Shares in Goodyear Tire & Rubber (GT -2.08%) were down more than 20% on the week as of the market close on Thursday afternoon. The precipitous move comes after the company missed Wall Street analyst earnings forecasts in its third-quarter earnings released after the market close on Monday. It’s yet another disappointment in a year that could have been very different for the company.
Investors started the year looking forward to management enjoying the first full year of the Copper Tire acquisition as it works toward generating cost synergies from the deal. Meanwhile, this was supposed to be the year when car production ramped up, and raw material cost inflation subsided for Goodyear.
Unfortunately, almost everything went wrong. Automakers cut their production expectations on the back of ongoing supply chain constraints exacerbated by the conflict in Ukraine. Raw material inflation continued to surge, and management now expects raw material inflation to peak in Q4 with a $500 million increase to the same period last year and a further $300 million to $400 million increase in the first half of 2023.
The ongoing raw material inflation comes when there’s a sluggish recovery in the original equipment market (due to the car makers’ production difficulties) and fears of an economic slowdown negatively impacting the tire-replacement market, particularly in Europe.
It all adds up to an uncertain environment for the tire marker.
Investors in Goodyear will have to be patient while the company muddles through its cost headwinds and hopes the economy doesn’t fall off a cliff. If it can do that while executing its integration of Cooper and waiting for car production to pick up while the replacement market holds up, then a stock-price recovery could be in the cards. Here’s hoping.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.