CNBC analyst warns Goodyear is 'bleeding to death'

They say that all publicity is good publicity, but Goodyear executives probably could have done without the publicity it got from CNBC last week. The consumer news and financial information channel asked why Goodyear shares had fallen 13 per cent this year in an improving environment during a 7 March broadcast. The answer that Jeffery B. Middleswart, president, director of research at Behind the Numbers, was blunt to say the least: “This is a company basically bleeding to death.”

Middleswart, whose firm specialises in offering sell research and highlighting underperforming stocks, shared some background for his conclusion: “The way we look at it is they’ve closed so many tyre plants over the last few years, they’ve closed plants in Asia, Latin America. They sold a tyre plant that made tractor tyres…these are all the bullish areas. And yet Goodyear cannot make money doing this. Volumes are down. Margins are down across the board.”

Asked what can be done to turn this around, the conversation got even more morbid: “I don’t know that they can, to be quite honest. They have more debt now than they did five or six years ago. The pension’s more underfunded. That’s going to be a cash headwind for them. They used to make all their cash flow by drawing down working capital.”

Prompted as to whether he meant the company is – in his opinion – headed for bankruptcy he answered in the affirmative: “Yeah. It’s become a smaller company and a legacy cost from years ago it has to maintain.”

But aren’t sales way up from where they were a few years ago, the hosts countered? “That’s inflation. Look at cash flow, it still continues to erode. The debt numbers are up. They can’t fund their pension. They’re issuing preferred stock to raise money now. This is a company basically bleeding to death.”

Asked if Goodyear could it be bought by another company he answered: “Somebody could come along and do that. They’re going to do it at a much lower price. Total debt is almost six times EBITDA. We think EBITDA’s a fictitious number for this company because so much cash flow has come from drawing down working capital.”

Jeffery B. Middleswart if president, director of research at Behind the Numbers, which he joined in 1993 According to the company’s website he graduated from Texas Christian University in December 1989 with a BBA degree in Finance. He worked at Barre & Company (now Southwest Securities) for three years as an analyst of high-yield bonds, bankruptcy restructurings, and corporate finance. 

As a matter of policy Goodyear doesn’t comment on market speculation such as the opinions of analysts. Nevertheless you have the impression that company representatives would rather point to the record sales and segment operating income the company achieved in 2011 or the year-end liquidity of $5.5 billion, with more than $2 billion in cash or perhaps the fact the company has no debt repayment obligations until 2014.