Deutsche Bank Report Lowers Goodyear Estimates

Noting the “larger than expected” production cuts in Goodyear’s 2008 fourth quarter and a “sharp decline” in the manufacturer’s profitable South America and Asia regions, Deutsche Bank analysts have adjusted its estimates for the company’s 4Q 2008 and 1Q 2009 results. In a report released this week (commencing 9 February), Deutsche lowered its estimates to -$1.30 from -$0.86 for 4Q 2008 and to -$1.86 from -$1.50 for 1Q 2009.

Deutsche’s statement said that as well as the production cuts, Q4 had seen raw materials rise further than was previously expected. In addition it continues, “Some of the downside appears to be derived from a sharp decline in Latin America and Asia, two regions that have produced a disproportionate share of GT’s [Goodyear’s] profitability in the past.”

In greater detail, the report says that the production cuts mentioned “will include a significant negative impact from overhead absorption (associated with the inventory correction)”, therefore accounting for $0.26 of the adjustment. The other $0.08 is attributed to raw material costs increasing.

Meanwhile, the further dip in Q1 is a result of “Lower volume and negative overhead absorption,” which account for $0.25 of the adjustment, with raw materials accounting for $0.11.

The report ends on a more upbeat note, however, stating that Deutsche continues “to believe that Goodyear will return to profitability by 2Q09, as raw material cost and overhead absorption negatives begin to subside (raw material costs could experience a 35 per cent decline from the 4Q08/1Q09 peak levels). And we continue to believe that Goodyear can achieve an earnings run rate in excess of $2.00 by 2H09.”