Automotive tire and service company Goodyear Tire and Rubber Company (NYSE: GT)
shares have recently peaked with a sell-the-news reaction to is Q2 2020 earnings reports. Shares briefly recovered to its February pre-pandemic levels before pulling back with the benchmark S&P 500 index (NYSEARCA: SPY)
. Goodyear is a recovery play
as the lifting of stay-at-home restrictions puts more cars on the roads, requiring more maintenance services and tires. The surge in the used car market creates a direct positive impact on tire demand partially offset by slow vehicle production restarts. The recent earnings release triggered a sell-off which provides an opportunity for risk-tolerant investors to find cheaper entries
. There is a technical reversal up on the monthly rifle chart stochastic coupled with an improved 2H 2020 outlook coming from a direct competitor that may indicate an overly cautious low-ball attempt by management to set the bar way low into the latter half of the year.
Q2 FY2020 Earnings Release
On July 31, 2020, Newell released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported a loss of (-$1.87) per share beating consensus analyst estimates of a loss of (-$2.03) per share, beating estimates by $0.16 per share. Revenues fell 41% year-over-year (YoY) to $2.14 billion beating analyst estimates of $1.9 billion. Volume trends continue to improve as isolation mandates get lifted. China consumer replacement volume actually increased YoY in May and June. Total sales volume improved from a low of (-68%) in April to (-22%) in June 2020 over prior year same quarter.
Conference Call Takeaways
The Company noted they saw competitive advantage growing in the commercial truck business including service centers outperform broader industry with high single-digit sellout in 1H 2020. Goodyear sees significant momentum in the plug-in hybrid and electronic vehicle (EV) in the five biggest European markets in June. The pandemic had a worse effect that the Great Recession and strike-related shutdown of 2006. Net losses of totaled (-$400 million) in Q2 and nearly (-$600 million) for 1H 2020. The Company can’t provide forward guidance but has applied cash saving measures that cut original cash expenditure estimates from (-$1 billion) to (-$700 million) and targeting a reduction to (-$500 million). The Company also issued $800 million of senior notes benefitting a refinanced $2 billion revolver.
As of the conference call, Goodyear has approximately $3.9 billion of liquidity including $1 billion in cash minus a $282 million note maturity in mid-August. No other notes mature before 2023. Production is expected to increase in Q3 while production will still be down by five million units YoY. Full-year raw material costs should be down (-$100 million) YoY. The Company expects total Q3 volume to be down (-20%) YoY.
Competition and Industry Trends
Competitor Cooper Tire and Rubber Company (NYSE: CTB) reported earnings on Aug. 3, 2020, with a (0.41) per share beat against analyst consensus estimates. Utilizing their forecasts as a peer against Goodyear may provide a more balance narrative moving forward. Cooper generates 25% of Goodyear sales but was clear that cash burn has slowed down dramatically and expects 2H 2020 to see continued recovery. If Cooper Tire’s outlook is more macro industry correlated, then it may hint at Goodyear may be trying to lowball expectations for 2H 2020 results, which can be an opportunity for risk-tolerant investors to scoop up shares at a discount.
GT Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for GT stock. The monthly rifle chart triggered a market structure low (MSL) buy trigger above $8.43 as the stochastic just crossed back up at the 20-band. The channel tightening target points to the monthly 15-period moving average (MA) near the $11.87 Fibonacci (fib) level. The weekly rifle chart formed a high band stochastic mini pup as a sell-the-news reaction triggered setting up opportunistic pullback entry levels at the $8.35 monthly 5-period MA/MSL, $7.50 sticky 2.50s zone and $6.70 weekly MSL with overlapping fib supports. Its prudent to keep an eye on competitor CTB stock trajectory as upside momentum in that stock can also transfer over to GT shares.
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