8/18/2019 University of Texas - Austin: Short Goodyear Tire
1/108
11
The Goodyear Tire & RubberCo. (GT)SELL/SHORT, TP $17.78 (!".87#)
Reear%h TeaAnurag BansalAustin PartridgeHans Uy
Sunny Pamidimukkala
8/18/2019 University of Texas - Austin: Short Goodyear Tire
2/108
22
TableofCo'e'
COMPAN TH!S"S #A$UAT"ON %"S&S CONC$US"ON
8/18/2019 University of Texas - Austin: Short Goodyear Tire
3/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
$atin Ameri,a
Com-any O.er.ie/
0
One of the largest manufacturers of tires in the world
Nort Ameri,a
AsiaPa,i3,
!uro-e4 Middle !ast4and Afri,a
'56
1*6
126
016
%e.enue Breakdo/n
8/18/2019 University of Texas - Austin: Short Goodyear Tire
4/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Per,entage of "n-uts
'
01
6
27
6
Based on ,rude-ri,es
1'
6
Based on,rude -ri,es
25
6
NaturalRubber
Based onrubber
,ommodity-ri,es
A business heavily dependent on raw material prices
Other Carbon Black SyntheticRubber
Steel4Cemi,als4
8abri,
8/18/2019 University of Texas - Austin: Short Goodyear Tire
5/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
*
9
1*
19
2*
29
0*
09
'*
Sto,k Pri,e History
9
8/18/2019 University of Texas - Austin: Short Goodyear Tire
6/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Bullis Market #ie/
+
149**(*
14+**(*
145**(*
147**(*
14)**(*
24***(*
241**(*
242**(*
240**(*
24'**(*
19(**6
15(**6
1)(**6
21(**6
20(**6
29(**6
25(**6
!B"T:A ;ross Margins
18.7# ia/Pa%i*%
+'i Sae -'%reae
$.0T2 Pro3e%ed EPS
.s( 2*19A !PS of
8/18/2019 University of Texas - Austin: Short Goodyear Tire
7/108'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"n.estment Tesis
5
Shi5i'6 %o'uer re5ere'%eand i'e'e ia' %oeiio' a.eled to ,om-any=/ide ,ontra,tions
1
Poor %ah ao%aio' and oery
oiii%ear'i'6 targets -ro.ide negati.e,atalysts tatset te sto,k u- for disa--ointment
0
+'uai'abe 6ro ar6i' due to all=time lo/s in in-ut -ri,es a.e ,o.ered u-a6'a' ree'ue
2
8/18/2019 University of Texas - Austin: Short Goodyear Tire
8/108'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Poor "ndustry Positioning
7
eavier O!" focus places #oodyear in the more stagnantsector
Oter%e-la,ement Tires
O!M Tires 71(560('6
1'()6
"ndustry Breakdo/n
> +)('6
> 0*(+6
$arger Portion of
Market ;ro/t
Pri,e "n,reasingly"m-ortant
8/18/2019 University of Texas - Austin: Short Goodyear Tire
9/108'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Sifting Consumer Trends
)
94# 71#Baby Boomers ?
Pre=Boomers
$ikeliood of s/it,ing brands /en re-la,ingtires
;eneration @ ?
6% "arketconsumption sharegrowth rate
53% $ercent ofconsumption
Brand loyalty no longer locks in customers
8/18/2019 University of Texas - Austin: Short Goodyear Tire
10/108'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Market Sare :e,line
1*
2*1* 2*11 2*12 2*10 2*1' 2*1919(*6
1+(*6
15(*6
17(*6
1)(*6
2*(*6
21(*6
;oodyear US Market Sare
#oodyear%s growth has signi&cantly underperformed theindustry
2*12 2*10 2*1' 2*19
=12(**6
=1*(**6
=7(**6
=+(**6
='(**6
=2(**6
*(**6
;T .s US "ndustry %e.enue ;ro/t
;oodyear "ndustry
8/18/2019 University of Texas - Austin: Short Goodyear Tire
11/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
8/18/2019 University of Texas - Austin: Short Goodyear Tire
12/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
O-erational "ne,ien,y
12
Competitors far outpace #oodyear%s margins and pro&tability
22(**6
2'(**6
2+(**6
27(**6
0*(**6
02(**60'(**6
0+(**6
07(**6
'*(**6
$TM ;ross Margin
;ross Margin:isad.antage:14#
8/18/2019 University of Texas - Austin: Short Goodyear Tire
13/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"n-ut Pri,es
10
(he company has signi&cant e)posure to commodity pricing
Natural %ubber
Crude :eri.ed
9#of total CO;S
9***(**699**(**6+***(**6+9**(**6
5***(**659**(**67***(**679**(**6)***(**6)9**(**6
NaturalSynteti, Pri,e %atio
Tire manufa,turersare bene3tting far more
from lo/er natural rubber -ri,es
tan synteti,
8/18/2019 University of Texas - Austin: Short Goodyear Tire
14/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Natural %ubber Produ,ers
1'
Tailand4 Malaysia4 and
"ndonesia form te "nternational Tri-artite %ubber OrganiDation
Combined /it #ietnam4 tey
-rodu,e 7*6of te /orldEs rubber
Higer
Trans-ort Costs
Higer
Storage Costs
Higer
$abor Costs
$o/er MarginstanCom-etitors
Rubber is incredibly concentrated in S! Asia
8/18/2019 University of Texas - Austin: Short Goodyear Tire
15/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%ubber Pri,es
19
1**
19*
2**
29*
0**
09*
'**
'9*
9**
99* "T%O #ietnam a.ede,ided to ,ut-rodu,tion by +194***tons o.er te neFt siF
monts
"n.entories /ill beginto dro- lo/ le.els
"2 To'
Analysts a.e-redi,ted sar-
-ri,e in,reases attis le.el
G P - e r k g
Catalysts for price increases are already playing out
Natural %ubber 0 ITOCOMJ Pri,ing
8/18/2019 University of Texas - Austin: Short Goodyear Tire
16/108'()(2*1
C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%ubber "n.entories
1+
K' L10 K1 L1' K2 L1' K0 L1' K' L1' K1 L19 K2 L19 K0 L19 K' L19 K1 L1+ K2 L1+ K0 L1+ K' L1+ K1 L151***
19**
2***
29**
0***
09**
'***
'9**
Natural %ubber Synteti, %ubber Proe,ted N% Proe,ted S%
T 1 o u s a n d s o f m e t r
i , t o n n e s
Histori,al "n.entories Proe,ted "n.entories
*eclining rubber reserves point to drastically higher prices
8/18/2019 University of Texas - Austin: Short Goodyear Tire
17/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
;ross Margin "m-a,t
15
+ow inventories Supply Shock #oodyear "argin *ecline
oss of Market Sare %e.enue :e,line in
+S & E2E
:e,rease in -rodu,tion in.entories leads to
in,reasing'aura rubberri%e
2ar6i'Core
io'
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!19(**6
15(**6
1)(**6
21(**6
20(**6
29(**6
25(**6
;ross Margin Proe,tions
8/18/2019 University of Texas - Austin: Short Goodyear Tire
18/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Current Portion of $T:ebt
eak Balan,e Seet
17
Accelerated debt maturation due to re&nancing inhibits short'term growth
Te in,rease in long term debt and ,a-ital leases due /itin one year/as due -rimarily to te 29* million +(596 senior notes due 2*1)
being ,lassi3ed as ,urrent at :e,ember 014 2*19 in ,onne,tion /it te
irreo%abe %a 5or heir redeio' in Ganuary 2*1+
2*12 2*10 2*1' 2*19*
1**
2**
0**
'**
9**
+**
5**
< m i l l i o n s
= ;oodyear 2*19 1*&
!Quity %esear, Calls
Hea.y :ebt%e3nan,ing
Hi6her ST ;ebReaye'
8/18/2019 University of Texas - Austin: Short Goodyear Tire
19/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
eak Balan,e Seet
1)
nsustainable leverage will bring further li-uidity issues
Ee' a5er a 'e $1< redu%io' i' deb a year=
R;oodyear still as te hi6he ;/E raio in te industry by far
K1 2*1' K2 2*1' K0 2*1' K' 2*1' K1 2*19 K2 2*19 K0 2*19 K' 2*19*(*6
9*(*6
1**(*6
19*(*6
2**(*6
29*(*6
0**(*6
:! %atios
;oodyear Coo-er Mi,elin Bridgestone Sumitomo
f d d i i bili
8/18/2019 University of Texas - Austin: Short Goodyear Tire
20/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Unfunded Pension $iability
2*
$ast obligations continue to hamper the company
2013;e%eber 1
2014ri 4
2015;e%eber 1
$1.10
8/18/2019 University of Texas - Austin: Short Goodyear Tire
21/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Poor Cas Allo,ation
21
2*10 2*1' 2*191***
19**
2***
29**
0***
09**
Cas and Cas !Qui.alents
< m i l l i o n s
8/18/2019 University of Texas - Austin: Short Goodyear Tire
22/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"nated !F-e,tations
22
2*1* 2*11 2*12 2*10 2*1' 2*19 2*1+
8/18/2019 University of Texas - Austin: Short Goodyear Tire
23/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Coa'y aeShare
Pri%e
2arAe Ca EB Traii'6 P/E or@ard P/E P/
8/18/2019 University of Texas - Austin: Short Goodyear Tire
24/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
2'
:is,ounted Cas 8lo/ AnalysisI< in millions4 8is,al ear ends :e,ember 01J
Hiori%a Pro3e%ed
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!
Ree'ue2*))2(* 1)9'*(* 17107(* 1+''0(* 19+5+(' 19222(5 19*99(1 1')70(9 19*05(5
6 ;ro/t'/0123 '40563 '10783 '90//3 '20613 '505:3 ':0963 :07/3
$ess CO;S151'2(* 19052(* 107))(* 1219+(* 115)9(' 11)1'(5 11)7)(7 12*+'(+ 12129(9
CO;S 6 of %e.enue650//3 460/43 4/0/73 470173 480293 460243 410/93 6:0823 6:0/73
Gro Pro*
079*(* '1+7(* '20)(* '275(* 0771(* 00*7(* 0*+9(0 2)17() 2)12(2 6 Margin
560793 250773 270743 2/0:43 2904/3 250473 2:07/3 510963 510743
$ess S;?A2*01(* 2*0+(* 1)77(* 1)91(* 1)*+(0 1770(* 1)25(* 1)''() 1)9+('
S;?A 6 of %e.enue 10/63 5:0923 5:01/3 550643 5205/3 520743 5206:3 520163 570:53
" t i i # l ti
8/18/2019 University of Texas - Austin: Short Goodyear Tire
25/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
29
Hiori%a Pro3e%ed
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!
E
8/18/2019 University of Texas - Austin: Short Goodyear Tire
26/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
2+
Terminal #alue
8/18/2019 University of Texas - Austin: Short Goodyear Tire
27/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
BaseBullBear Cases
25
8/18/2019 University of Texas - Austin: Short Goodyear Tire
28/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%isks and Mitigants
27
Brand image as a igQuality tire
manufa,turer is toolo,ked in
Cost of o-erational,anges is far too
-roibiti.e
Still ,anEt ,om-eteagainst Asian tire
manufa,turersE lo/er,osts
%ubber -rodu,inga,reage as been
slased due too.ersu--lyW ,ouldnEtin,rease -rodu,tion
e.en if tey /anted to
To- ' rubber -rodu,ing,ountries signed anagreement to not
eliminate tese Quotas
Management is,ommitted to redu,ing
debt
!F,essi.e le.erageraises ,ost of debtW
defeats te -ur-ose of
re3nan,ing
Out of
8/18/2019 University of Texas - Austin: Short Goodyear Tire
29/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Negati.e Catalysts
2)
#oodyear faces many obstacles that should send the stocktumbling
* ' 7 12 1+
Continued re.enue de,line due to intense ,om-etition and market
sare loss
Margin ,om-ression from in-ut -ri,e re,o.ery redu,es earnings and,as o/
14F 14
or earnings disa--ointmentsW ,anEt meet o.erly o-timisti, ,onsensus NTM !PS
Analyst do/ngrades4 maorsello
Monts Sin,e "n.estment
14F 14F 14F
T di C id ti
8/18/2019 University of Texas - Austin: Short Goodyear Tire
30/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Trading Considerations
0*
;nvestment recommendation is a very feasible short position
"n.estment HoriDon
8loat
Sort 6 of 8loat
Borro/ %ate
:ays to Co.er
Monitor to Maintain !Fit Strategy
8 > 19 2o'h
.9#
9.!#
4."0# (4.4# ;i Iied)
!.8
8/18/2019 University of Texas - Austin: Short Goodyear Tire
31/108
'()(2*101
The Goodyear Tire & RubberCo. (GT)SELL/SHORT, TP $17.78 (!".87#)
PPE;-D
A--endi Contents
8/18/2019 University of Texas - Austin: Short Goodyear Tire
32/108
'()(2*102
A--endiF Contents52(%e.enue Proe,tions IBaseJ50(%e.enue Proe,tions IBullJ5'(%e.enue Proe,tions IBearJ59(CO;S Proe,tions IBaseJ5+(CO;S Proe,tions IBullJ55(CO;S Proe,tions IBearJ57(:e-re,iation S,edule5)(AmortiDation S,edule
7*(orking Ca-ital Assum-tions71(Cange in NC Cal,ulations72(Beta Cal,ulation70("n,ome Statement7'(Balan,e Seet79(Cas 8lo/ Statement IO-sJ
7+(Cas 8lo/ Statement I"n.?8inJ75(:ebt Outstanding77(Pro-erties7)(%e.enue Breakdo/n)*(To- Sareolders)1(Sort "nterest
)2(Sifting Consumer Trends)0(Com-arati.e Pri,ing)'(Cina To- Tiremakers)9(Cina Tire Produ,tion 8ore,ast)+(US Tire Trade Balan,e)5("m-orts by Country)7(US Tire "ndustry Breakdo/n))(Tire $o,ations Sour,es
1**(%ubber Si-ments1*1(%ubber Pri,ing1*2(Natural %ubber Produ,tion1*0(Synteti, %ubber Produ,tion1*'(Tire Materials Per,entage1*9(Unfunded Pension 2*10
1*+(Unfunded Pension 2*1'1*5(Unfunded Pension 2*191*7(Sare %e-ur,ases
8/18/2019 University of Texas - Austin: Short Goodyear Tire
33/108
'()(2*100
The Goodyear Tire & RubberCo. (GT)SELL/SHORT, TP $17.78 (!".87#)
Reear%h TeaAnurag BansalAustin PartridgeHans UySunny Pamidimukkala
8/18/2019 University of Texas - Austin: Short Goodyear Tire
34/108
'()(2*1
Table
ofCo'e'
COMPAN TH!S"S #A$UAT"ON %"S&S CONC$US"ON
Com-any O.er.ie/
8/18/2019 University of Texas - Austin: Short Goodyear Tire
35/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
$atin Ameri,a
Com-any O.er.ie/
09
One of the largest manufacturers of tires in the world
Nort Ameri,a
AsiaPa,i3,
!uro-e4 Middle !ast4and Afri,a
'56
1*6
126
016
%e.enue Breakdo/n
Per,entage of "n-uts
8/18/2019 University of Texas - Austin: Short Goodyear Tire
36/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Per,entage of "n-uts
0+
01
6
27
6
Based on ,rude-ri,es
1'
6
Based on,rude -ri,es
25
6NaturalRubber
Based on
rubber,ommodity
-ri,es
A business heavily dependent on raw material prices
Other Carbon Black SyntheticRubber
Steel4Cemi,als48abri,
Sto,k Pri,e History
8/18/2019 University of Texas - Austin: Short Goodyear Tire
37/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
*
9
1*
19
2*
29
0*
09
'*
Sto,k Pri,e History
05
Bullis Market #ie/
8/18/2019 University of Texas - Austin: Short Goodyear Tire
38/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Bullis Market #ie/
07
149**(*
14+**(*
145**(*
147**(*
14)**(*
24***(*
241**(*
242**(*
240**(*
24'**(*
19(**6
15(**6
1)(**6
21(**6
20(**6
29(**6
25(**6
!B"T:A ;ross Margins
18.7# ia/Pa%i*%
+'i Sae -'%reae
$.0T2 Pro3e%ed EPS
.s( 2*19A !PS of
8/18/2019 University of Texas - Austin: Short Goodyear Tire
39/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"n.estment Tesis
0)
Shi5i'6 %o'uer re5ere'%eand i'e'e ia' %oeiio' a.eled to ,om-any=/ide ,ontra,tions
1
Poor %ah ao%aio' and oery
oiii%ear'i'6 targets -ro.ide negati.e,atalysts tatset te sto,k u- for disa--ointment
0
+'uai'abe 6ro ar6i' due to all=time lo/s in in-ut -ri,es a.e ,o.ered u-a6'a' ree'ue
2
Poor "ndustry Positioning
8/18/2019 University of Texas - Austin: Short Goodyear Tire
40/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Poor "ndustry Positioning
'*
eavier O!" focus places #oodyear in the more stagnantsector
Oter%e-la,ement Tires
O!M Tires 71(560('6
1'()6
"ndustry Breakdo/n
> +)('6
> 0*(+6
$arger Portion ofMarket ;ro/t
Pri,e "n,reasingly"m-ortant
Sifting Consumer Trends
8/18/2019 University of Texas - Austin: Short Goodyear Tire
41/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Sifting Consumer Trends
'1
94# 71#Baby Boomers ?
Pre=Boomers
$ikeliood of s/it,ing brands /en re-la,ingtires
;eneration @ ?
6%"arket
consumption sharegrowth rate
53% $ercent ofconsumption
Brand loyalty no longer locks in customers
Market Sare :e,line
8/18/2019 University of Texas - Austin: Short Goodyear Tire
42/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Market Sare :e,line
'2
2*1* 2*11 2*12 2*10 2*1' 2*1919(*6
1+(*6
15(*6
17(*6
1)(*6
2*(*6
21(*6
;oodyear US Market Sare
#oodyear%s growth has signi&cantly underperformed theindustry
2*12 2*10 2*1' 2*19
=12(**6
=1*(**6
=7(**6
=+(**6
='(**6
=2(**6
*(**6
;T .s US "ndustry %e.enue ;ro/t
;oodyear "ndustry
Pri,e Points
8/18/2019 University of Texas - Austin: Short Goodyear Tire
43/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
8/18/2019 University of Texas - Austin: Short Goodyear Tire
44/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
O-erational "ne,ien,y
''
Competitors far outpace #oodyear%s margins and pro&tability
22(**6
2'(**6
2+(**6
27(**6
0*(**6
02(**6
0'(**6
0+(**6
07(**6
'*(**6
$TM ;ross Margin
;ross Margin:isad.antage
:14#
"n-ut Pri,es
8/18/2019 University of Texas - Austin: Short Goodyear Tire
45/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"n-ut Pri,es
'9
(he company has signi&cant e)posure to commodity pricing
Natural %ubber
Crude :eri.ed
9#of total CO;S
9***(**699**(**6+***(**6+9**(**6
5***(**659**(**67***(**679**(**6)***(**6)9**(**6
NaturalSynteti, Pri,e %atio
Tire manufa,turersare bene3tting far more
from lo/er natural rubber -ri,estan synteti,
Natural %ubber Produ,ers
8/18/2019 University of Texas - Austin: Short Goodyear Tire
46/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Natural %ubber Produ,ers
'+
Tailand4 Malaysia4 and
"ndonesia form te "nternational Tri-artite %ubber OrganiDation
Combined /it #ietnam4 tey
-rodu,e 7*6of te /orldEs rubber
Higer
Trans-ort Costs
Higer
Storage Costs
Higer
$abor Costs
$o/er Margins
tanCom-etitors
Rubber is incredibly concentrated in S! Asia
Manufa,turing Ca-a,ity
8/18/2019 University of Texas - Austin: Short Goodyear Tire
47/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Manufa,turing Ca-a,ity
'5
;oodyear X1)Mi,elin X 1'Continental =11
;oodyear X+
Mi,elin X 2Continental =9
;oodyear X )Mi,elin X 05
Continental =1'
;oodyear X +Mi,elin X 5Continental =
1*
#oodyear faces higher transportation costs due to plant positioning
Manufa,turing Ca-a,ity
8/18/2019 University of Texas - Austin: Short Goodyear Tire
48/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Manufa,turing Ca-a,ity
'7
okoama X 0Hankook X 1Bridgestone X
'*Sumitomo = 2
okoama X *Hankook X *
Bridgestone X1+Sumitomo = 2
okoama X 1Hankook X 1Bridgestone X
19Sumitomo = 5
okoama X 15Hankook X +Bridgestone X)+
Sumitomo = 1'
Asian competitors bene&t from geographical factors
%ubber Pri,es
8/18/2019 University of Texas - Austin: Short Goodyear Tire
49/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%ubber Pri,es
')
1**
19*
2**
29*
0**
09*
'**
'9*
9**
99*
"T%O #ietnam a.ede,ided to ,ut
-rodu,tion by +194***tons o.er te neFt siF
monts
"n.entories /ill beginto dro- lo/ le.els
"2 To'
Analysts a.e-redi,ted sar-
-ri,e in,reases attis le.el
G P - e r k
g
Catalysts for price increases are already playing out
Natural %ubber 0 ITOCOMJ Pri,ing
%ubber "n.entories
8/18/2019 University of Texas - Austin: Short Goodyear Tire
50/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%ubber "n.entories
9*
K' L10 K1 L1' K2 L1' K0 L1' K' L1' K1 L19 K2 L19 K0 L19 K' L19 K1 L1+ K2 L1+ K0 L1+ K' L1+ K1 L151***
19**
2***
29**
0***
09**
'***
'9**
Natural %ubber Synteti, %ubber Proe,ted N% Proe,ted S%
T 1 o u s a n d s o f m e t r i , t o n n e s
Histori,al "n.entories Proe,ted "n.entories
*eclining rubber reserves point to drastically higher prices
;ross Margin "m-a,t
8/18/2019 University of Texas - Austin: Short Goodyear Tire
51/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
;ross Margin "m-a,t
91
+ow inventories Supply Shock #oodyear "argin *ecline
oss of Market Sare %e.enue :e,line in
+S & E2E
:e,rease in -rodu,tion in.entories leads to
in,reasing'aura rubberri%e
2ar6i'Core
io'
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!19(**6
15(**6
1)(**6
21(**6
20(**6
29(**6
25(**6
;ross Margin Proe,tions
eak Balan,e Seet
8/18/2019 University of Texas - Austin: Short Goodyear Tire
52/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Current Portion of $T:ebt
eak Balan,e Seet
92
Accelerated debt maturation due to re&nancing inhibits short'term growth
Te in,rease in long term debt and ,a-ital leases due /itin one year
/as due -rimarily to te 29* million +(596 senior notes due 2*1)being ,lassi3ed as ,urrent at :e,ember 014 2*19 in ,onne,tion /it te
irreo%abe %a 5or heir redeio' in Ganuary 2*1+
2*12 2*10 2*1' 2*19*
1**
2**
0**
'**
9**
+**
5**
< m i l l i o n s
= ;oodyear 2*19 1*&
!Quity %esear, Calls
Hea.y :ebt%e3nan,ing
Hi6her ST ;ebReaye'
8/18/2019 University of Texas - Austin: Short Goodyear Tire
53/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
eak Balan,e Seet
90
nsustainable leverage will bring further li-uidity issues
Ee' a5er a 'e $1< redu%io' i' deb a year=
R;oodyear still as te hi6he ;/E raio in te industry by far
K1 2*1' K2 2*1' K0 2*1' K' 2*1' K1 2*19 K2 2*19 K0 2*19 K' 2*19*(*6
9*(*6
1**(*6
19*(*6
2**(*6
29*(*6
0**(*6
:! %atios
;oodyear Coo-er Mi,elin Bridgestone Sumitomo
Unfunded Pension $iability
8/18/2019 University of Texas - Austin: Short Goodyear Tire
54/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Unfunded Pension $iability
9'
$ast obligations continue to hamper the company
2013;e%eber 1
2014ri 4
2015;e%eber 1
$1.10
8/18/2019 University of Texas - Austin: Short Goodyear Tire
55/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Poor Cas Allo,ation
99
2*10 2*1' 2*191***
19**
2***
29**
0***
09**
Cas and Cas !Qui.alents
< m i l
l i o n s
8/18/2019 University of Texas - Austin: Short Goodyear Tire
56/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"nated !F-e,tations
9+
2*1* 2*11 2*12 2*10 2*1' 2*19 2*1+
8/18/2019 University of Texas - Austin: Short Goodyear Tire
57/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
Coa'y aeSharePri%e
2arAe Ca EB Traii'6 P/E or@ard P/E P/
8/18/2019 University of Texas - Austin: Short Goodyear Tire
58/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
97
:is,ounted Cas 8lo/ AnalysisI< in millions4 8is,al ear ends :e,ember 01J
Hiori%a Pro3e%ed
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!
Ree'ue2*))2(* 1)9'*(* 17107(* 1+''0(* 19+5+(' 19222(5 19*99(1 1')70(9 19*05(5
6 ;ro/t'/0123 '40563 '10783 '90//3 '20613 '505:3 ':0963 :07/3
$ess CO;S151'2(* 19052(* 107))(* 1219+(* 115)9(' 11)1'(5 11)7)(7 12*+'(+ 12129(9
CO;S 6 of %e.enue650//3 460/43 4/0/73 470173 480293 460243 410/93 6:0823 6:0/73
Gro Pro*079*(* '1+7(* '20)(* '275(* 0771(* 00*7(* 0*+9(0 2)17() 2)12(2
6 Margin560793 250773 270743 2/0:43 2904/3 250473 2:07/3 510963 510743
$ess S;?A2*01(* 2*0+(* 1)77(* 1)91(* 1)*+(0 1770(* 1)25(* 1)''() 1)9+('
S;?A 6 of %e.enue 10/63 5:0923 5:01/3 550643 5205/3 520743 5206:3 520163 570:53
"ntrinsi, #aluation
8/18/2019 University of Texas - Austin: Short Goodyear Tire
59/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
9)
Hiori%a Pro3e%ed
2*12 2*10 2*1' 2*19 2*1+! 2*15! 2*17! 2*1)! 2*2*!
E
8/18/2019 University of Texas - Austin: Short Goodyear Tire
60/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
"ntrinsi, #aluation
+*
Terminal #alue
8/18/2019 University of Texas - Austin: Short Goodyear Tire
61/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
BaseBullBear Cases
+1
8/18/2019 University of Texas - Austin: Short Goodyear Tire
62/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
BaseBullBear Assum-tions
+2
Bear Base Bull
MarketSare
Natural%ubber
CrudeOil
Hea.y $osses
Pri,e "n,reases
Pri,e "n,reases
Marginal $osses
Pri,e "n,reases
Pri,e Stable
Stable
Pri,e :e,reases
Pri,e :e,reases
%isks ? Mitigants
8/18/2019 University of Texas - Austin: Short Goodyear Tire
63/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%isks ? Mitigants
+0
$O COST MA%&!T P!N!T%AT"ON
dyear ,ould sift more to/ards te -ri,e=sensiti.e re-la,ement marke
HOEBER
Brand image as a high qali!y tire manufa,turer is too lo,ked i
"o#!# asso,iated /it #hi!ing rod&! line /ould be .ery ig
Still ,anEt ,om-ete against low'&o#! (#ian !ire mana&!rer
%isks ? Mitigants
8/18/2019 University of Texas - Austin: Short Goodyear Tire
64/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
%isks ? Mitigants
+'
%UBB!% P%O:UCT"ON $"M"TS
y rubber -rodu,ers ,ould eliminate establised -rodu,tion Quotas
HOEBER
)bber rod&ing a&reage as been #la#hed due to o.ersu--l
8armers &oldn*! in&rea#e rod&!ion e.en if tey /anted t
' -rodu,ing ,ountries #igned an agreemen! to u-old tese Quotas
%isks ? Mitigants
8/18/2019 University of Texas - Austin: Short Goodyear Tire
65/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
s s ? ga s
+9
A::"T"ONA$ :!BT "N8US"ON
nagement ,ould fund obligations /it a maor in,rease in le.erage
HOEBER
Management is &ommi!!ed !o red&ing de
essi.e le.erage rai#e# &o#! o deb! W defeats te -ur-ose of re3nan,in
Out of
8/18/2019 University of Texas - Austin: Short Goodyear Tire
66/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
g
++
Any -otential u-side is sim-ly too little tore.erse te maor obsta,les fa,ing
;oodyear
Key Takeaway
Con,lusion
8/18/2019 University of Texas - Austin: Short Goodyear Tire
67/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N+5
Poor industry -ositioning
Pronoun,ed market sare deterioration
"ntense ,om-etition under,uts -ri,e -oints
%ising in-ut -ri,es in te near future
!F,essi.e le.erage
Unfunded -ension liability
Aggressi.e and im-rudent sare re-ur,ase -rogram
A multitude of red
8/18/2019 University of Texas - Austin: Short Goodyear Tire
68/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
g y
+7
#oodyear faces many obstacles that should send the stocktumbling
* ' 7 12 1+
Continued re.enue de,line due to intense ,om-etition and market
sare loss
Margin ,om-ression from in-ut -ri,e re,o.ery redu,es earnings and,as o/
14F 14
or earnings disa--ointmentsW ,anEt meet o.erly o-timisti, ,onsensus NTM !PS
Analyst do/ngrades4 maorsello
Monts Sin,e "n.estment
14F 14F 14F
Trading Considerations
8/18/2019 University of Texas - Austin: Short Goodyear Tire
69/108
'()(2*1C O M P A N T H ! S " S # A $ U A T " O N % " S & S C O N C $ U S " O N
g
+)
;nvestment recommendation is a very feasible short position
"n.estment HoriDon
8loat
Sort 6 of 8loat
Borro/ %ate
:ays to Co.er
Monitor to Maintain !Fit Strategy
8 > 19 2o'h
.9#
9.!#
4."0# (4.4# ;i Iied)
!.8
8/18/2019 University of Texas - Austin: Short Goodyear Tire
70/108
'()(2*1*
The Goodyear Tire & RubberCo. (GT)SELL/SHORT, TP $17.78 (!".87#)
PPE;-D
A--endiF Contents
8/18/2019 University of Texas - Austin: Short Goodyear Tire
71/108
'()(2*151
--52(%e.enue Proe,tions IBaseJ50(%e.enue Proe,tions IBullJ5'(%e.enue Proe,tions IBearJ
59(CO;S Proe,tions IBaseJ5+(CO;S Proe,tions IBullJ55(CO;S Proe,tions IBearJ57(:e-re,iation S,edule5)(AmortiDation S,edule7*(orking Ca-ital Assum-tions
71(Cange in NC Cal,ulations72(Beta Cal,ulation70("n,ome Statement7'(Balan,e Seet79(Cas 8lo/ Statement IO-sJ7+(Cas 8lo/ Statement I"n.?8inJ75(:ebt Outstanding77(Pro-erties7)(%e.enue Breakdo/n)*(To- Sareolders)1(Sort "nterest
)2(Sifting Consumer Trends)0(Com-arati.e Pri,ing)'(Cina To- Tiremakers
)9(Cina Tire Produ,tion 8ore,ast)+(US Tire Trade Balan,e)5("m-orts by Country)7(US Tire "ndustry Breakdo/n))(Tire $o,ations Sour,es1**(%ubber Si-ments
1*1(%ubber Pri,ing1*2(Natural %ubber Produ,tion1*0(Synteti, %ubber Produ,tion1*'(Tire Materials Per,entage1*9(Unfunded Pension 2*101*+(Unfunded Pension 2*1'1*5(Unfunded Pension 2*191*7(Sare %e-ur,ases
%e.enue Proe,tions IBaseJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
72/108
'()(2*152
I J
%e.enue Proe,tions IBullJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
73/108
'()(2*150
%e.enue Proe,tions IBearJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
74/108
'()(2*15'
CO;S Proe,tions IBaseJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
75/108
'()(2*159
CO;S Proe,tions IBullJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
76/108
'()(2*15+
CO;S Proe,tions IBearJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
77/108
'()(2*155
:e-re,iation S,edule
8/18/2019 University of Texas - Austin: Short Goodyear Tire
78/108
'()(2*157
AmortiDation S,edule
8/18/2019 University of Texas - Austin: Short Goodyear Tire
79/108
'()(2*15)
orking Ca-ital Assum-tions
8/18/2019 University of Texas - Austin: Short Goodyear Tire
80/108
'()(2*17*
Cange in NC Cal,ulations
8/18/2019 University of Texas - Austin: Short Goodyear Tire
81/108
'()(2*171
Beta Cal,ulation
8/18/2019 University of Texas - Austin: Short Goodyear Tire
82/108
'()(2*172
"n,ome Statement
8/18/2019 University of Texas - Austin: Short Goodyear Tire
83/108
'()(2*170
Balan,e Seet
8/18/2019 University of Texas - Austin: Short Goodyear Tire
84/108
'()(2*17'
Cas 8lo/ Statement IO-sJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
85/108
'()(2*179
I"n.?8inJ
8/18/2019 University of Texas - Austin: Short Goodyear Tire
86/108
'()(2*17+
I"n.?8inJ
:ebt Outstanding
8/18/2019 University of Texas - Austin: Short Goodyear Tire
87/108
'()(2*175
Pro-erties
8/18/2019 University of Texas - Austin: Short Goodyear Tire
88/108
'()(2*177
%e.enue Breakdo/n
8/18/2019 University of Texas - Austin: Short Goodyear Tire
89/108
'()(2*17)
of tires
To- Sareolders
8/18/2019 University of Texas - Austin: Short Goodyear Tire
90/108
'()(2*1)*
Sort "nterest
8/18/2019 University of Texas - Austin: Short Goodyear Tire
91/108
'()(2*1)1
Sifting Consumer Trends
8/18/2019 University of Texas - Austin: Short Goodyear Tire
92/108
'()(2*1)2
Com-arati.e Pri,ing
8/18/2019 University of Texas - Austin: Short Goodyear Tire
93/108
'()(2*1)0
Cina To- Tiremakers
8/18/2019 University of Texas - Austin: Short Goodyear Tire
94/108
'()(2*1
8ore,ast
8/18/2019 University of Texas - Austin: Short Goodyear Tire
95/108
'()(2*1
8ore,ast
US Tire Trade Balan,e
8/18/2019 University of Texas - Austin: Short Goodyear Tire
96/108
'()(2*1
"m-orts by Country
8/18/2019 University of Texas - Austin: Short Goodyear Tire
97/108
'()(2*1
US Tire "ndustry Breakdo/n
8/18/2019 University of Texas - Austin: Short Goodyear Tire
98/108
'()(2*1
Tire $o,ations Sour,es
8/18/2019 University of Texas - Austin: Short Goodyear Tire
99/108
'()(2*1))
Continental =tt-///(,ontinental=
,or-oration(,om///-ortalY,omYentemes,ontinental,ontinentalYglobal
Mi,elin =tt-///(mi,elin(,omengmi,elin=grou-organiDationfa,ilities
I,ontinentJ)95ma-=an,or
Bridgestone =tt-///(bridgestone(,om,or-oratelo,ations
Sumitomo =tt-///(srigrou-(,o(-englis,or-orategrou-indeF(tml
okoama =tt-global(yokoamatire(net,or-orateo.erseasmanufa,turingfa,ilities(tml
%ubber Si-ments
8/18/2019 University of Texas - Austin: Short Goodyear Tire
100/108
'()(2*11**
tt-///(bloomberg(,omne/sarti,les2*1+=*0=*5rubber=enters=bull=market=as=to-=eF-orters=redu,e=
si-ments
%ubber Pri,ing
8/18/2019 University of Texas - Austin: Short Goodyear Tire
101/108
'()(2*11*1
tt-///(rubberstudy(,omdo,umentsebSite:ataY8eb2*1+(-df
Natural %ubber Produ,tion
8/18/2019 University of Texas - Austin: Short Goodyear Tire
102/108
'()(2*11*2
Synteti, %ubber Produ,tion
8/18/2019 University of Texas - Austin: Short Goodyear Tire
103/108
'()(2*11*0
Tire Materials Per,entage
8/18/2019 University of Texas - Austin: Short Goodyear Tire
104/108
'()(2*11*'
tt-infoouse(-2ri,(orgref111*9*'tmlintrotire(tm
Unfunded Pension 2*10
8/18/2019 University of Texas - Austin: Short Goodyear Tire
105/108
'()(2*11*9
tt-///(bene3ts-ro(,om2*10*70*goodyear=/ill=freeDe=-ension=on,e=its=fully=funded
Unfunded Pension 2*1'
8/18/2019 University of Texas - Austin: Short Goodyear Tire
106/108
'()(2*11*+
tt-///(-ionline(,omarti,le2*1'*210ON$"N!1'*21))29goodyear=freeDes=us=ourly=-ension=-lans=.ul,aniDes=db=-lans=/it=119=billion
Unfunded Pension 2*19
8/18/2019 University of Texas - Austin: Short Goodyear Tire
107/108
'()(2*11*5
8rom 1*&
Sare %e-ur,ases
8/18/2019 University of Texas - Austin: Short Goodyear Tire
108/108
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