Goodyear Tire & Rubber shares dropped as much as 10% on Wednesday after its first-quarter results took a hit from exchange rates and the writedown of its Venezuelan operations.
Goodyear’s sales were $3.7 billion, down from $4 billion a year ago, and net income fell 17.9%, to $184 million, or 68 cents a share. On an adjusted basis, the tire maker generated 72 cents a share, beating analyst estimates by a penny.
Goodyear sold 18 million tires in the Americas compared with 19.2 million for the same period a year earlier. Sales slipped 13% to $1.95 billion but operating income rose to $260 million on lower raw material costs and sales of higher-end tires.
The company attributed the revenue decline in part to an unfavorable foreign currency translation of $141 million.
“We are very pleased with our strong first quarter performance,” Goodyear’s CEO Richard Kramer said in a news release. “Demand for our premium-branded, high-value-added products is robust and our product mix continues to grow richer, driving margin expansion.”
But Goodyear stock closed at $30.34 on Wednesday after suffering its biggest intraday drop in eight months.
According to The Wall Street Journal, Goodyear is benefiting from auto maker demand for its high-end tires, which are used primarily on sport-utility vehicles. “U.S. consumers have been snapping up SUVs and pickup trucks amid cheaper gas prices,” the WSJ said.
“Customers want more premium Goodyear-branded products, and increasing our supply is both our biggest challenge and our greatest opportunity,” Kramer said in an earnings call.
Goodyear’s European unit sold 16.2 million tires compared with 15.9 million a year ago, but sales fell 6% to $1.25 billion due to currency fluctuations. Operating income rose 10% to $80 million.
In Asia Pacific, the company sold 7.3 million tires compared with 5.7 million. Sales rose 9% to $489 million, while operating income rose 18% to $79 million
Goodyear also reaffirmed its 2016 financial targets, which include core segment operating income growth of between 10% and 15%.