Q1 2021 Goodyear Tire & Rubber Co Earnings Call

April 30, 2021

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And I think that's still your conference day, please break sorry zero.

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Good morning, My name is and Nikki and I will be your conference operator today.

At this time I would like to welcome everyone to Goodyear first quarter 2021 earnings call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star one on your telephone keypad.

If you would like to withdraw your question press the pound key.

I will now hand, the program over to Nick Mitchell Senior Director Investor Relations.

Thank you Becky and thank you everyone for joining us from Goodyear's first quarter, 2020, one and an earnings call I'm joined here today by Rich Kramer, Chairman and Chief Executive Officer, Darren Wells Executive Vice President and Chief Financial Officer, and Christina and Tomorrow, Vice President Finance and Treasurer, the supporting slide presentation for today's call.

Can be found on our website at Investor day at Goodyear and Dot Com and a replay of this call will be available later today replay instructions were included in our earnings release issued earlier this morning.

And now draw your attention to the Safe Harbor statement on slide two I would like to remind participants on today's call that our presentation includes some forward looking statements about goodyear's future performance actual results could differ materially from those suggested by our comments today and most significant factors that could affect future results are outlined and goodyear's filings with the SEC.

C C and then their earnings release, the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise our financial results are presented on a GAAP basis and in some cases and non-GAAP basis, and non-GAAP financial measures discussed and the call are reconciled and.

U S GAAP equivalents as part of the appendix to the slide presentation and with that I will turn and I will now turn the call over to rich.

Thank you Nick and good morning, everyone. Thanks for joining us today.

The results we reported earlier today show that we're building on the momentum we established in the second half of last year, we delivered.

Segment operating income of $226 million for the quarter up $273 million from the previous year.

Well, we expect it to surpass last year's results given the level of disruption from the pandemic. Our segment operating income was nearly 20% higher than first quarter 2019, even though industry demand is not yet fully recovered.

Our consumer replacement business delivered strong results despite the ongoing impact of the pandemic by.

By leveraging improved distribution and new products, we significantly outperformed the industry and the U S Europe, and China and the only segment, we continued benefiting from our OE pipeline, which again resulted and share gains.

We generated the share gains, while capturing more value for our products, allowing us to continue recovering raw material cost inflation and finally, we continued to see improved manufacturing efficiency and reduce structural costs and the U S and Europe.

These results reflect the commitment of our associates to position the company and the best possible way for recovery.

As we look across our markets, we see healthy demand trends, we're encouraged by the momentum that we're seeing and consumer and placement where demand has nearly returned to pre pandemic levels and done so much faster than we anticipated.

Conditions are particularly strong and the U S, where sellout demand exceeded 2019 March levels.

Vehicle miles traveled are improving and manufacturers and dealers need to replenish inventories, which were cautiously manage to low levels during the pandemic.

These signals coupled with data from other industries and a robust second half global GDP forecast indicate and emerging consumer led recovery and strong market conditions ahead.

These dynamics are also favorable for new vehicle sales.

As you know OE production has been affected by part shortages and the first quarter, particularly the tight supply of semiconductors.

This is a situation we expect to persist for Goodyear to the extent OE production remains constrained we have the opportunity to redirect our capacity to much needed premium replacement tires.

Equally so as OE production improves alongside sustained replacement demand the industry supply demand dynamic will likely remain constructive.

While perhaps a different stages. These market trends are evident and each of RSP use.

And the Americas are volume increased 7% driven by strong growth and replacement, particularly in the U S.

U S consumer replacement volume grew 17% far outpacing the industry.

And especially pleased with the performance in the premium high margin segments, where we grew significantly more than the market, which itself was up double digits.

Making it easier for customers and consumers to choose Goodyear is also resonating and nowhere is this more evident and our e-commerce and mobile installation businesses, both of which contributed to the strong volume performance higher traffic and improved conversion rates and Goodyear Dot com are fueling strong.

And that growth with our e-commerce volume up more than 25% and the first quarter.

The popularity of our mobile installation business continues to benefit from excellent customer satisfaction scores and greater market coverage.

Dynamics contributed to triple digit volume growth during the quarter and impressive performance even for a business. That's in the early growth phase.

With strong momentum and these new customer facing challenges with traffic to Walmart's auto care centers, improving and with our other distribution channels from channels performing well, we expect to continue recovering share and the coming quarters.

Our U S. Commercial replacement business also continued to set the standard volume growth once again exceeded the industry rate with units increasing 13% during the quarter on top of solid growth last year and a two year basis, our volume is up nearly 20%.

A remarkable performance.

And a rising cost environment fleets continue to find great value and our mobility tools and fuel efficient products, such as the fuel Max LH D to our product and demonstrates our commitment to helping our customers achieve their sustainability goals.

And Brazil demand for replacement tires is recovering faster than anticipated during the quarter, our combined replacement volume and the country was up slightly despite a recent resurgence of COVID-19.

Our consumer OE volume decreased 6%, reflecting lower industry demand with vehicle production adversely impacted by supply chain challenges.

Despite the decline in shipments our relative performance remains strong as we outperformed the industry for the fifth consecutive quarter.

We're laying the foundation for growth beyond this year with the U S government developing strategies to accelerate the adoption of Evs, we have additional opportunities to differentiate ourselves as a technology leader.

Last year, we secured several several high volume EV fitments, including the Tesla model Y and Gm's, New all electric hummer strengthening our position as the tire maker of choice for EV manufacturers.

And 2021 Oems continue to turn to Goodyear for tires that can handle the added stress and increased vehicle weight regenerative braking and higher torque, while helping extend vehicle range through reduced rolling resistance, we must deliver on these requirements. While also addressing the level of road.

<unk> and the cabin through noise reduction technology.

Only one third of the Fitments, we were awarded during the quarter were for Evs and the momentum we have established will strengthen our leading OE position and the Americas as the automotive landscape evolves.

And EMEA, our volume increased 10% driven by India's replacement business, despite ongoing mobility restrictions.

And our consumer replacement business continues to benefit from the strategic changes, we made last year to restructure our distribution in Europe with.

With the transitional volume impact behind us, we outperformed the industry growing our total consumer replacement volume 11%.

During the first quarter, we performed exceptionally well and the all season and summer segments. The vector Fourseasons Gen III, the Eagle <unk> and asymmetric five and the efficient growth to SUV contributed to our solid share gains.

Each tire and was recently recognized by trade publications for its superior performance and its respective category further validating our industry leading technical capabilities.

In the us consumer OE volume increased 4% during the quarter also outpacing the industry.

In addition to the solid OE volume growth, we also continue and adding to our leading position and the EV segment anemia and <unk>.

Notable Fitments won included all of these high performance RF E Tron, GT and that's a great fit for us.

Turning to EMEA and commercial business, we continued adding to share gains we achieved over the past two years total commercial unit volume increased nearly 20% driven by growth and replacement. This outperformance continues to be driven by our rapidly expanding fleet business.

On our last call I mentioned that Ryder had recently selected Goodyear as its sole mobility partner in Europe with.

With a strong start the team is on pace to set a new customer conquests record in 2021 indicate indicating fleet see tremendous value and our total mobility solutions and our customer centric approach to product design.

Okay.

And Asia Pacific Consumer replacement volume increased 30% to more than 4 million units far surpassing the previous volume record for first quarter.

And we benefited from strong growth in China, and India, where we more than doubled our replacement units on a combined basis versus last year.

Turning to our consumer OE business, our volume increased 26%, reflecting a strong rebound and industry fundamentals and China, where demand is approaching 2019 levels.

Now before I move on I would like to congratulate our consumer OE team and Asia Pacific for earning S. AWP Volkswagen's Best supplier Award at a recent supplier conference.

This designation recognizes suppliers commitment to excellent product performance quality and reliable supply and outstanding collaboration.

Goodyear was the only tire supplier to receive this honor a testament to our industry, leading technical capabilities and our market back approach to product design and our commitment to working with customers to help them solve their toughest challenges.

These same attributes also helped us secure the fitment on the recently launched Volkswagen IV six cross the latest modular electric battery platform vehicle and VW groups lineup.

Year is proud to be the sole supplier on this EV platform since its inception.

Now even as markets recover and our business momentum gained strength, we continue to focus on our longer term competitive advantage with both the Cooper tire acquisition and new mobility.

<unk> from around the Cooper tire transaction continues to build as we develop our integration plans and prepared and welcome Cooper tire to the Goodyear family.

And excited about the potential of stronger combined portfolio of SUV and light truck fitments, given the importance and growth and these vehicles segments.

At the same time, we expect the combination will deliver significant financial benefits to shareholders through cost synergies as well as incremental growth and margin opportunities and the years ahead.

We're excited for this next chapter to begin.

Now beyond the easy wins and general trends, you've heard us referred to and.

Inflection point of future mobility is certainly well underway.

A world of connected electric share and autonomous vehicles is fast approaching and our progress continues with.

With and build our digital platform focused on vehicle readiness, we have expanded our platform vehicles serviced by sixfold since launching in early 2020, and we expect to continue to grow as shared mobility rebounds post pandemic.

The emerging need to service. These fleets is clear today and will only increase as the migration to Evs accelerates.

Our work on the intelligent and integrated tire and has expanded by adding new partners to advance our real time tire monitoring and integration with vehicle systems.

And that work and then continue the experience we gained with our partner fleet equipped with intelligent tires only increases our perspective that the tire itself as the ultimate sensor to improve the driving experience through anticipating and adjusting safety and performance and autonomous vehicles.

And finally, our focus on sustainable materials, and our products remains paramount to our future mobility vision with a goal of having a tire constructed entirely a sustainable materials by 2030.

Creating new revenue streams in and around our core tire business reflects our commitment to not only be a part of but driving the future of mobility with safety performance and reliability at its core.

This remarkable just how much has changed over the past year.

During the first quarter of 2020, we faced and emerging crisis of historic proportions as COVID-19, and brought the global economy, and the auto industry to a near standstill.

While COVID-19 remains a very real personal and economic challenge and some parts of the world today on balance we see a much brighter picture.

And many of our key markets vaccinations are increasing vehicle miles traveled are improving auto production is recovering and employers are hiring.

As we look ahead, we expect to sustain our underlying momentum to capitalize on opportunities and this new era fully recognizing that we will continue to see pockets of disruption and challenges and the months and quarters ahead.

And as the markets recover we're feeling a level of momentum, we havent felt and some time.

We have a strong lineup of products.

And following actions to further improve our distribution and our ability to reach customers has never been better.

Our fleet solutions offerings is unmatched in the market.

And the planned acquisition of Cooper tire will further strengthen our position creating increased opportunities to generate value in the years ahead.

Personally I continue to be very excited about our prospects moving forward.

Now I'm going to turn the call over to Darren.

Thanks Rich.

You can see from our results and from Richard remarks, with the first quarter reflected continued industry recovery and strong performance by our team.

Moving on market share cost efficiency and managing for cash.

Our consumer OE business continued its momentum building on share gains and the second half.

We continue to see 2021 is a year of share recovery for our OE business. After the anticipated decline we saw in 2019 and 2020.

Our replacement share improved sequentially as the impact of last year's customer store closures and the U S continued to improve and the impact of actions to address our distribution network and Europe begin to dissipate.

The unwind of these actions also help us improve mix with our 17 inch and greater rim diameter growth returning to above industry levels.

This mix along with price increases and delivered significant improvement and price mix ahead of the raw material cost increases, but will begin to impact us and Q3.

We also continued to see cost savings from rationalizations, and our manufacturing footprint, we delivered net cost savings of over $60 million from the quarter.

And while we saw seasonal growth and working capital we continued to see the benefits of improvements and our cash conversion cycle achieved over the last couple of years with Q1 cash usage below historical levels despite quarter to rebuild inventory.

Overall, it was a good quarter.

While we continue to face a high level of uncertainty we are encouraged by the trends and our end markets and our business as we move towards the middle of 2021.

Turning to slide 10, our first quarter sales were $3 5 billion.

Sales were up 15% from a COVID-19 effect in year ago period, and maybe more meaningful to compare to pre COVID-19 levels from 2019.

Q1 sales were down about 2% from 2019 in line with the results we saw in Q4.

Our unit volume was up 12% from last year, but remained 8% below 2019 levels. So theres still a ways to go before we see full recovery to pre COVID-19 volumes.

Our $226 million and segment operating income for the quarter on the other hand was up versus <unk> 2020 and versus 2019.

During the quarter, a severe winter storm and the us temporarily impacted production and our chemical plants and at three of our tire factories and also affected more than 170 of our retail locations, we estimate the disruption <unk>.

And just our segment operating income by about $17 million absent this impact our earnings growth would have been even more significant.

After adjusting for this and other significant items our earnings per share diluted basis were <unk> 43.

Up from a loss of <unk> 60, a year ago.

The step chart on slide 11 summarizes the change and segment operating income versus last year.

And slide 12 summarizes the change versus 2019.

Versus last year, the impact from higher volume was $67 million, reflecting an increase in unit sales of $3 7 million.

Non recurrence of period charges from a year ago resulted in a $51 million increasing overhead absorption.

And in the first quarter was up 4 million units compared to last year.

We get a larger portion of the benefit of this higher production and the period that we normally would given the immediate recognition of the impact of last year's shutdowns.

Price mix improved $64 million, while raw material costs declined $15 million compared to a year ago.

Note that we benefited to some degree from the from the three to six month lag as raw material costs move through our inventory.

Recent raw material price increases, we'll catch up some over the coming quarters.

Cost savings of $91 million more than offset $30 million of inflation.

Savings associated with the closure of Gadsden and the restructuring of two manufacturing facilities and Germany totaled $33 million.

Foreign currency translation negatively impacted our results by $4 million driven by weaker currencies in South America, primarily the Brazilian real.

The $19 million increase and the other category included and $11 million benefit from improved profitability and tire hub and.

And also benefited from the non recurrence and certain costs incurred during last year's suspension of production.

Turning to the balance sheet on slide 13, net debt totaled $4 9 billion, a decline of more than $650 million from prior year.

Slide 14 summarizes our cash flows during the quarter.

As anticipated, we used cash and our operating activities in Q1, given the seasonal working capital increases and efforts to rebuild inventory.

Turning to our segment results beginning on slide 15 unit volume and the Americas increased 7% from a year ago.

As rich mentioned replacement volume was up 11% driven by our consumer business to.

And the continued recovery of sales through Walmart's auto care centers and increased share and other channels.

<unk> and year over year share gains and reversing the trend experienced last year.

Our OE volume was down 6% as a result of lower industry demand, including the impact from supply chain challenges for auto parts, including semiconductors.

Segment operating income for Americas totaled $114 million compared to breakeven a year ago.

Excluding the impact of the severe winter storm.

<unk> segment operating income would have been up $31 million.

The benefits of our cost savings actions and improvements and price mix contributed to the earnings growth.

Savings associated with the closure of Gadsden with $20 million for the quarter.

Turning to slide 16, Europe, Middle East and Africa's unit sales totaled $12 $7 million and increase of 10% from a year ago.

Replacement volume increased 11% with increases in both consumer and commercial.

Our consumer OE business was up 4%, despite the drop and industry demand, reflecting the benefit of new platforms, and strong demand and light truck and SUV segments.

EMEA segment operating income of $74 million was up $127 million versus last year the.

The increase was driven by higher volume improvements and price mix and lower raw material costs.

And while we remain pleased with the higher earnings delivered by EMEA. During the last two quarters. We recognize that there are some unique factors involved.

These include a benefit of approximately $10 million related to customer programs and Q1 and.

And pricing ahead of upcoming raw material cost increases.

Pre pandemic earnings and margins are more reflective of our expectations going forward with improvements for restructuring actions and volume recovery building on that foundation as we head into next year.

Turning to slide 17, Asia Pacific Tire units totaled $6 8 million up 29% from the prior year.

Volume increased 26% and replacement increased 31% driven by strong growth in China and India.

Segment operating income was $38 million up 32 million from the prior year's quarter, reflecting the higher volumes.

Turning to our outlook items on slide 18, while markets and continued to recover from here through the first three months of the year, we still face a high level of uncertainty.

Additional COVID-19 related shutdowns impacted several of our key international markets in April which clouds, the volume outlook for Q2.

Despite this uncertainty our overall expectation is this second quarter volume will continue to move towards pre pandemic 2019 levels.

With a two year decline less than we saw in Q1.

We expect our production to remain and about 2019 levels, given our need to replenish inventory.

The segment operating income impact of higher production compared with last year will largely be realized in the quarter rather than the lag through inventory as we had to recognize the impact of last year's production cuts immediately given the severity.

We expect price mix to more than offset raw material costs as we benefit from recent pricing actions before feeling the full impact of rising raw materials and the second half.

Slide 19 summarizes several of our full year financial assumptions.

Based on current spot prices, we would expect our raw material costs increased $325 million to $375 million net of cost savings largely and the second half of the year.

This is an increase of approximately $200 million from the outlook, we provided on February 19th.

Our other financial assumptions remain essentially unchanged from February.

One last point I want to hit before we open up the call for questions.

While we continue to be very excited about the acquisition of Cooper, we don't have anything new to add to NAV beyond what we shared on February 20 <unk>.

The Cooper shareholder vote takes place today, and we continue to work on required regulatory approvals, we look forward to share more information with you on the Cooper acquisition. Once we complete these procedures.

Now, we'll open up the line for questions.

Thank you Jaime for your with lighthouse a question. Please press star and one on your Touchtone phone.

Draw your question and at any time.

Once again to ask a question. Please press the star and one that still following one moment and barbecue.

And we will take our first question from John Healy with Northcoast Research. Please go ahead.

Thank you Darren.

Good morning, Congrats on the on the progress.

First question. The first question I wanted to ask was.

So do we.

And maybe kind of put aside 2020, and really just look at your margin performance relative to 2019, and and kind of look at the growth rate that you saw.

Think about 20% and.

And so high growth.

Robert over 2019 levels.

Do you think thats, the right way to think about the business and the.

As you look at the remainder of the year any reasons to think that 20% improvement.

And maybe kind of continue and our raw materials are going to do some things and the second half but.

And also it seems like you've got some pricing recently at least in some regions. So just trying to think about how we should think about the pace of improvement for the next nine months compared to 19.

And so John I think you can probably tell from the fact that we included.

The walk chart, comparing first quarters of 2019 that that that is in fact, our mindset as.

As we tend to be benchmarking, what we're trying to achieve.

Thinking about how we're doing versus the pre pandemic levels.

Sort of looking through the 2020 results and thinking about what we're doing to build up from 2019. So I think the fact that our operating income is already above 2019 levels.

Feel like Thats, a very good sign and obviously, we went into that with at least one key part of our business Thats nowhere close which is the off highway segment of the business. So the aviation and off highway.

Tire businesses are still well below so that the things that we categorize our number and we categorize as other tire related.

And we really didn't get any recovery and the first quarter and those other tire related categories. So I think we're feeling very good about the fact that our segment operating income is up.

And I think partly.

Good because it demonstrates the cyclical recovery and price versus raw materials.

We think that that's obviously a big deal.

And it's showing the benefit of some of the structural cost saving actions that we've taken which I also think is a pretty big deal.

If we take those things and then think okay. We're already we're above 2019 levels of segment operating income and we still haven't got the benefit of the full volume recovery.

So we're still 8% down on volume so as we see and.

And obviously, we see some very good volume trends and we're expecting that that volume recovery to occur. So we're going to get we should get continued growth as volumes continue to recover.

We should start to get some of the $150 million that we lost last year and that other tire related business category.

And obviously things like the winter storm here, we're not going to expect to get hit with that again so.

So I think all of those are very positive.

And we're also seeing and the first quarter a recovery in our performance on 17 inch and above relative to the industry.

Which means some of the mix that we lost during 2020, we're also recovery.

So I think we got we had a number of things there.

And we're very good and the first quarter and number of additional items that should allow us to continue to build going forward.

Yes, I think that the.

A question about the second habits and good one.

I think the.

And it's yes, I think we continue to see a lot of these factors benefiting us and the second half. So I think theres number of things, we still feel good about we do recognize that the.

The significant question is going to be the price mix versus raw materials question and the second half.

Given we're going to have.

Most of the $325 million to $375 million.

Raw material cost increase happening and the second half.

Effectively.

And what that is.

What they are.

Results and.

Something like a 15% increase and raw material cost for the second half.

And.

And I'm doing that 15% against 2019 as well because the.

The amount of materials that we bought in 2020 wasn't a normal level and materials, but but to get the to offset that 15% or so raw material cost increase and the second half.

Generally, it's going to take us pricing and the neighborhood of 5%.

And we don't have all of that pricing in place yet.

But we've made pretty significant pretty.

Pretty significant progress on pricing and the first half and so I think we've got the.

We've got some momentum there and we've got a supply demand situation that is certainly better than it was in 2019 and.

I think as rich mentioned in his comments we've got.

Sell out.

And the industry getting back to 2019 levels at least and the U S and we've got industry inventories channel inventories that are well below where they were in 2019.

I think the setup is pretty good.

And certainly I think we're feeling good and the U S and we realized that.

And that the pricing, we've announced to date isn't sufficient to get us through the second half.

Probably what we've announced so far it gets us a little more than halfway there.

But we've got some time to work with we've got some pretty good momentum and we've got some good industry.

Dynamics.

That.

It should support us as we work our way towards the second half.

Understood.

And then just a question.

And kind of on supply chains and logistics and other.

And there's been a couple of industry kind of news stories and the last two or three weeks about just maybe from beginning levels of scarcity of natural rubber.

And maybe drawing some parallels to natural rubber shortages and marrying that of semiconductors.

Potentially and and I'm not sure if that is.

Exaggerated or or reality, so was kind of curious to get your perspective on that and then secondly, and I think it's really easy to think that the manufacturers are producing autos at the same clip that they were they wouldnt be sourcing product from you guys at the same level, but is that in essence, how they're responding to this or are they looking at certain aspects of <unk>.

Their supply chain, and saying Hey, we can't let we can't let raw materials, such as natural rubber do what semiconductors is doing so how is it like their true response.

Working with suppliers like yourself.

Yes, so so.

I'll start with the first one on natural rubber and the first thing I'll do frankly on all of the working through a lot of the supply.

Challenges, we had and the first quarter as you'll know we had the winter storm in and the Gulf Coast via the Suez Canal blockage and and.

And with the shortage of containers and all of that I, just want to tip my hat to our our teams our operations teams and procurement and and and our businesses who have really worked through these things just tremendously and the end result is it really hasnt caused us any issues in terms of our production and if I talk specifically to natural rubber.

And but we're certainly not experiencing any limitations that you might have read about and some of the stories that are out there.

And we're certainly aware and some of the issues on tight supply that came up last year as the industry started started ramping up which was sort of normal course, I would say, but again, we took a lot of proactive measures anticipating that to ensure we had the supply and to not make it and issue.

And I think recently, you've seen natural rubber prices returned back to sort of Q4 last year levels. After a spike and I would say that tends to be indicative and we've seen this really.

And my time over decades, and 15 years now we've seen these type of moves to be indicative more price volatility that really reflects speculation around natural rubber could be stockpiling could be doing those and other things as opposed to and underlying supply demand situation. So thats not something that were.

And that we're seeing or that we can't manage through right now it's not an issue that.

Thats taken up a great deal of our time and on the second question relative to the Oems.

And have obviously vary.

Productive and transparent discussions with the Oems on a regular basis and I would say that continues Stewart during this this period as well.

As you know we have to meet there just in time supply requirements and I'm proud to say that we do that with great regularity and I would expect.

As their volumes.

Sort of fluctuate right now with the semiconductor.

Situation, they will be back and and we will be ready to supply them per the relationships. We have with them. So I wouldn't say, we've seen any any dramatic difference and that again very constructive discussions I would also tell you and I'll just say as we look at this we see the demand.

I'll just jump in and John I'd say the demand for new cars as you know is very strong and.

And as well as for used cars. So the summary semiconductor shortage clearly is having a big impact on their business and consequently, our OE supply, having said that and the near term, yes, it'll impact our OE volumes, but we also see this as an opportunity to continue to supply the replacement market.

But where the demand is very strong.

And remember our OE tires are large rim diameter very good tire. So we got a lot of good capacity to support the market out there and the replacement growth that's out there.

As well as to rebuild inventory that we all manage very cautiously down during during COVID-19. So near term I think we're going to work our way through that very well and long term listen I think as we think about what Darren mentioned and I mentioned and some of my remarks, the supply demand equation is pretty good when you look at inventory.

<unk> levels and were sellout is as OE comes back.

And that replacement demand stays strong and I think that.

That puts forward, a pretty constructive supply demand equation and looking out to the future and again, we do think that.

Semiconductor situation will be solved and.

And I can't predict when but given all the attention and focus to it and I'm certain that it will be solved and maybe even sooner than we think.

Great. Thank you guys.

And we'll take our next question from Rod Lache with Wolfe Research. Please go ahead.

Good morning, everybody.

I'd like to first maybe just get a little bit more color on the market share outperformance and youre seeing and the western Europe.

I think in the U S. Obviously, a lot of factors behind it but maybe you can peel it back a little bit.

What's the extent of Mac, Walmart coming back and.

Are you also seeing with some of these stories about the west coast Port log jam happening playing a role.

Tariffs on Asian tires, and I would imagine are also playing a role and any thoughts on what it is that we're seeing here now and sustainability.

Yes.

And.

I think youre right to point out the situation of 2020 and I'll just start by saying, we're very pleased both in the U S and Europe with our share performance and the first quarter and again just to maybe reiterate what you said 2020 and both of our markets was really not reflective of our ongoing market strength through the market position, we had if I start and the.

We had the impact of Walmart and 2020, and Thats, where we sort of were disproportionately impacted by Walmart closing their auto care service centers during the pandemic.

That obviously hit our volumes last year now whats happening is those stores are open and I think they are all just about opened right now, but as traffic comes back their recovery really still tales. The overall tire industry return. So that's still impacting us as we as we think about where we are right now, but I will tell you a couple.

Things and the first is in 2020, you may recall given the situation that we had we took a lot of steps to gain share and to do that and channels and new and other channels, let's say than just our our big box channel with Walmart, we had great momentum, leaving 2020 with gaining share and alternative.

Live channels and that momentum continued into 2021, and I think thats, what you saw driving the share performance that we had and add to that.

The return.

The auto care centers being opened I think we're very confident that that traffic is going to return and that we're going to get back the share that we lost in 2020 and I would say the momentum is absolutely pointing in that direction. So feeling very good about that.

And then and Europe again.

A little bit of a unique situation that youll recall is that we initiated and aligned distribution initiative in 2020 and as part of that we expected to lose volume of about 1 million and a half units with COVID-19 coming in and that turned out to be about two and a half million units and I would tell you. The brunt of that probably was felt in Q3.

And the last year, but starting in Q4 and continuing this quarter, we started gaining momentum back and seeing the value of those programs working and it turned up and what we would.

Paul This is significant.

Share improvement in Q1. So these programs are working we're seeing it as we capture more of the value of our brands in the marketplace. As we look at how tires are being sold in Europe and a more.

Aligned wave and lets say an aligned way with tire is going in different directions, and and that's been very successful and we're on that path. We remain on that path and we continue to believe that this program has a margin improvement of about two to $4 per tire and two to four euros per tire I should say on our.

An hour.

Our and our consumer replacement business in Europe. So overall I would say, we're feeling pretty good about.

And about the direction of where our share is heading in Q1.

Okay and.

Maybe just a little bit more color on the drivers of that $91 million cost savings that you had and your bridge you said 33 million.

GAAP and <unk>.

Mostly GAAP and but also some contribution from the German plants.

And maybe you can give us a little bit of a sense of that and then.

If we add back the impact from the storms youre pretty close to 7% Soi margin already.

Are you gaining line of sight on.

An 8%.

To be happening.

Next year.

And so I think the.

Cost savings you brought I think.

You are right to point out.

And the structural cost savings, we have from the manufacturing footprint actions I.

And I think we've maintained some very tight cost controls coming out of the pandemic and obviously, we still got volumes that have not recovered to pre pandemic levels. So I think youre still seeing some of those benefits. Yes. I think there are some cost there that will likely return as we get back to the to the higher volume levels, but I think right.

Now we've continued to run at a very tight level.

Cost.

Cost efficiency.

And.

The.

The question about where were the margins get to.

And I won't go back through my my thinking versus 2019 levels, but obviously, we are above 2019 levels.

And in fact.

Our.

If you go back before 2019 levels.

First quarter of 2018, we were just over 7%.

And I think with the.

And with the factors that.

We talked our way through we're.

And we're heading back.

<unk>.

We could get you could add back the additional volumes.

So we fully recovered volumes.

Back to 2019 levels and.

And we got some recovery from the other tire related businesses and added back the storm impact which was your suggestion.

It wouldn't be hard to to do the math to put our.

You have to put our segment operating income above 2018 levels.

And that would be sort of and that 7% to 8% margin range.

Which is I think what you are trying to walk your way.

Walk your way too so I can do that math I can kind of I could see our way there.

And obviously that work is not done yet, but it's not too hard to.

To think about how we could move our way back beyond 2019 levels back toward.

Levels that were similar to 2018.

Okay, great. Thank you.

Okay.

And we'll take our next question from James Picariello with Keybanc capital. Please go ahead.

Hey, good morning, guys.

Hey, James just on.

And just on Goodyear strong volume outperformance are you sensing any share gain momentum yet from the tariff situation and U S or is that a potential catalyst later in the year, maybe at the company rebuild inventory.

Yes, I think James and I think right now were.

We're really struggling to keep up with demand and.

So.

When we are struggling to keep up with the rich.

The recovery and we haven't yet.

And been able to restore our inventories back to something more like normal levels and we've got channel inventories that are low as well. So we've got a lot of customers that are interested in trying to get their own inventories back in position and I think it's a little bit too early to think about.

A potential impact from from tariffs and I think in the and.

I think we've continued to see.

Tires imported.

Important tires coming into the U S. So I think the sell in and the second half of last year was very high.

And and there may be some.

Year over year difference this year, but.

In fact, I think generally U S tire makers are producing about as fast as they can right now.

And to fill the rest of consumer demand and I think there'll still be some imports coming in.

Becoming and with tariffs.

Right. Okay got it and then this was touched on already but as you think about the lean channel inventory situation and North America.

Thanks, Frank and sellout demand on the replacement side, and then overlay that with the semiconductor challenges affecting OE volumes.

This should this should actually be a positive development for Goodyear and the interest rate is youll have more capacity.

And then for your higher mix replacement channel yes.

Do you have any other any color or any thoughts on what that benefit could be from a mixed standpoint of OE volumes. There are in fact lower than prior expectations.

Yes, I think.

I'll start and we can talk about the mix impact going forward, but I'll, even file even saying that remember the capacity that's not being sold too to OE typically is larger and diameter very high and tire. So that's.

And that's tires that there are there is demand for the replacement market, but I think I think James if you take a step back on the channel inventories I think it's something to maybe share some perspectives on and I think as Darren said, we saw some modest destocking of our brands with our wholesalers and retailers, but maybe equally as interesting and.

And our third party distributors are aligned distributors, we saw that their inventories where we are.

Out 10% down versus Q1 of 2019.

And I think if you look at that I think that makes the point on where inventory levels are but I think if you add to that some other.

Some other points and thats around where sellout was and obviously we saw sellout.

So on and Q1 was Q1 and 2020 was pretty good but also as I mentioned in my remarks, sellout and March was about 7% above 2019, and I think that that just talks about where the demand trend is and then if you add to that the.

And the direction of where let's say vehicle miles traveled are going that was still down 12% in February but I think as we think about margin into the summer and I think it's I think it's reasonable to say that vehicle miles traveled will certainly head back in the direction of 2019 and.

And then you'd look at gas usage usage versus 2019, you'll see sort of sort of similar directional lines and I think all that and that's pretty good because now we're we're seeing lower inventory to support higher higher.

Growing sales, let's say a higher sales demand and we're also doing that as Darren said and environment, where manufacturers are trying to rebuild our inventories from where they were managed during COVID-19 as well. So those are pretty positive and then I think you've even take one one more step to think about a one more added.

Point would be that as we look at retail sell our prices from some of the.

And the indicators that you know very well I think there is evidence that retail retail.

Prices are rising as well so.

A pretty pretty good dynamic as you as you think about.

And the supply the supply demand dynamic that's out there and particularly relative to the.

The heavy to cover the raw materials, we see and the second half of the year.

Yes James.

The only thing I would add to that is yes, maybe just.

And I think to quantify a little bit the point youre trying to get to.

And so I guess and that is that.

How do we quantify the benefit of being able to fulfill replacement demand.

Tires that we would otherwise be sending to the automakers.

I guess I felt like that that was embedded in your question is that fair.

Yes, so if we.

And just using the <unk>.

Modeling assumptions that we use I mean, if we saw a 5% decline in and.

So we build.

Yes that would be something that would free up something like 450000 tires that we could then put in a replacement market.

And if we're assuming those are more 17 inch and above tires, which almost all of our OE tires. At this stage are then yes, there would be something like an extra.

And to $13 of margin on each of those 450000 tires and that would ultimately go into our mix and that would help our index.

So it's I.

And it's clearly.

A favorable effect.

And obviously helps out our customers as well, which we see as a real positive thing.

Happy to see how that plays out.

Yes.

Super helpful.

Just a quick one on tire hub.

And $1 million year over year improvement and the quarter.

Was there anything one time related or is that maybe a sustainable trajectory from here just thoughts on tire. Thanks.

So I think what we're what we're seeing there is what we expected with tire hub and that is as their volume builds up.

They'd be and are better positioned to cover their cost base, including the investments that we wanted them to make to to expand so.

There is.

Not really seeing anything of a one time nature. There we're just seeing a.

After having some losses on our equity and tire hub for the first couple of years after startup, we're starting to see them get.

Move back towards breakeven.

Thanks, guys.

Thank you.

And we'll take our next question from you May know rosner.

With Deutsche Bank. Please go ahead.

Hi, good morning.

And and.

First a couple of quick questions too.

And I understand better how you're thinking about second quarter outlook and.

And given a lot of helpful comments, but obviously the eurogroup comparison, Melissa and.

Little bit reported so would you expect the.

Change in the price mix versus raw materials to be of similar magnitude.

<unk> to what we just saw this quarter and then if I.

Think about it in terms of.

So I per unit or Soi margin, if you prefer.

Would you think about it.

And were lower than what we've seen in the first quarter and it's still.

And what would be the drivers of that.

So on the almond and focus on the drivers because we although we intentionally don't give specific guidance on these items, but.

Here is I think how you can think about that I think first of all second quarter volume.

I think we're looking at.

And we're expecting the volume decline versus 2019 to be less and we saw in Q1.

Now there is some seasonality.

And we've got some business units, whereas the second quarter is seasonally a lower volume quarter and that's certainly true in Europe.

Generally we're expecting just to keep closing in on Volte.

Volumes are for 2019, so if we're if we're comparing soi and I will think about how our soi in the second quarter is going to compare to 19, rather than 20, because <unk> was so disruptive.

We can say that volume.

And it's probably going to be less of a negative and the second quarter versus 19, and then it was in Q1.

If we think about.

The impact of price price versus raw materials.

I would say that the pricing that we have announced.

Is generally going to have the same kind of effect.

In Q2, the head and Q1 and in fact, we've got a price increase announced and the U S of up to 8% that's effective April one.

So that will mean, there is bigger pricing.

Impact or bigger pricing benefit and the us in Q2 and there was in Q1.

Which I think that's a positive as well so we got a little bit of positive from volume and will then positive on pricing raw material costs.

We've actually got in our appendices, we've got and raw materials slide that shows a couple of things and.

And as slide 23, I believe.

But two points here first of all and shows the $15 million.

The decline in raw material costs, we got in the first quarter.

But it also points out that we expect a modest increase.

And raw material costs and the first half.

And so what we would see and the second quarter and we'll call it modest but at least the second quarter and with more than make up for that $15 million.

Reduction and raws and the first quarter.

And then probably a bit more above that.

So we would have.

Modest increase and raw material costs, and the second quarter, resulting from that but we're going to have the increased pricing.

And from that April price increase to to help deal with that.

So I think you've got kind of a balanced view there of price and mix.

Obviously, we don't expect to have.

Yes.

And actually I'll say this we actually will continue to have some impact from the winter storm that carries over into the second quarter. Because we've got some production impact that is still hung up in inventory and we'll come out and are our.

Our cost of goods sold and the second quarter as well.

And then in terms of cost savings if im thinking about it versus 2019, we will this will be our fourth and final quarter of the benefit of the Gadsden closure.

We've been getting about $30 million a quarter benefit.

Versus 2019 from the closure against them and we'll get something similar to that and the second quarter as well.

Okay and I really appreciate all the detail that's very helpful. And then just.

Talking about a couple of <unk>.

<unk> talked about the U S. I think you mentioned that in the prepared remarks.

Can you just go over.

Sustainable growth here of your margin performance from your point of view and then what were the drivers.

Asia margin weakness and how do you think about that moving forward.

And.

So let me hit.

Asia Pacific margin, so I'll come back and make a couple of comments about Europe.

So I think that and.

And I'm going to I'm going to keep going making these comparisons to 2019.

And for the same reason.

But if I look at Asia Pacific margins and their margins in the first quarter were just under 8%.

And back in 2019, and the first quarter it was a little bit over 9%.

There was a decline of $38 million of Soi this year versus $47 million.

Back in 2019.

And I will say that most of that decline reflects some additional investments that we're making and marketing.

And in developing our distribution channel for future growth.

And so there is some element of that and there is also an outsized impact on Asia Pacific from our off highway businesses. So the the OTR business and our aviation business and we didn't get any recovery in those businesses and the first quarter.

Those are still.

And a significant factor there and not really improving.

They will improve and she's going to take a little bit of time. So if I take those two factors I think overall, we're pretty satisfied with the performance and Asia Pacific and Q1.

Yeah, our replacement business was a record volumes.

The distribution initiatives that we've got and China, and India are helping deliver on those results and.

And I think as we continue to deliver on those results.

And we get the recovery and the aviation and the off highway businesses, we're going to see our volumes and the consumer business grow into some of those investments that we're making so I think we feel good about the outlook going forward there as well.

If we.

So I'll finish my remarks on Asia there.

In the European business.

I think we've had a couple of quarters.

And I mentioned that in my prepared remarks, we have a couple of quarters, where we were earnings of $70 million or so of segment operating income and getting the margins that go with that.

Yes, I think right now we're feeling like that.

While we appreciate there was some very good performance to deliver those two quarters, but we're not yet at a point, where we've got Europe back to those level sustainably.

Yes, I think our sustainable level of earnings and Europe, probably closer to what we saw in 2019, where we were running about $50 million a quarter.

And I think as we look forward, we can take that $50 million and we know we're going to get benefit from restructuring. We know we're going to get benefit from the recovery and the rebuild of our OE portfolio and we know we're going to get the benefit of the actions, we're taking underlying distribution. So I think we still dealt with.

Feel like there is a path to get ourselves to the levels. We've seen in the last couple of quarters sustainably.

Yeah.

I think we're feeling we're not there yet.

And I think as we look into 2022 I think we're feeling like we're going to move ourselves there, but I do think that the yes.

And the last couple of quarters, we've had some some.

And some things that would help boost those results that arent yet at a sustainable level.

Okay.

Thank you for all the color.

And we'll take our next question from Brian Brinkman with Jpmorgan. Please go ahead alright.

Alright, thank and ranking my questions.

Some of the other companies, we cover including and the automotive aftermarket have cautioned recently around pending and higher labor costs as the economy reopens midst still elevated government unemployment benefits and I'm guessing you may be relatively protected from this given your longer dated union contracts for workers and near Assembly plants, but was curious if maybe youre seeing perhaps some.

The same and your company owned retail stores and then just looking beyond labor are you seeing anything notable with regard to any other non raw materials inflation, such as ocean freight and logistics et cetera, and how would you rate the coping mechanisms available for you to counteract the effect of non raws inflation I think we're used to talking about sort of price mix.

Versus raws, and then separately about cost savings versus general inflation, but.

Do you think you may have the ability to take price and the marketplace to help defray some of these other non raws cost too.

Yes.

And I'll start and Darren can jump in here as well I would tell you.

In terms of labor costs, I think are labor costs, I think labor costs in general have been on an upward trend. So that's not that's not necessarily a new.

New headwind for US I will tell you the headwinds that we we did experienced during the pandemic and again I'm going to I'm going to.

Tip my hat to the teams, particularly in North America for this is that we have a lot of.

A lot of people out with COVID-19 or a lot of people not coming to work because of COVID-19 and we saw retirements and things like this take place and we can all speculate as to the source of why those things are you mentioned a couple of them, but the fact of the matter was we had to hire train and put a lot of people to work and our factories and.

The U S to be able to meet the demands as we started to ramp and our factories back up and I would tell you that the teams did a tremendous job of doing that and doing it safely in line with our protocols and.

And we've done.

And we've done a fantastic job of getting the plants to continue to make the tires that we need to the market. They are running and running hard and and I would say that's going very well in terms of delivering the tires that we need and thats both on the consumer side and the commercial side, we haven't talked much about the truck business, but the truck business is very strong and.

And we need every time and we can get so so that is a.

That's something that we continue to focus on going forward on the retail side I do think that.

There is wage.

Pressure, there, but there always again, that's sort of and ongoing situation I think the team again is very well equipped to manage that and I think they are and.

I look at I look at that and look at the quality of the people that we're hiring based on some of the recognitions that we get and I think you saw not too long ago. Our retail stores were rated as some of the best experience that a consumer can have going to a retail store so I'd say.

And we're managing that very well and then the question on some of the supply disruptions.

Excuse me, we clearly had those I mean, I think you had a combination of demand really coming back faster than we anticipated.

And then you had the disruptions coming in and around as I mentioned earlier, the Gulf whether that shut down a lot of the Petro Chem facilities, there, including our own you had some of the Suez Canal issues you had the port issues, you had containers and all of these types of things, but again I will tell you.

And we don't see a significant risk to our production. We're working through that teams are doing a great job of our suppliers are in line and they have adequate inventory to meet our leads are needs excuse me, but what I will tell you is the end result of this is and I think Darren alluded to this a few times, we are seeing higher transportation cost that we have.

Two to manage and we're very well focused on that.

Okay.

Right.

If I take it back.

To the way we are.

I guess analyze our cost structure.

We are going through a period of time of rising inflation and 2019, we're starting to see $45 or $50 million, a quarter and inflation and a significant I mean, a lot of that was wage based inflation.

And over as a result of the pandemic and inflation effectively came way down and.

And this quarter, we had something like 30, we had $30 million of inflation, which is like one of the lowest inflation reads that we've had and the.

The last three years.

Do think that as we see.

Some of the factors that you are referencing.

Yes.

I would expect that that inflation number is going to start to creep back up towards where it was in 2019 now and.

And 2019, we were able to.

And maintain savings programs to offset that level of inflation, yes. So I think as we work our way back up to 2019 levels. So I think we remain comfortable.

To the extent and inflation goes beyond those levels, it's going to require more work on our part to keep offsetting.

Okay very helpful. Thanks, and then just lastly, and I realize that there will be in Tokyo, and non repeat of various austerity actions taken last year amidst the onset of the pandemic and so year over year cost savings could be minimal and maybe that continues into <unk>, but are you able to say if you were to like try to normalize for the temporary savings whether you. Thank you.

We have found more permanent savings as a result of those cost actions taken in response to lower volumes last year, such that you feel the more positively about normalized margin going forward I'm not sure if theres a way to quantify those residual savings or if you could maybe highlight where you expect to layer back and fewer costs and you took out whether that's primarily and manufacturer.

And our SG&A et cetera.

Yes, Brian.

Brian I think I think that there ultimately will be some I think for to keep it simple right now I would focus on the factory footprint savings and structural element that's different than it was in 2019.

I ultimately think there will be some areas that we will find some permanent savings and but not at a point and trying to quantify those right now and I know there are some costs that we are still running without that are likely to come back as we get all of our business activity back to those 2019 levels.

Yes.

And I don't want to mislead anyone because I think there are some costs that will come back the factory restructuring costs those are going to be permanent savings. The other area. It's the right question to ask and I think we.

It's going to be clearer to us as we get through the second and third quarter.

And what additional savings including in areas like <unk>.

We may have as more and the longer term effect.

Okay, great. Thanks for all the color.

Thank you.

This concludes our Q&A session and today's Goodyear first quarter 2021 earnings call.

Thank you all for your participation and you may disconnect at any time.

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Good morning, My name is and maybe and I will be your conference operator today.

At this time I would like to welcome everyone to Goodyear first quarter 2021 earnings call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

I would like to ask a question. During this time simply press star one on your telephone keypad.

If you would like to withdraw your question Brian.

I will now hand, the program over to Nick Mitchell Senior Director Investor Relations.

Thank you Becky and thank you everyone for joining us from Goodyear's first quarter, 2021, and and our earnings call I'm joined here today by Rich Kramer, Chairman and Chief Executive Officer, Darren Wells Executive Vice President and Chief Financial Officer, and Christina Tomorrow, Vice President Finance and Treasurer, the supporting slide presentation for today's call.

And can be found on our website at Investor day at Goodyear Dot Com and a replay of this call will be available later today replay instructions were included in our earnings release issued earlier. This morning as I can now draw your attention to the Safe Harbor statement on slide two I would like to remind participants on today's call that our presentation includes some forward looking statements about <unk>.

And speaking of performance actual results could differ materially from those suggested by our comments today and most significant factors that could affect future results are outlined and goodyear's filings with the SEC and in our earnings release, the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new <unk>.

Information future events or otherwise our financial results are presented on a GAAP basis and in some cases and non-GAAP basis. The non-GAAP financial measures discussed and the call are reconciled in the U S. GAAP equivalents as part of the appendix to the slide presentation, and and with that I will turn I will now turn the call over to rich.

Great. Thank you Nick and good morning, everyone. Thanks for joining us today.

The results we reported earlier today show that we are building on the momentum we established and the second half of last year.

We delivered segment operating income of $226 million for the quarter up $273 million from the previous year.

And we expected to surpass last year's results given the level of disruption from the pandemic. Our segment operating income was nearly 20% higher than first quarter 2019, even though industry demand is not yet fully recovered.

Our consumer replacement business delivered strong results despite the ongoing impact of the pandemic by.

By leveraging improved distribution and new products, we significantly outperformed the industry and the U S Europe, and China and the OE segment, we continued benefiting from our OE pipeline, which again resulted and share gains.

These results reflect the commitment of our associates to position the company and the best possible way for recovery.

As we look across our markets, we see healthy demand trends, we're encouraged by the momentum, we're seeing and consumer replacement, where demand has nearly returned to pre pandemic levels and done so much faster than we anticipated.

Conditions are particularly strong and the U S, where sellout demand exceeded 2019 March levels.

Vehicle miles traveled are improving and manufacturers and dealers need to replenish inventories, which were cautiously manage to low levels during the pandemic.

These sales coupled with data from other industries and a robust second half global GDP forecast indicate and emerging consumer led recovery and strong market conditions ahead.

Yeah.

These dynamics are also favorable for new vehicle sales as you know OE production has been affected by part shortages and the first quarter, particularly the tight supply and semiconductors.

This is a situation we expect to persist for Goodyear to the extent OE production remains constrained we have the opportunity to redirect our capacity to much needed premium and replacement tires.

Equally so as OE production improves alongside sustained replacement demand the industry supply demand dynamic will likely remain constructive.

While perhaps at different stages. These market trends are evident and each of RSP use.

And the Americas are volume increased 7% driven by strong growth and replacement, particularly in the U S.

U S consumer replacement volume grew 17% far outpacing the industry I'm, especially pleased with the performance and the premium high margin segments, where we grew significantly more than the market, which itself was up double digits.

Growth with our e-commerce volume up more than 25% and the first quarter.

The popularity of our mobile installation business continues to benefit from excellent customer satisfaction scores and greater market coverage.

These dynamics contributed to triple digit volume growth during the quarter and impressive performance even for a business. That's in the early growth phase.

<unk> performance.

And a rising cost environment fleets continue to find great value and our mobility tools and fuel efficient products, such as the fuel Max LHC to our product and demonstrates our commitment to helping our customers achieve their sustainability goals.

Our consumer OE volume decreased 6%, reflecting lower industry demand with vehicle production adversely impacted by supply chain challenges. Despite.

Despite the decline in shipments our relative performance remains strong as we outperformed the industry for the fifth consecutive quarter.

And.

<unk> technology.

And EMEA, our volume increased 10% driven by EMEA replacement business, despite ongoing mobility restrictions.

Our consumer replacement business continues to benefit from the strategic changes, we made last year to restructure our distribution in Europe.

With the transitional volume impact behind us, we outperformed the industry growing our total consumer replacement volume 11%.

During the first quarter, we performed exceptionally well and the all season and summer segments. The vector Fourseasons Gen III the Eagle F. One asymmetric five and the efficient growth to SUV contributed to our solid share gains.

And each tire and was recently recognized by trade publications for its superior performance and its respective category further validating our industry leading technical capabilities.

EMEA is consumer OE volume increased 4% during the quarter also outpacing the industry.

In addition to the solid OE volume growth. We also continued adding to our leading position and the EV segment and EMEA.

Notable shipments one included all of these high performance RF E Tron, GT, that's a great fit and for us.

On our last call I mentioned that rider and recently selected Goodyear as its sole mobility partner in Europe with a strong start the team is on pace to set a new customer conquests record in 2021 indicate indicating fleet see tremendous value and our total mobility solutions and our customer centric approach.

And to product design.

And Asia Pacific Consumer replacement volume increased 30% to more than 4 million units far surpassing the previous volume record for first quarter.

And benefited from strong growth in China, and India, where we more than doubled our replacement units on a combined basis versus last year.

Turning to our consumer OE business, our volume increased 26%, reflecting a strong rebound and industry fundamentals and China, where demand is approaching 2019 levels.

Now before I move on I would like to congratulate our consumer OE team and Asia Pacific for earning S. HW Volkswagen's Best supplier Award at a recent supplier conference.

This designation recognizes suppliers commitment to excellent product performance quality and reliable supply and outstanding collaboration.

Good year was the only tire supplier to receive this honor and a testament to our industry, leading technical capabilities and our market back approached and product design and our commitment to working with customers to help them solve their toughest challenges.

These same attributes also helped us secure the fitment on the recently launched Volkswagen IV six cross the latest modular electric battery platform vehicle and VW group's lineup.

Year is proud to be the sole supplier on this EV platform since its inception.

Now even as markets recover and our business momentum gained strength, we continue to focus on our longer term competitive advantage with both the Cooper tire acquisition and new mobility.

<unk> from around the Cooper tire transaction continues to build as we develop our integration plans and prepare to welcome Cooper tire to the Goodyear family.

The acquisition will allow us to increase our business and markets and segments that play to our strength and offer a more comprehensive portfolio of products and services to our customers and consumers and we're particularly excited about the potential of stronger combined portfolio of SUV and light truck fitments, given the importance and growth and these vehicles.

<unk>.

We're excited for this next chapter to begin.

Okay.

Now beyond the easy wins and general trends, you've heard us referred to and.

Inflection point of future mobility is certainly well underway.

A world of connected electric share and autonomous vehicles is fast approaching and our progress continues with.

With and Bill our digital platform focused on vehicle readiness, we have expanded our platform vehicles serviced by sixfold since launching in early 2020, and we expect to continue to grow as shared mobility rebounds post pandemic.

The emerging need to service. These fleets is clear today and will only increase as the migration to Evs accelerates.

Our work on the intelligent and integrated tire and has expanded by adding new partners to advance our real time tire monitoring and integration with vehicle systems.

And that work and the continued experience we gained with our partner fleet equipped with intelligent tires only increases our perspective that the tire itself as the ultimate sensor to improve the driving experience through anticipating and adjusting safety and performance and autonomous vehicles.

And finally, our focus on sustainable materials, and our products remains paramount to our future mobility vision with a goal of having a tire constructed entirely a sustainable materials by 2030.

This remarkable just how much has changed over the past year.

During the first quarter of 2020, we faced and emerging crisis of historic proportions as COVID-19, and brought the global economy, and the auto industry to a near standstill.

While COVID-19 remains a very real personal and economic challenge and some parts of the world today on balance we see a much brighter picture.

And many of our key markets vaccinations are increasing vehicle miles traveled are improving auto production is recovering and employers are hiring.

And as the markets recover we're feeling a level of momentum, we havent felt and some time.

We have a strong lineup of products.

Following actions to further improve our distribution and our ability to reach customers has never been better.

Our fleet solutions offerings is unmatched in the market and the planned acquisition of Cooper tire will further strengthen our position creating increased opportunities to generate value in the years ahead.

Personally I continue to be very excited about our prospects moving forward.

Now I'm going to turn the call over to Darren.

Thanks Rich.

You can see from our results and from Richard remarks, and the first quarter reflected continued industry recovery and strong performance by our team, including on market share cost efficiency and managing for cash.

Our consumer OE business continued its momentum building on share gains and the second half.

We continue to see 2021 is a year of share recovery for our OE business. After the anticipated decline we saw in 2019 and 2020.

Our replacement share improved sequentially as the impact from last year's customer store closures and the U S continued to improve and the impact of actions to address our distribution network and Europe begin to dissipate.

The unwind of these actions also help us improve mix with our 17 inch and greater rim diameter growth returning to above industry levels.

This mix along with price increases delivered significant improvement and price mix ahead of the raw material cost increases that will begin to impact us and Q3.

We also continued to see cost savings from rationalizations, and our manufacturing footprint, we delivered net cost savings of over $60 million from the quarter.

And while we saw seasonal growth and working capital we continue to see the benefits of improvements and our cash conversion cycle achieved over the last couple of years with Q1 cash usage below historical levels. Despite work to rebuild inventory.

Overall, it's a good quarter, while we continue to face a high level of uncertainty. We are encouraged by the trends are and markets and our business as we move towards the middle of 2021.

Turning to slide 10, our first quarter sales were $3 5 billion.

While sales were up 15% from a COVID-19 affected year ago period, and may be more meaningful to compared to pre COVID-19 levels from 2019.

Q1 sales were down about 2% from 2019 in line with the results we saw in Q4.

Our unit volume was up 12% from last year, but remained 8% below 2019 levels. So theres still a ways to go before we see full recovery to pre COVID-19 volumes.

Our $226 million and segment operating income for the quarter on the other hand was up versus <unk> 2020 and versus 2019.

During the quarter as severe winter storm and the us temporarily impacted production and our chemical plants and at three of our tire factories and also affected more than 170 of our retail locations.

We estimate the disruption reduced our segment operating income by about $17 million absent. This impact our earnings growth would have been even more significant.

After adjusting for this and other significant items our earnings per share on a diluted basis were <unk> 43.

From a loss of <unk> 60, a year ago.

The step chart on slide 11 summarizes the change and segment operating income versus last year.

And slide 12 summarizes the change versus 2019.

Versus last year, the impact from higher volume was $67 million, reflecting an increase in unit sales of $3 7 million.

Non recurrence of period charges from a year ago resulted in a $51 million increasing overhead absorption.

And in the first quarter was up 4 million units compared to last year.

We get a larger portion of the benefit of this higher production and the periods and we normally would given immediate recognition of the impact of last year's shutdowns.

Price mix improved $64 million, while raw material costs declined $15 million compared to a year ago.

Note that we benefited to some degree from the from the three to six month lag as raw material costs move through our inventory.

Recent raw material price increases, we'll catch up some over the coming quarters.

Cost savings from $91 million more than offset $30 million of inflation.

Savings associated with the closure of Gadsden and the restructuring of two manufacturing facilities and Germany totaled $33 million.

Foreign currency translation negatively impacted our results by $4 million driven by weaker currencies in South America, primarily the Brazilian real.

The $19 million increase and the other category included and $11 million benefit from improved profitability and tire hub and.

And also benefited from the non recurrence and certain costs incurred during last year's suspension of production.

Turning to the balance sheet on slide 13, net debt totaled $4 9 billion, a decline of more than $650 million from prior year.

Slide 14 summarizes our cash flows during the quarter.

As anticipated, we used cash and our operating activities in Q1, given the seasonal working capital increases and efforts to rebuild inventory.

Turning to our segment results beginning on slide 15 unit volume and the Americas increased 7% from a year ago.

As rich mentioned replacement volume was up 11% driven by our consumer business to.

And the continued recovery of sales through Walmart and auto care centers and increased share and other channels resulted in year over year share gains reversing the trend experienced last year.

Our OE volume was down 6% as a result of lower industry demand, including the impact from supply chain challenges for auto parts, including semiconductors.

Segment operating income for Americas totaled $114 million compared to breakeven a year ago.

Excluding the impact of the severe winter storm Americas segment operating income would have been up $31 million.

The benefits of our cost savings actions and improvements and price mix contributed to the earnings growth sales.

Savings associated with the closure of Gadsden with $21 million for the quarter.

Turning to slide 16, Europe, Middle East and Africa's unit sales totaled $12 7 million and increase of 10% from a year ago.

Replacement volume increased 11% with increases in both consumer and commercial.

Our consumer OE business was up 4%, despite the drop and industry demand, reflecting the benefit of new platforms, and strong demand and light truck and SUV segments.

EMEA segment operating income of $74 million was up $127 million versus last year. The increase was driven by higher volume improvements and price mix and lower raw material costs.

And while we remain pleased with the higher earnings delivered by <unk>. During the last two quarters, we recognize that there's some unique factors involved.

These include a benefit of approximately $10 million related to customer programs and Q1 and.

And pricing ahead of upcoming raw material cost increases.

Turning to slide 17, Asia Pacific's tire units totaled $6 8 million up 29% from the prior year OE.

<unk> volume increased 26% and replacement increased 31% driven by strong growth in China and India.

Segment operating income was $38 million up 32 million from the prior year's quarter, reflecting the higher volumes.

Turning to our outlook items on slide 18, while markets and continued to recover from here through the first three months of the year, we still takes a high level of uncertainty additional.

Additional COVID-19 related shutdowns impacted several of our key international markets in April which clouds, the volume outlook for Q2.

Despite this uncertainty our overall expectation is that second quarter volume will continue to move towards pre pandemic 2019 levels.

With a two year decline less than we saw in Q1.

We expect our production to remain and about 2019 levels, given our need to replenish inventory.

The segment operating income impact of higher production compared with last year, while it can largely be realized in the quarter rather than the lag through inventory as we had to recognize the impact of last year's production cuts immediately given the severity.

We expect price mix to more than offset raw material costs as we benefit from recent pricing actions before feeling the full impact of rising raw materials and the second half.

Slide 19 summarizes several of our full year financial assumptions.

Based on current spot prices, we would expect our raw material costs increased $325 million to $375 million net of cost savings largely and the second half of the year.

This is an increase of approximately $200 million from the outlook, we provided on February 19th.

Our other financial assumptions remain essentially unchanged from February.

One last point I want to hit before we open up the call for questions.

While we continue to be very excited about the acquisition of Cooper, we don't have anything new to add today beyond what we shared on February 20 <unk>.

The Cooper shareholder vote takes place today, and we continue to work on required regulatory approvals, we look forward to sharing more information with you on the Cooper acquisition. Once we complete these procedures now we'll open up the line for questions.

At this time, if you would like to ask a question. Please press star and one on your Touchtone phone.

Draw your question and at any time the price in the county.

And again to ask a question. Please press the star and one that still following one moment barbecue.

And we will take our first question from John Healy with Northcoast Research. Please go ahead.

Thank you Darren.

Good morning, Congrats on the on the progress.

The first question. The first question I wanted to ask growth.

Should we can you remind me kind of put aside 2020, and really just look at your margin performance relative to 2019, and and kind of look at the.

The growth rate that you saw.

And I think about 20% and so.

And why growth.

Over and over 2019 wells.

Do you think thats, the right way to think about the business and.

As you look at the remainder of the year any reasons to think that 20% improvement.

And maybe kind of continue and I know raw materials are going to do some things and the second half but and.

Also it seems like you've got some pricing recently at least in some regions. So just trying to think about how we should think about the pace of improvement for the next nine months compared to 19.

And so John I think you can probably tell from the fact that we included.

Walk chart, comparing first quarters of 2019 that that that is in fact, our mindset is we tend to be benchmarking, what we're trying to achieve.

Thinking about how we're doing versus the pre pandemic levels.

Sort of looking through the 2020 results and thinking about what we're doing to build up from 2019, yes. So I think the fact that our operating income.

<unk> already above 2019 levels.

Feel like that's a very good sign and obviously, we went into that with at least one key part of our business Thats nowhere close which is the off highway segment and the business. So the aviation off highway.

Tire businesses are still well below so that the things that we categorize our number and we categorize as other tire related.

And we really didn't get any recovery and the first quarter and those other tire related categories. So so I think we're feeling very good about the.

In fact, our segment operating income is up and I.

I think partly good because it demonstrates the cyclical recovery and the price versus raw materials, and we think that that's obviously a big deal.

And it's showing the benefit of some of the structural cost saving actions that we've taken which I also think this is a pretty big deal.

If we take those things and then think okay. We're already we're above 2019 levels of segment operating income and we still haven't got the benefit of the full volume recovery is so rich.

Still 8% down on volume so as we see it and obviously, we see some very good volume trends. So we're expecting that that volume recovery to occur. So we're going to get we should get continued growth as volumes continue to recover.

We should start to get some of the $150 million that we lost last year and that other tire related business category.

And obviously things like the winter storm here, we're not going to expect to get hit with that again so.

So I think all of those are very positive.

And we're also seeing and the first quarter of recovery in our performance on 17 inch and above relative to the industry, which means some of the mix that we lost during 2020, we're also recovery.

So I think we got we had a number of things there.

And we're very good and the first quarter and number of additional items that should allow us to continue to build going forward.

Yes, I think that the.

A question about the second half is a good one.

Yes, I think the.

And it's yes, I think we continue to see a lot of these factors benefiting us and the second half. So I think theres number of things we still feel good about we do recognize that the significant question is going to be the price mix versus raw materials question and the second half given we're going to have.

Most of the $325 million to $375 million.

Of raw material cost increase happening and the second half.

Effectively what.

And that.

Results and.

Something like a 15% increase and raw material cost for the second half.

And.

And I'm doing that 15% against 2019 as well because the the amount of materials that we bought in 2020 wasn't a normal level of materials, but but to get the and to offset that 15% or so raw material cost increase and the second half.

Generally it's going to take us pricing in the neighborhood of 5%.

And we don't have all of that pricing in place yet.

But we've made pretty significant pretty significant progress on pricing and the first half and so I think we've got the.

And we've got some momentum there and we've got a supply demand situation.

And certainly better than it was in 2019.

And I think as rich mentioned in his comments we've got.

Sell out in the industry getting back to 2019 levels at least and the U S and we've got industry inventories channel inventories that are well below where they were in 2019. So.

I think the setup is pretty good.

And certainly I think we're feeling good and the U S and we realized that yes the <unk>.

Pricing, we've announced to date isn't sufficient to get us through the second half.

Yes, probably.

And we've announced so far it gets us a little more than halfway there.

But we've got some time to work with we've got some pretty good momentum and we've got some good industry.

Dynamics.

And that should support.

<unk> as we work our way towards the second half.

Understood. Thanks.

And then just a question.

And on supply chains and logistics and.

And then there's been a couple of industry kind of news stories and the last two or three weeks about just maybe from beginning levels of scarcity of natural rubber and maybe drawing some parallels to natural rubber shortages and marrying that of semiconductors.

Potentially and and I'm not sure if that is.

And our supply chain and saying Hey.

And we can't let we can't let raw materials, such as natural rubber and do what what semiconductors is doing so how is it like their true response.

Working with suppliers like yourself.

Yes, so so.

And I'll start with the first one on natural rubber and the first thing I'll do frankly on all of the working through a lot of the supply.

Challenges, we had and the first quarter as you all know we had the winter storm in and the Gulf Coast via the Suez Canal blockage and and.

We're certainly not experiencing any limitations that you might have read about and some of the stories that are out there.

And we're certainly aware and some of the issues on tight supply that came out last year as the industry started started ramping up which was sort of normal course, I would say, but again, we took a lot of proactive measures anticipating that to ensure we had the supply and to not make it and issue.

And I think recently, you've seen natural rubber prices returned back to sort of Q4 last year levels. After a spike and I would say that tends to be indicative and we've seen this really.

And that we're seeing or that we can't manage through right now it's not an issue that.

Thats taken up a great deal of our time and on the second question relative to the Oems.

And have obviously vary.

Productive and transparent discussions with the Oems on a regular basis and I would say that continues Stewart during this this period as well.

As you know we have to meet there just in time supply requirements and I'm proud to say that we do that with great regularity and I would expect you know as their volumes.

Sort of fluctuate right now with the semiconductor.

Situation, they will be back and and.

And we'll be ready to to supply them per the relationships, we have with them. So I wouldn't say, we've seen any any dramatic difference and that again very constructive discussions.

I would also tell you and I'll just say as we look at this we see the demand I'll just jump in and John I'd say the demand for new cars. As you know is very strong and as well as for used cars. So the semi semiconductor shortage clearly is having a big impact on their business and consequently, our own.

Supply, having said that and the near term, yes, it'll impact our OE volumes, but but we also see this as an opportunity to continue to supply the replacement market, where the demand is very strong.

And remember our OE tires are large rim diameter very good tire. So we got a lot of good capacity to support the market out there and the replacement growth that's out there as.

Levels, and where our sellout is as OE comes back.

And that replacement demand stays strong and I think.

That puts forward, a pretty constructive supply demand equation and looking out to the future and again, we do think that.

Semiconductor situation will be solved and.

And I can't predict when but given all the attention and focus to it and I'm certain that it will be solved and maybe even sooner than we think.

Great. Thank you guys.

And we'll take our next question from Rod Lache with Wolfe Research. Please go ahead.

Good morning, everybody.

I'd like to first maybe just get a little bit more color on the market share outperformance and youre seeing and the western Europe.

I think in the U S. Obviously, a lot of factors behind it but maybe you can peel it back a little bit.

What's the extent of map from Walmart coming back and.

Are you also seeing some of these stories about the west coast Port log jam happening playing a role.

Tariffs on Asian tires, and I would imagine are also playing a role how any thoughts on what it is that we're seeing here now and sustainability.

Yes.

And.

We had the impact of Walmart and 2020, and Thats, where we sort of were disproportionately impacted by Walmart closing their auto care service centers during the pandemic.

And that obviously hit our volumes last year now whats happening is those stores are open and I think they are all just about opened right now, but as traffic comes back their recovery really still tales. The overall tire industry return. So that's still impacting us as we as we think about where we are right now, but I will tell you.

A couple of things and the first is in 2020, you may recall given the situation that we had we took a lot of steps to gain share and to do that and channels and new and other channels, let's say than just our our big box channel with Walmart and we had great momentum, leaving 2020 with gaining share and.

Alternative channels that momentum continued into 2021, and I think thats, what you saw driving the share performance that we had and add to that.

The return.

And then and Europe again.

A little bit of a unique situation that youll recall that we initiated and aligned distribution initiative in 2020 and as part of that we expected to lose volume of about 1 million and a half units with COVID-19 coming in and that turned out to be about $2 5 million units and I would tell you the brunt of that probably was felt in Q3.

And last year, but starting in Q4 and continuing this quarter, we started gaining momentum back and see the value of those programs working and it turned up and what we would call this significant share.

Share improvement in Q1. So these programs are working we're seeing it as we capture more of the value of our brands and the marketplace. As we look at how tires are being sold in Europe and a more.

Aligned wave and let's say Unaligned way with tire is going in different directions, and and that's been very successful and we're on that path. We remain on that path and we continue to believe that this program has a margin improvement of about two to $4 per tire two to four euros per tire I should say on our.

An hour.

Our consumer replacement business in Europe. So overall I would say, we're feeling pretty good about.

About the direction of where our share is heading in Q1.

Okay and.

Maybe just a little bit more color on the drivers of that $91 million cost savings that you had and your bridge you said 33 million is.

GAAP and <unk>.

Mostly GAAP and but also some contribution from the German plants.

And maybe you could give us a little bit of a sense of that and then.

If we add back the impact and the storms youre pretty close to 7% Soi margin already.

Are you gaining line of sight on.

And an 8% may be happening.

And next year.

And so I think the cost savings you brought I think youre right to point out.

The structural cost savings, we have from the manufacturing footprint actions.

I think we've maintained some very tight cost controls coming out of the pandemic and obviously, we've still got volumes that have not recovered to pre pandemic levels. So I think youre still seeing some of those benefits. Yes, I think that there are some cost there that will likely return as we get back to the to the higher volume levels, but I think right.

Now we've continued to run at a very tight level.

Cost.

Cost efficiency.

The.

The question about where the margins get too yes.

And I won't go back through my my thinking versus 2019 levels, but obviously, we are above 2019 levels and in fact.

Our.

If you go back before 2019 levels.

First quarter of 2018, we were just over 7%.

And I think with the.

And with the factors that.

We talked our way through we're.

And we're heading back.

And.

Yes, we could get you could add back the additional volumes.

So we fully recovered volumes.

Back to 2019 levels and.

And we got some recovery from the other tire related businesses and added back the storm impact which was your suggestion.

It wouldn't be hard to to do the math to put our.

You have to put our segment operating income above 2018 levels.

And that would be sort of and that 7% to 8% margin range.

Which is I think what you are trying to walk your way.

Walk your way too so I can do that math and I can yes, I can see our way there.

And obviously that work is not done yet, but it's not too hard to.

To think about how we could move our way back beyond 2019 levels back toward.

Levels and were similar to 2018.

Okay, great. Thank you.

Okay.

Well take our next question from James Picariello with Keybanc capital. Please go ahead.

Hey, good morning, guys.

Hey, James just on the <unk>.

On Goodyear strong volume outperformance are you sensing any share gain momentum yet from the tariff situation and U S or is that a potential catalyst later in the year, maybe at the company rebuild inventory.

Yes, I think James and I think right now we're I mean, we're.

We're really struggling to keep up with demand and.

So when.

When we are struggling to keep up with.

The recovery and we haven't yet.

And been able to restore our inventories back.

To something more like normal levels, and we've got channel inventories that are low as well. So we've got a lot of customers that are interested in trying to get their own inventories back in position and I think it's a little bit too early to think about.

Any.

Potential impact from from tariffs and I think in the and I think we've continued to see.

Tires.

Important tires coming into the U S. So I think the sell in and the second half of last year was very high.

And there may be some <unk>.

Year over year difference this year, but.

In fact, I think generally U S tire makers are producing about as fast as they can right now and.

And to fill the rest of consumer demand and I think there'll still be some imports coming in and that will just be coming and with tariffs.

Right. Okay got it and then this was touched on already but I just think about the lean channel inventory situation in North America.

Strength in sell out demand on the replacement side, and then overlay that with the semiconductor challenges affecting OE volumes.

This should this should actually be a positive development for Goodyear and the interest rate is youll have more capacity to central your higher mix replacement channel just curious if you can.

Do you have any other any color or any thoughts on what that benefit could be from a mixed standpoint of OE volumes. There are in fact lower than prior expectations.

Yes, I think I'll start and we can talk about the mix impact going forward, but I'll, even call, even saying that remember the capacity that's not being sold too to OE typically is larger and diameter.

Very high and tire so that that's.

And our third party distributors are aligned distributors, we saw that their inventories were were about 10% down versus Q1 of 2019 and I think if you look at that I think that makes the point on where inventory levels are but I think if you add to that and some other some other points.

And that's around where sellout was and obviously we saw sellout.

So out in Q1 was Q1 and 2020 was pretty good but also as I mentioned in my remarks, sellout and March was about 7% above 2019, and I think that that just talks about where the demand trend is and then if you add to that.

And the direction of where let's say vehicle miles traveled are going that was still down 12% in February but I think as we think about margin into the summer I think it's I think it's reasonable to say that vehicle miles traveled will certainly head back in the direction of 2019, and I think if you look at gas usage usage versus 2019 youll.

See sort of sort of similar directional lines and I think all that's that's pretty good because now we're we're seeing lower inventory to support higher higher.

And would be that as we look at retail sellout prices from some of the.

The indicators that you know very well I think there is evidence that retail retail prices are rising as well so.

A pretty pretty good dynamic as you as you think about.

The supply the supply demand dynamic that's out there and particularly relative to <unk>.

Having to cover the raw materials, we see and the second half of the year.

Yes James.

The only thing I would add to that is yes, maybe just to.

I think to quantify a little bit the point youre trying to get to.

And so.

Yes, and that is the.

How do we quantify the benefit of being able to fulfill a replacement demand with tires that we would otherwise be sending to the automakers.

I guess I felt like that that was embedded in your question is that fair, yes, yes, yes.

Yes. It is.

So if we I mean, yes.

Just using the <unk>.

And the modeling assumptions that we use I mean, if we saw a 5% decline and.

And so we build.

Yes that would be something that would free up something like 450000 tires that we could then put in a replacement market.

And if we're assuming those are our 17 inch and above tires, which almost all of our OE tires. At this stage are there and there would be something like an extra 12 or $13 of margin on each of those 450000 tires and that will ultimately go into our mix and that.

And would help our mix.

So it's.

And it's clearly.

A favorable effect.

And obviously helps out our customers as well, which is we see as a real positive thing.

Yes, happy to see how that plays out.

Yes.

Super helpful.

Just a quick one on tire hub 11 million year over year improvement and the quarter.

Was there anything one time related or is that are you know maybe a sustainable trajectory from here just thoughts on tire. Thanks.

So I think what we're what we're seeing there is what we expected with tire hub and that is as their volume builds up there.

And they'd be and are better positioned to cover their cost base.

And the investments that we want them to make to to expand so.

Not really seeing anything of a one time nature, there and we're just seeing a.

After having some losses on our equity and tire hub for the first couple of years after startup we're starting to see them.

Net.

Move back towards breakeven.

Thanks, guys.

Thank you.

And we'll take our next question from you Manuel Rosner.

And with Deutsche Bank. Please go ahead.

Hi, good morning.

And annually.

First a couple of quick questions too.

And then on how youre thinking, but second quarter outlook and.

And given a lot of helpful comments, but obviously the year ago comparison was and.

And a little bit cause reported so would you expect the.

Change in price mix versus raw materials to be up.

Similar magnitude to what we just saw this quarter and then if I think about it in terms of.

Soi per unit or Soi margin, if you prefer.

Would you think about it.

Miller and lower than what we've seen in the first quarter and it's still.

And what would be the drivers of that.

So EMEA almond and focus on the drivers because we are and we intentionally don't give specific guidance on these items, but.

Here is I think how you can think about that I think first of all second quarter volume I think we are looking or expecting the volume decline versus 2019 to be less and we saw in Q1.

Now there is some seasonality so CEO and we've got some business units, where it and the second quarter is seasonally a lower volume quarter and that's certainly true in Europe.

Generally we're expecting just to keep closing in on import volumes are for 2019. So if we're if we're comparing soi and I will think about how our soi in the second quarter is going to compare to 19, rather than 20, because <unk> was so disruptive.

We can say that that volume.

And this is probably going to be less of a negative and the second quarter versus 19 and it was in Q1.

If we think about.

The impact of price and price versus raw materials.

I would say that the pricing that we have announced.

It is generally going to have to.

Same kind of effect.

In Q2, the head and Q1 and in fact, we've got a price increase announced and the U S of up to 8%. That's effective April one so that will mean, there is bigger pricing impact.

Impact or bigger pricing benefit and the us in Q2 and there was in Q1.

Which I think that's a positive as well so we got a little bit of positive from volume a little bit positive on pricing raw material costs.

We've actually got in our appendices, we've got and raw materials slide that shows a couple of things and.

And it is slide 23 I believe.

But two points here first of all it shows the $15 million.

The decline in raw material costs, we got in the first quarter, but it also points out that we expect a modest increase in raw material costs and the first half and so.

What we would see and the second quarter, and we'll call it modest but at least the.

The second quarter and with more than make up for that $15 million.

Reduction and raws and the first quarter.

And then probably a bit more above that.

So we would have.

Modest increase and raw material costs, and the second quarter, resulting from that but we're going to have the increased pricing.

From that April price increase to to help deal with that.

So I think you've got kind of a balanced view there of price and mix.

And obviously, we don't expect to have.

Actually I will say this we actually will continue to have some impact from the winter storm that carries over into the second quarter. Because we've got some production impact that is still hung up in inventory and will come out and are our cost of goods sold and the second quarter as well.

And then in terms of cost savings if I'm thinking about it versus 2019, we will this will be our fourth and final quarter of the benefit of the Gadsden closure.

So we've been getting about $30 million a quarter benefit.

Versus 2019 from the closure of Gadsden, we'll get something similar to that and the second quarter's margin.

Okay and I really appreciate all the detail that's very helpful. And then just.

Talking about a couple of.

Markets outside of the U S. I think you mentioned that in the prepared remarks, but can.

Can you just go over.

The sustainability of your margin performance from your point of view and then what.

The drivers of Bob.

Asia margin weakness and how do you think about that moving forward.

So let me hit.

Asia Pacific margin, so I'll come back and make couple of comments about Europe.

I think that and.

And I'm and I'm going to keep going making these comparisons to 2019.

And for the same reason.

But if I look at Asia Pacific margins and their margins in the first quarter were just under 8%.

And back in 2019, and the first quarter it was a little bit over 9%.

And there wasn't declined $38 million of Soi this year versus $47 million back.

Back in 2019.

And I will say that most of that decline reflects some additional investments that we're making and marketing.

And in developing our distribution channel for future growth.

And so there is some element of that and there is also an outsized impact on Asia Pacific from our off highway businesses. So the.

And the OTR business, and our aviation business and we didn't get any recovery in those businesses and the first quarter. So those are still.

A significant factor there and not really improving but I think they will will improve and she's going to take a little bit of time. So if I take those two factors I think overall, we're pretty satisfied with the performance and Asia Pacific and Q1.

And you are replacement business was a record volumes.

The distribution of initiatives that we've got and China, and India are helping deliver on those results and.

Thank you as we continue to deliver on those results.

We're going to and we get the recovery and the aviation and the off highway businesses, we're going to see our volumes and the consumer business grow into some of those investments that we're making so I think we feel good about the outlook going forward there as well.

If we.

I'll finish my remarks on Asia there.

In the European business.

I think we've had a couple of quarters and.

And I mentioned that in my prepared remarks, we have a couple of quarters.

We were earnings of $70 million or so of segment operating income and getting the margins that go with that.

I think right now we're feeling like that.

While we appreciate there was some very good performance to deliver those two quarters, but we're not yet at a point, where we've got Europe back to those level sustainably.

I think our sustainable level of earnings and Europe, probably closer to what we saw in 2019, where we were running about $50 million a quarter.

And I think as we look forward, we can take that 50 million and we know we're going to get benefit from restructuring.

We know we're going to get benefit from the recovery and the rebuild of our OE portfolio and we know we're going to get the benefit of the actions. We're taking on the line distribution. So I think we still got we still feel like there is a path to get ourselves to the levels, we've seen and the last couple of quarters sustainably.

I think we're feeling we're not there yet.

As we look into 2022, I think we feel like we're going to move ourselves there, but I do think that the yes.

And the last couple of quarters, we've had some some.

And some things that have helped boost those results that arent yet at a sustainable level.

Okay.

Thank you for all the color.

And we'll take our next question from Brian Brinkman with Jpmorgan. Please go ahead hi.

Alright, thanks for taking my questions.

Some of the other companies, we cover including and the automotive aftermarket have cautioned recently around pending and higher labor costs as the economy reopens and midst still elevated government unemployment benefits and I'm guessing you may be relatively protected from this given your longer dated union contracts for workers and their assembly plants, but was curious if maybe youre seeing perhaps some.

Versus raws, and then separately about cost savings versus general inflation, but.

And do you think you may have the ability to take price and the marketplace to help defray some of these other non raws cost too.

Yes, so Ryan I'll start and Darren can jump in here as well I would tell you.

In terms of labor costs, I think are labor costs, I think labor costs in general have been on an upward trend. So that's not that's not necessarily a new headwind for us I will tell you the headwinds that we we did experienced during the pandemic and again I'm going to I'm going to.

Tip my hat to the teams, particularly in North America for this is that we have a lot of.

A lot of people out with COVID-19 or a lot of people not coming to work because of COVID-19 and we saw retirements and things like this take place and.

And we can all speculate as to the source of why those things are you mentioned a couple of them, but the fact of the matter was we had to hire train and put a lot of people to work and our factories and the U S to be able to meet the demands as we started to ramp and our factories back up and I would tell you that the teams did a tremendous.

This job of doing that and doing it safely in line with our protocols and.

And we've done we've done a fantastic job of getting the plants to continue to make the tires that we need to the market. They are running and running hard and and I would say that's going very well in terms of delivering the tires that we need and thats both on the consumer side and the commercial side, we haven't talked much about the truck business, but the truck.

Business is very strong and we need every tire we can get so so that is a.

And.

That's something that we continue to focus on going forward on the retail side I do think that.

There is wage.

Pressure, there, but there always again, that's sort of and ongoing situation I think the team again is very well equipped to manage that and I think they are and.

I look at I look at that and look at the quality of the people that we're hiring based on some of the recognitions that we get and I think you saw.

Too long ago, our retail stores were rated as some of the best experience that a consumer can have go into a retail store so I'd say.

And we're managing that very well and then the question on some of the supply disruptions.

Excuse me, we clearly had those I mean, I think you had a combination of demand really coming back faster than we anticipated.

And then you had the disruptions coming in and around as I mentioned earlier, the Gulf whether that shut down a lot of the Petro Chem facilities are including your own you had some of the Suez Canal issues you had the port issues, you had containers and all of these types of things, but again I will tell you.

We don't see a significant risk to our production we're working through that teams are.

Q1 2021 Goodyear Tire & Rubber Co Earnings Call

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