Goodyear Gains Some Traction
On July 31, Goodyear Tire & Rubber Company (GT) reported 2007 second quarter results. In the quarter, excluding special items, net income from continuing operations was $0.31 per share, compared to $0.14 per share in the prior-year quarter.
The company is benefiting from a major restructuring program along with lower raw material costs and improved selling prices. However, weak tire volumes compel us to rate the shares a Hold with a target of $20.
Goodyear Tire's strength lies in its exposure to the strong heavy-truck market. This helps Goodyear better than its peers in hedging against earnings volatility in the tire industry. In addition, profit margins are expected to improve as both the Goodyear-brand tires and commercial tires are witnessing an improvement in sales across all markets, capitalizing on improved pricing/product mix and cost reduction efforts.
Goodyear is cashing in on its well-received new tire designs such as Eagle F1. The company is also expanding its reach in the consumer replacement market, as well as commercial Original Equipment Manufacturer (OEM) and replacement markets in North America.
The company anticipates capital investments aggregating $1-$1.3 billion per year from 2008 to 2010. The company plans to invest $500-$700 million over five years to modernize four manufacturing plants in the U.S. and increase the production of high-value-added tire production as well as improve cost efficiency.
The company is focusing on streamlining its operations by achieving cost reductions of more than $2 billion by 2009. In addition, the company is using its capital initiatives to meet two objectives by 2012: to increase its capacity to produce high value-added tires by 50% and to increase its low-cost capacity to 50% of its global total.
Centennial No Longer a Sell
We are upgrading our recommendation to Hold for Centennial Communications Corp. (CYCL), a regional provider of wireless and integrated communications, based on the company's recent operational performance, along with sustainable subscriber growth across all of its operational areas.
CYCL delivered better-than-expected operating results in the most recent quarter, beating our expectations with revenues and customer growth across all its business areas. Importantly, the annual consolidated revenues of approximately $1 billion and $400 million in adjusted operating income for fiscal year 2008 represents a first time operational achievement for the company. CYCL continues to grow its U.S. wireless business with total revenues of $550.7 million for fiscal year 2008.
The management's outlook for fiscal 2009 supports our recommendation change. New initiatives in fiscal 2009, including network infrastructure upgrades in the U.S.
