AKRON (Feb. 1, 2006) — Goodyear's stock price tumbled 16.6 percent on Jan. 31 after the tire maker reported that raw material prices in the fourth quarter had risen 13 percent—higher than the firm had expected.
Goodyear's stock price fell to $15.64 from $18.76 before the announcement. Cooper Tire & Rubber Co.'s stock also fell 8 percent on the news to $14.99 from $16.29 as analysts warned that Cooper would have faced the same raw material headwinds as Goodyear.
Goodyear announced that it expected to post 2005 sales of nearly $20 billion and fourth quarter sales of more than $4.9 billion when it reports its results Feb. 16. While segment operating income for the year is expected to rise 20 to 25 percent from the prior period's $945.5 million, the fourth quarter's segment operating income should be flat with the previous $237.5 million, excluding the impact from last fall's hurricanes.
Goodyear did not provide guidance on its profitability prospects.
In a note to investors, Morgan Stanley analyst Jonathan Steinmetz said the flat segment operating income expectation for the fourth quarter likely was due to the raw material situation as well as weaker sales, possibly internationally.
“This news is not a complete surprise given the recent warnings by other tire companies globally, including Hankook tire,” Mr. Steinmetz wrote. He retained his “equal-weight” rating but expressed concern that Goodyear's cash flow will be largely used to sustain legacy liabilities.
“We are working worldwide to reduce our costs and working capital needs, as well as to further improve our product and brand mix,” said Robert Keegan, chairman and CEO. “Nevertheless, the escalating cost of raw materials and currency fluctuations continue to challenge our business.”