road capabilities of the product. ``In fact, on Feb. 6, 2004, it will be a new day for drivers everywhere,'' the ad said. ``You have our assurance.''
Jay Huff, owner of longtime Goodyear dealership Brooks-Huff Tire and Auto Centers in Baltimore, said one of his salesmen noticed the small trademark next to the word ``assurance'' in the ad. Mr. Huff said a Goodyear official confirmed that Assurance is the tire's intended name, though he had no other details. Asked about the possibility of Assurance replacing Aquatred, however, Mr. Huff said it's anyone's guess if the new name will be as well received.
``It's OK. It's probably time for a change,'' he said. ``The Aquatred tire has presence with the public, and they understand what it is.'' He added that using Aquatred's current pricing level for Assurance would be fair, but raising it any higher would be tough to sell.
Despite the potential windfall from the new tire, Mr. Ludwig noted that competition remains fierce. Bridgestone/Firestone's recovery is surging, and its dealer network is the ``strongest in the country,'' he wrote. Michelin North America Inc. remains the ``clear preference of the upscale consumer,'' and Cooper Tire & Rubber Co. has made significant gains in the private brand business where Goodyear has said it has lost share. Other tire makers have surged in the original equipment business.
Other hurdles for Goodyear include the likelihood of large losses in the fourth quarter of 2003 and first quarter of 2004, higher raw materials costs, the need for more restructuring, an increase in the unfunded pension liability and other factors. Goodyear also has not indicated when it will release revised annual 2002 results, which it was updating following an earnings restatement from 1998 through the first half of 2003. In December Goodyear delayed the annual 2002 revision because of possible improper accounting issues in Europe.
``The two key issues are as follows: (Goodyear) needs to improve results in North America, and it must raise new capital to give it more time before a liquidity crunch erupts,'' Mr. Ludwig wrote. (See related story on page 33.)
He said he predicts Good-year will be able to raise money, and its underperforming North American Tire unit could cross the breakeven mark by the second quarter of this year and begin a march toward a 5-percent margin possibly in 2006.
Importantly, the analyst said Goodyear's dealer relations appear to have improved.
``Many, but certainly not all, Goodyear/Dunlop dealers are saying some better things about (Goodyear) these days,'' he wrote. ``There is clearly a new attitude emerging that the dealers want (Goodyear) to succeed in its turnaround and as such, support is building for this underdog.''
Mr. Huff agreed. He was one of several Baltimore dealers who raised issue with Goodyear's distribution policies a year ago. He said some of those issues remain, but he's looking to the future.
``I think they're getting more support from dealers,'' he said. ``They've got some fresh blood and some fresh ideas.''