AKRON—After rolling into the coronavirus crisis in a weakened state, shares of Goodyear Tire & Rubber have gone down hard in recent weeks.
The share price appears to be continuing a yearslong trend of amplifying the company's challenges. Already facing a huge loss in its share price before the crisis began, Akron's global tire maker since has been beaten down at a rate that is even more precipitous than that of a market that at times has been in free fall.
The company, which was trading above $20 per share less than a year ago, could be purchased in the wreckage of the March 16 crash for less than $6 per share. Then shares plunged further as markets continued to spiral downward, and by the afternoon of March 18 Goodyear shares were selling for less than $5 each.
Shares were at just under $6 at press time on March 20.
Between the end of 2019 and March 18, the company's shares lost a remarkable 70 percent of their value, falling from $15.56 per share to $4.57, far outpacing even the losses of the Dow Jones Industrials Index, which lost about one-third of its value and plunged from more than 29,000 to below 20,000 for that same period.
So, what gives?
It's partly the company's revenues, which have been severely affected by currency fluctuations, big downward swings in auto production, increased raw material costs and poor auto markets in China and Europe.
While Goodyear's revenue has dropped from $19.5 billion in 2013 to $14.8 billion in 2019—that's a drop of 24 percent— and nowhere near the pace of its stock value plunge over a much shorter period of time.
Exposure to all of those cyclical markets and other pain points that make the news often makes Goodyear the market's whipping boy when there's bad news on anything from the automotive cycle to the U.S.-China trade war, said John Healy, an analyst and managing director of Northcoast Research in Cleveland.
"Their stock is a bit of a unique animal," Healy said. "It's a proxy for people's views on global GDP, on the Chinese economy, on the auto markets and on raw materials. ... Whenever investors become concerned about what's going on in any of those sectors, it impacts Goodyear's stock."
Goodyear chief financial officer Darren Wells said there's another reason Goodyear's stock value changes so much more than its earnings: debt. With about $5 billion in debt and about $2.5 billion in shareholder equity, any change in revenue or earnings is amplified in terms of how it impacts the stock.
"Small changes in earnings have a much bigger impact on stock price than with our competitors," Wells said. "A larger percentage (of earnings) is allocated to debt and a smaller percentage is allocated to equity than a lot of stocks we're compared to. If everyone loses 10 percent of their earnings, a lot of companies will see their stock go down by 10 percent. ... Ours might go down by a third," he added.
The company also has faced stiff headwinds in recent years, Wells noted, including fierce gusts from a rising dollar.
"We were $19 billion in revenue then (2010) and at $15 billion now. ... Of that $4 billion move in revenue, about $2.5 billion of it was foreign exchange. A lot of it is in emerging-market businesses where the U.S. dollar just strengthened very dramatically," Wells said, adding that the dollar also rose in value against China's yuan.
"It wasn't just that the foreign businesses were selling less; just that when you translated it back to U.S. dollars it was worth less," Wells explained.
That was the biggest driver of Goodyear's lost revenues, but not the only factor, he said.
The company got out of Venezuela in 2018 as that country tipped into political turmoil and a faltering economy.
It also dissolved a joint venture with Sumitomo Rubber in 2015, which meant that Goodyear got out of the motorcycle tire market.
Wells said those two moves took about $500 million in revenue off the books.
Also, in 2017 and 2018, Goodyear saw the prices of its chief raw materials, including synthetic rubber and carbon black, rise.
Finally, in 2019, the company faced an age-old nemesis: a downward turn in the automotive cycle that affected how many tires it sold, including in the U.S., where demand had been holding up relatively well. This time, that was compounded by a U.S.-China trade war.
"When we started 2019 ... we were starting out expecting 2 percent global growth in replacement tires and effectively flat automotive production," Wells said. "That's where the year began. In the second half, the industry weakened and we ended up getting no growth in replacement ... and a 7 percent decline in automotive demand. That's how significantly different the year turned out."
All of those factors caused investors to react negatively toward Goodyear's stock, Healy said.
Goodyear also wiped out its former unfunded obligations to its health and pension plans, Wells said. That means the company won't be saddled with those costs in the current downturn, but also created much of the $5 billion in debt, he explained.
Going forward, Goodyear hopes that some of its recent strategic moves will pay off, Wells said. That includes going after and winning placement on new vehicle platforms, especially SUVs and light trucks, whose owners have proven more likely to stick with their vehicle's original brand of tires when seeking replacements later.
"While this decline has been like 9 million units (tires sold) over the course of four years, between now and 2022 we have an increase of 7 million units based on fitments we've already won," said Wells. "We knew there would be this dip as we transitioned. Unfortunately, it happened at a time when global OE production was declining, but there was really no way of knowing that would happen."
Healy said he applauds the company's strategy in terms of going after new vehicle platforms that both he and Wells said will bring in higher margins than some of the business Goodyear has ceded.
"I don't think the Goodyear situation is a dire one. I think their stock gets pushed around because it's a proxy for how people feel about a lot of different things," Healy said.
Now, of course, Goodyear and other companies are confronted by a whole new challenge in the form of a pandemic. It's too soon to say how long that will last or how deep its impact will be. Goodyear has announced it's halting production in China, Europe and the U.S., but has not yet said how the situation will impact its earnings.