Goodyear Tire’s stock suffers worst day since Black Monday after disappointing FCF outlook

Shares of Goodyear Tire & Rubber Co. pulled a sharp U-turn to sink deep into negative territory Friday, after the tire maker followed a strong earnings report with a disappointing full-year outlook for free cash flow.

The stock initially jumped in premarket trading after the company
GT,
-27.44%
reported a fourth-quarter profit that rose well above expectations. It peaked with a gain of as much as 7.5% about 10 minutes before the open bell, then the bottom fell out.

Chief Financial Officer Darren Wells said about 28 minutes into the post-earnings conference call with analysts, which was scheduled to kick off at 9 a.m. Eastern, that the company was “targeting 2022 free cash flow around breakeven.” That compares with 2021 cash flow from operating activities of $1.06 billion.

Wells said the FCF guidance takes into account increases in raw material costs, and inflation in wage, benefit, transportation and energy costs, “at levels beyond what we could offset with efficiency,” according to a FactSet transcript.

The stock plunged 27.4% in very active afternoon trading to a five-month low. That marked the biggest one-day percentage drop since the record 28.6% tumble on Oct. 19, 1987, a day known as “Black Monday,” because of the Dow Jones Industrial Average’s
DJIA,
-1.43%
record 22.6% drop that day.

Trading volume ballooned to more than 56.7 million shares, or nearly 10 times the full-day average over the past 30 days, according to FactSet.

FactSet, MarketWatch

When analyst Emmanuel Rosner at Deutsche Bank asked about the “lower than expected” FCF guidance, the stock was down roughly 11%. CFO Wells answered by saying the outlook started with the fact that the company was able to deliver a stronger than expected balance sheet in 2021, but that didn’t much support for the stock.

When the acquisition of Cooper Tire & Rubber Co. was announced in February…

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