Goldman Sachs Comments On Goodyear Tire & Rubber Co. Following Earnings Release

Goodyear's

1Q11 results came in significantly above Goldman Sachs' expectations and the street's, driven largely by a $361mn tailwind from pricing and mix which came above its $278mn estimate. The increase is impressive because it exceeds the $300mn per quarter run rate that had typically been the most the market was able to absorb in past periods of high inflation. With favorable mix trends and the benefit of successive price increases in June, October, March, and May, Goldman thinks the company can sustain YoY price increases above the $300mn range per quarter for the balance of 2011. 2H11 profitability is likely to be more challenging for two reasons: Goldman expects tire volume growth to slow as 1Q11 benefited from a pull forward of sales as dealers scrambled to purchase tires ahead of large price hikes, and while natural rubber prices have begun to moderate, 2H margins are likely to see a stepped-up impact from peak raw mats cycling through cogs on a lagged basis due to GT's FIFO accounting system. Goldman Sachs has a $20 PT and Neutral rating on GT GT is trading lower at $17.89