Stock Picks: GT Down, PG Up

Consumer products maker Procter & Gamble (PG) upped its forecast for the rest of the year, sending shares up as much as 4% in midmorning trading.

Because the company cut share count over the year, its earnings of $1.06 a share actually represented a 1% drop from profit of $1.03 a share a year ago, but that was well ahead of Street estimates of 99 cents a share.

A successful wave of promotions and price cuts from maker of Crest toothpaste, Tide detergent and Pantene shampoo, prompted it to boost its full-year forecast for organic sales growth by 1 percentage point. A turnaround is in the works, said Chief Financial Officer Jon Moeller, but it is far from finished. "We are very pleased with this progress but acknowledge there is more work ahead of us," Moeller said on a Thursday conference call. "We will continue to accelerate productivity, drive simplification and manage cost and cash with discipline in order to support plans to profitably grow value share by serving more consumers in more parts of the world more completely."

A Zacks Equity Research report Thursday cited successful product launches, supported by marketing initiatives, as a factor in its 2% organic sales growth for the quarter. Gross margin for the quarter expanded 287 basis points to 52.6%, versus 49.7% in the year-ago quarter.

Deutsche Bank analyst Bill Schmitz said there was reason to be optimistic going forward. "As the company heads into a period of easing comparisons, lower input costs and favorable currency, funds are building to reinvest in growth and strategy has shifted from cash preservation to share gains, which should resonate with investors," he wrote Thursday.

Bottom Line: Buy
If the recession is truly ending and consumers once again begin spending, Procter & Gamble will see improved growth that translates into increasingly stronger earnings.

Goodyear Tires (GT) shares kept skidding for a second day Thursday, following a weakened outlook for the end of the year. Shares were down 8.8% in midday trading.

On Wednesday, the tire maker reported third-quarter earnings of 45 cents a share, up from 13 cents a share a year ago. That also beat the average Wall Street analyst estimate of 40 cents a share. However, after the company said that commercial truck tire sales were set to decline sharply in the current quarter, the stock took a steep plunge, dropping as much as 22%.

"In North America we expect Q4 segment operating income to be down approximately $75 [million] to $125 million compared with Q3 -- reflecting the impact with seasonal trends on unit sales and reduced activity from our other tire related businesses," Chief Financial Officer Darren Wells said on a Wednesday conference call. "Again, Q4 is essentially in line with our plans in 2009."

Analysts weren't surprised by the numbers, but said Goodyear was at a weak point in the cycle for its products, both domestically and overseas. CreditSights analyst Hitin Anand said the consumer market was especially limp, so that despite a relatively good financial structure, "the real pain is being inflicted by a troubled consumer sector that is hammering aftermarket volumes while at the same time crushing original equipment manufacturing production schedules."

Rod Lache, an analyst at Deutsche Bank, wrote Thursday that long-term prospects for Goodyear were still healthy, despite the beating the auto manufacturing sector has taken throughout the recession."Our investment thesis remains that Goodyear will have tremendous earnings leverage if and when its North America business unit returns to profitability," he wrote.

Bottom Line: Buy
There's been some overselling here, and when the long period of fishtailing ends, these shares could get some traction, though it's a long road to real recovery.