BRDCY Bridgestone Corp (PK)

Goodyear Tire & Rubber Co. (GT) recently completed the earlier-announced redemption of senior notes worth $350 million due 2016. The redemption will reduce the company’s annualized interest expense, thereby adding approximately $40 million to savings, out of which about $23 million is expected to be realized in 2011.

Goodyear Tire exercised its right to redeem senior notes following the successful closure of its mandatory convertible preferred stock offering in March. In the process, 10 million shares of the mandatory convertible preferred stock were issued at a price of $50 per share.

Accordingly, net proceeds of almost $484 million were realized, after excluding the underwriting discounts, commissions and offering expenses. The company used a part of the net proceeds to redeem $350 million in principal amount of its outstanding senior notes due May 15, 2016.

With this redemption, the company intends to reduce its expenses in order to strengthen its financial results in the upcoming quarters. Goodyear Tire reported a strong first quarter with record sales and significant improvements in profit. Each of its business segments contributed significantly to the quarter’s results.

The company’s sales in the quarter were $5.4 billion, up 27% from $4.3 billion in the 2010 quarter, driven by higher unit volumes, strong price and mix, improvements in other tire-related businesses combined with favorable impacts of foreign currency translation. Net income improved significantly to $103 million or 42 cents per share from a net loss of $47 million or 19 cents per share in the prior-year quarter.

Goodyear Tire expects further improvements in the quarterly results going forward given the robust global tire industry outlook. However, raw material costs can emerge as a major threat to the company, partly mitigating improvements in demand and sales. The company expects raw material costs to increase 25% to 30% for the remaining quarters of 2011, much higher than the year ago levels.

In addition, increasing competition from Cooper Tire and Rubber Co. (CTB) and Bridgestone Corp. (BRDCY) may also result in some market share loss for Goodyear Tire. However, being one of the leading tire producers in the world, the company has a strong brand image that can be levered to extend its reach throughout the globe, mainly in the emerging markets which have been identified with huge long-term .potential.

Therefore, the company holds a Zacks #2 Rank, implying a short-term Buy rating.

Bridgestone (PK) (USOTC:BRDCY)
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