DETROIT -- Goodyear Tire & Rubber Co. faced a challenging third quarter in a sputtering economy, and its results could reflect that when they are released before the markets open on Friday.
WHAT TO WATCH FOR: The Akron, Ohio, tire maker likely faced a tough period from July through September because tire sales were weaker than expected in the U.S. and Europe, Morgan Stanley analyst Adam Jonas wrote in a note to investors. Europe's economy is teetering toward recession due to government debt problems, while the U.S. economy oscillates between good news and bad.
Goodyear has improved profitability through cost savings and higher prices, but pricing and sales gains could be more difficult in a tough macroeconomic environment, Jonas wrote. Although the company is benefiting from growing new-vehicle sales in the U.S., replacement tire sales to consumers fell last quarter. Through September, U.S. car and truck sales were running at an annual rate of around 14.3 million. That's 12 percent more than in 2011, when sales totaled 12.8 million.
But last quarter Goodyear predicted that full-year tire sales would fall 5 percent to 7 percent from 2011 levels. Although demand from North American automakers was expected to rise 10 percent to 15 percent this year, the increase would be offset by a 1 to 3 percent drop in replacement tire sales, as well as weakening demand from both consumers and automakers in Europe, the Middle East and Africa.
Goodyear could make production cuts given the weak market conditions, and it likely will face questions about the timing of its winter sell-off and a potential summer recovery, Jonas wrote.
Shares of Goodyear rose 3.3 percent during the quarter, ending the period at $12.19 per share on Sept. 28.
WHY IT MATTERS: Goodyear is the largest tire manufacturer in the U.S. and is the third-largest globally behind Michelin and Bridgestone. The company employs about 72,000 people at 53 sites in 22 countries.
WHAT'S EXPECTED: Analysts polled by FactSet are expecting Goodyear to earn 59 cents per share on revenue of $5.87 billion. Morgan Stanley expects earnings of 54 cents per share.
LAST YEAR'S QUARTER: Goodyear reported net income of $161 million, or 60 cents per share, on revenue of just over $6 billion.