Goodyear Tire Rolls On
Goodyear Tire (NYS: GT) is on a roll. The company posted a record-breaking third quarter, surpassing the $6 billion revenue mark for the first time in its history. This was also the third straight quarter in which the Akron, Ohio, tire maker registered profits. Let's take a closer look.
Revenues, costs, and mergers
Goodyear's decision to focus on its premium offerings did the trick for the company. Helped by revenues generated from high-priced premium tires, Goodyear's top line in the third quarter rose 22% and crossed $6 billion. This was also the sixth straight quarter of revenue growth for the tire maker.
The top line grew in spite of Goodyear's selling 8% fewer tires. Its focus on higher-priced tires helped in pushing operating margins up to 7% from 4% a year ago -- despite a 21% increase in cost of goods. Goodyear also hit a trifecta of profits in the past three quarters, with earnings in the third quarter at $168 million. It had lost $20 million in the same period last year.
A major problem for tire makers this year has been the rise in rubber prices. Companies have had to resort to price increases and sales of more expensive premium tires. Cooper Tire & Rubber (NYS: CTB) saw solid quarterly revenues, but also got hit by soaring raw materials costs. It is planning to raise prices by up to 5% on Dec. 1, though the company notes that this is less than previously announced price hikes.
The year ahead
Goodyear was helped by the strength of its international operations. Winter tire orders from Europe went up, pushing up sales. It expects more orders in the next quarter as dealers look to stock up shelves in anticipation of higher demand. Goodyear continues to power on in China, where its products have received rave reviews. To cater to the growing Chinese market, it recently opened 300 new stores and also invested in a new factory there to increase its production capacity.
The road ahead looks promising for the tire maker. Many concerns have arisen about the company's pension shortfalls, which have led to investors losing confidence and shares falling by over 20% in the past six months. But positive industry dynamics at home and growth opportunities abroad are very positive signs for Goodyear.
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At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies listed above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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