Tax Benefit Jacks Up Goodyear Tire Earnings

In addition to the one-time credit, the tire company says it won't have to pay cash taxes in the U.S. for five years.
Matthew HellerFebruary 17, 2015
Tax Benefit Jacks Up Goodyear Tire Earnings

Goodyear Tire reaped the benefit of a one-time, $2.2 billion tax credit in the fourth quarter of 2014 and the company forecast it would meet its target for operating income growth this year despite the strengthening U.S. dollar.

The non-cash tax benefit, most of which was booked in the fourth quarter, boosted Goodyear’s net income to $2.13 billion, or $7.68 a share, up from $235 million ($0.84 a share) a year earlier. Excluding the credit, fourth-quarter net income was $126 million, or 59 cents a share, exceeding Wall Street analysts’ consensus estimate by one cent.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

The tax benefit was related to the release of Goodyear’s tax valuation allowance.

goodyear tireCompanies report a valuation allowance when they believe they will not be able to realize the benefits of their deferred tax assets within the given time period. It is generally a sign that the company has a negative outlook on the prospect of future earnings.

“The release of our $2.2 billion U.S. tax valuation allowance after 12 years is a major milestone for Goodyear,” Goodyear CEO Richard J. Kramer said in a news release. “It marks the completion of the successful turnaround of our North America business.”

Goodyear said it would “record charges for income taxes in future periods, [but] does not expect to pay cash taxes in the [United States] for approximately five years.”

Goodyear shares were up 2.7% at $26.61 Tuesday on the earnings report after lagging the broader market by about 10 percentage points so far this year.

“GT stock is essentially unchanged over the last 52 weeks, and has displayed significant volatility, trading in a range of roughly $19 to $29 a share,” InvestorPlace reported, noting that the company has been hurt by price pressures in North America and the sluggish global economy and rising dollar in overseas markets.

Goodyear revenue fell 9.1% to $4.36 billion in the three months that ended Dec. 31, short of analysts’ estimates. Wall Street expects sales to drop nearly 4% this year and to rise no more than 2% in 2016 but Kramer focused on the rosier picture for operating income.

“Led by our momentum in North America, we are on target to achieve 2015 segment operating income growth of 10% to 15% above our record setting $1.7 billion in 2014, despite severe headwinds from the increasing strength of the U.S. dollar,” he said.

Operating income in North America grew to $229 million in the fourth quarter from $199 million a year ago even as sales and tire units fell slightly.

Image: Thinkstock