Q3 2022 Goodyear Tire & Rubber Co Earnings Call
Yeah.
Good morning, My name is sneaky and I will be your conference operator today at this time I would like to welcome everyone to Goodyear's third quarter 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After some opening remarks, there will be a question and answer session.
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Today on the call, we have rich Kramer Goodyear to chairman and CEO .
Well, she F O and Christina Tomorrow, VP finance and treasurer.
During this call Goodyear will refer to forward looking statements and non-GAAP financial measures.
Forward looking statements involve risks assumptions and uncertainties that could cause actual results to differ materially from those forward looking statements.
For more information on the most significant factors that could affect future results. Please refer to the important disclosures section of Goodyear's third quarter 2022, investor letter and their feelings with the S. E C, which can be found on their website at investor Goodyear Dot com wherever replay of this call will also be available.
A reconciliation of the non-GAAP financial measures that may be discussed on today's call to the comparable GAAP measures is also included in the Investor letter.
I will not turn the call over to rich Kramer, Chairman and C E O.
We released our third quarter results.
Okay, but it will go back well say, Ken Thanks, Nikki and good morning, everyone and thanks for joining us that yesterday you saw that we released our third quarter results after the market close and a new updated format.
We're always looking for ways, we can enhance our process and that's led us to introducing our first ever quarterly investor letter.
It places our typical press release slides and prepared remarks and puts all that information in one place. So we can focus on your questions. During their conference call. So thanks again for joining our call today and with that let's open up the line and have some questions.
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And we will take our first question from Rod unless you have with Wolfe Research. Please go ahead. Your line is open.
Good morning, everybody.
How're you doing I'm doing okay hope you're well.
Just wanted to.
Ask a couple of things about pricing and competitiveness.
I understand that from from your release that your views the weakness is.
It's at least in part an inventory correction.
But are you you are also taking a bit of downtime to prevent an inventory build in and just in light of that.
Can you just maybe give us some color on what you're seeing with regard to price discipline.
Do you think that.
The the industry is going to kind of take the tack of trying to support pricing and costs in order to compensate for inflation.
Is that kind of the industry's direction still in and related that that's just in terms of the competitive landscape.
I'm sure, you're you're watching currencies in freight rates and things like that as well as we are any thoughts on just the competitive landscape there, particularly in North America.
Yeah, Rod I'll start and I know, Darren it's probably going to jump in here as well there there's a lot there.
I would say the industry is certainly facing the same headwinds that we have out there I mean, you saw by the numbers all of our raw material cost increases plus energy plus transportation plus labor plus everything.
Sort of impacting any one and you look at our performance you know on that.
On a trailing 12 months, we're about $2 3 billion of price that we got to offset all of those costs in North America, we've essentially offset raw material and those other costs on a total company basis, we didn't quite do it but we did pretty good and you know I think that environment of those inflation.
<unk> costs are still going to be with us, that's particularly true in Europe , where we see energy costs going up dramatically as a consequence of the war.
So I think that I think that landscape is there for for everyone and I would suggest to you that everyone faced with that same issue a task to offset those costs through a combination of recovering in them in the marketplace through price as well as taking cost actions, which again you saw us do already in Europe with the Melksham closure.
With some actions in South Africa, and you'd be you'd be safe to say, we're not done as we think about what we're gonna be doing so.
I would say, yes, I think that there is an acknowledgment of.
What price and mix has to do with the marketplace to deal with the environment. We're in.
And I'll, just maybe say from a north American perspective, you know business is still good or product line is winning in the marketplace. That's particularly true in light trucks are OE wins are very strong and I would say that you know from a competitive basis.
You know, we've been gaining share and in our key segments and it's the best tire market in the World right now so we feel pretty good about where we are in North America.
So rod there was one underlying question there and I wanted to make sure I got it right.
Felt like you were you would probably you also looking for any insight into how the the factors that are at play in the market are affecting us relative to how they might be affecting our competition, particularly with some of those cost factors, but is that yeah that that's that's right mhm.
So let me I mean, there are a couple of those I think they're worth touching on.
Yeah, because you know for us or our competitiveness in manufacturing.
The big deal.
And we've talked in the past about.
Yeah.
The fact that our factories have historically been in higher cost locations on average relative to our competitors in that we haven't thought about it.
A cost disadvantage on a cost per tire basis, and the actions that we've taken to restructure our manufacturing have closed that gap.
But there've been a couple of other things at play here, one of which is the elimination of a lot of rushing capacity.
Which is further close that gap for us this year.
So the elimination of some of that capacity that was used for export.
It improves our competitive position.
The other thing I think that generally improves our competitive position is the fact that the energy inflation is concentrated in Europe , and we've got less concentration in Europe , and some of our key competitors.
I think otherwise when we've looked at factors like wage inflation transportation.
Haven't really seen any.
Any material differences between ourselves and competition. So I guess, if I look at the array of factors that are at play here couple of them I see that we benefited from others I think are more or less neutral.
How 'bout FX Darrin.
So the U S dollar strength.
Yes.
I think the.
Clearly, it's had an impact on our international earnings and.
And you know it's impacted the transactional exchange.
Yeah Yeah.
Our.
Cost of our raw materials, we had enough Luckily.
Yeah and strategy around pricing for was that the transactional exchange.
Sure that isn't as big a deal.
The impact on our.
Our earnings overseas.
<unk>.
I can't say, it's insignificant, but there are a couple of things at play here one.
Yes, I guess, if we're going to pick a time for the U S dollar to be strong.
From a pure exchange point of view, it's good to have weaker European earnings because then the weaker euro it doesn't impact us as much and certainly we've seen that the other thing that we've seen is that Brazil, which is one of our largest markets and one that.
Our team has been executing really well the real has appreciated against the dollar and so yes.
Increased value of Brazilian earnings.
Has mitigated.
Some of the negatives of the Euro and a few of the other currencies.
Okay, but you're not seeing that as a competitive issue in the U S. Just vis vis the asian imports or or anything like that.
I think that.
Questions around the Asian imports and Youll see that we put some.
In our Investor letter, we've put some specific description around this effect of the Asian imports.
We feel like it's a little hard to.
To discern right now because Asian imports.
Slowed down.
For a period of time last year during the time when transportation was so difficult and container ships were stacked up outside ports. So yes, there was a bit of an artificial slowdown and we.
Further to that discussed it in terms of the impact it had on the U S. TMA data. So it is in the Americas section in the Investor letter there were some similar effects in Europe , we see periods of time, where some of that stacked up.
On the water.
Imported.
Tires have flown into floated to the markets.
Fairly short timeframe after which it's tied down.
So the movement that we've seen in import volumes and how that's affected the lower end of the industry at this point appears.
It appears to be more of a reflection of the transportation dynamics than it does anything else.
Yes, I think the point is well taken that.
Yes.
Fact that the Asian currencies are weaker versus the dollar.
It's something that could have an effect at that lower end of the market.
Is it going to have that effect I don't think that we've seen it yet and obviously, it's not it's not a.
Part of the market that we're particularly exposed to.
But I think it to the extent that's going to happen I think something's going to happen in the future. It's not really something we've seen in a significant way to date, although I.
Yes, you could also say that the.
The volatility and volumes for.
Sort of nod industry member imports is a little bit hard to read because the volatility has been so significant.
Okay. Thanks, and just really quick if I can fit this and at one point rich had talked about.
The comps on non standard inflation like things like energy and freight would start to get easier as we kind of close out this year and enter next year do you have line of sight on on when that part of the debt excess inflation really starts to look more neutral at this point or not yet.
So.
I guess, maybe handle it this way.
We're going to go through.
For a couple of different reasons. Some further further pressure in the fourth quarter and a big piece of that is the further step up in energy cost or the forecast and step up in energy costs in Europe .
And yes.
In Europe , Europe , Middle East Africa business, a big part of this will hinge on what happens with energy costs, but I think we're presuming that those energy cost will be at least somewhat seasonal.
And as we get through the winter then that will have a chance to moderate.
And obviously the longer term outlook is something that I think probably.
You have more discussion on the transportation cost.
We have effectively peaked on ocean freight and started to come back down I.
I think as we move through the fourth quarter, we'll get to our peak on inland freight.
And then in the first half of next year that will start to come back down.
And.
So we've got I guess, a number of those dog raw material costs.
<unk>.
We are going to be peaking and starting to get into a better position as we move through the first half of next year and add to that.
The outlook on raw materials switch by the middle of next year.
Based on today's spot prices, we would start to get some relief in raw materials.
It will get to the point, where raw materials are moving towards neutral.
So I think all of those are reasons that.
I'm pretty optimistic about the set up for.
For the industry and for our ability to recover some of our margins by the time, we get out the better.
Over the next year, which I think is that something that you've commented on I think that yes that optimism is there based on the way and we expect cost to evolve.
Thank you.
Sure.
Thank you. Our next question from from Emmanuel Rosner with Deutsche Bank. Please go ahead. Your line is open.
Alright, Thank you very much good morning.
Good morning.
Yeah.
I was hoping you could.
Maybe first give us a little bit more color on the dynamics around the free cash flow outlook for the rest of the year in particular.
The larger working capital draw in the <unk>.
Previously expected and I guess related to this I think you know early in the year you shared with us some sort of and essentially free cash flow scenario that was result into sort of breakeven.
Free cash flow under certain assumptions and scenarios with the larger working capital, but somewhat lower capex.
Where would you shake out.
Yes.
Thank you.
The quick takeaway Emmanuel is that the changes that we've made in our mob and the.
Financial assumptions.
Effectively show.
No real change in aggregate.
The assumptions that we shared at the end of the second quarter.
So a bit more working capital given the installation.
In inventory in inventory and accounts receivable.
So some overall working capital inflation, a bit higher level of units in inventory.
Push that up a bit.
Our investment levels, we've pulled back on.
There are a couple of other small.
Yes, small items as well, but I think net net it's neutral relative to the cash items that we shared at the end of the second quarter.
Okay. Thank you can you just discuss.
How should we think about these.
Working capital dynamics as we go.
Yes move into moving to next year then.
Yeah, so well the.
Yes, I think if we look out for the free cash flow outlook for next year.
I mean, ultimately there'll be influence from the economic environment, but we don't expect to use significant cash for working capital next year, so 2022nd half 2021.
The period, we've gone through through the first part of 2022 was kind of a unique rebuild period for working capital.
Yes, that's happened to us once before after the great recession, but it really hasnt happened otherwise, we're not expecting to have that kind of use.
And to the extent that we.
We do see.
So any deterioration in the economic environment that tends to create periods, where cash flow is stronger as.
As volumes come down that working capital comes down so yeah, I think that we feel pretty good about the setup for free cash flow. So if we get a nice stable volume environment.
Yeah, we're not going to have the working capital rebuild and that creates obviously an opportunity to generate cash and even if we get a softer environment that tends to be the kind of environment, where we're able to generate cash so.
Throw it either way.
We're focused on making sure that the our.
Our planned level of investment Capex and otherwise.
This is consistent with the environment, we're in and the long the long term balance sheet targets that we've got.
Yes.
Okay I appreciate that color.
On the second topic.
So either you shared that at current spot prices, you would expect $3 million to $400 million over material headwinds year over year in the first half of 2022 issue so really useful.
Is the current price is your current pricing.
Off to offset it or I guess, you know assuming no increase or decrease in tire prices from here.
Pricing offset this kind of affirm it feels next year.
Yeah. So.
Emmanuel.
Radically.
The I think the answer is what we've got in place we would go a long way towards covering the raw material cost that we have.
The broad statement.
I think there are areas, where we're going to continue to get price and so we're going to continue to get pricing under our raw material index agreements from the OEM. So we should get that in the first half of next year.
They're certainly going to be area businesses around the world, where we're going to be experiencing costs and we'd be continuing to do that work.
But if we look at the first half in say $3 million to $400 million of raw material cost increases in the first half most of which will be in the first quarter.
Then in the first quarter.
Yet if we call most of that.
That $3 million to $400 million.
Something in the neighborhood of $2 $50 million to $300 million, yes.
Yes that is still well well.
Less than half of the increase that we saw in the third quarter.
And I think we're looking at the fourth quarter.
Yes, that's going to be similar.
And.
Yes.
As we move into the first half if we look at North America, we're going to.
Anniversary effectively half of the pricing that we took during 2022.
So we got half the pricing and less than half the raw material cost.
So, yes, I think that as a starting point.
<unk> is pretty good but again every one of our businesses is going to have unique circumstances and obviously, we've got the non raw material cost that are going to continue.
Continue to be there as well the way we see it based on the comments I made earlier you can tell we feel other than the questions around energy costs in Europe , I think we feel good about getting past some of those cost increases.
Okay, great. Thanks for all the color.
Thank you and as a reminder, it is star one on your Touchtone phone, if you would like to join the queue.
We will move next to with James Picariello with BNP. Please go ahead. Your line is open.
Hey, good morning, guys.
James.
So as we think about the fourth quarter sequentially.
The challenges in Europe , right, it sounds as though Americas Americas volumes should trend flattish year over year, which should be up.
Sequentially and then in Asia.
Continued healthy growth year over year and quarter over quarter. So if volumes are up sequentially.
Price mix versus raws sustain it is similar.
Strong rate to the third quarter.
These factors enough to offset the additional inflationary pressure in the fourth quarter to go.
To drive sequential Soi growth.
Yes.
The real question I think we do feel good about where our businesses are in the Americas and in Asia.
I think a lot of the question for the for the fourth quarter is going to be around what's going on in Europe .
And there is an impact in Europe of the production cuts that we're taking and so were taking those cuts to make sure that we're not building any excess inventory.
Taken any.
Not tiger.
Cash on the balance sheet, not taking any excess inventory into next year.
So thats you know to the extent theres been some softness recent softness in demand there and we're making sure to adjust now yes I think.
Where demand is in the fourth quarter in Europe and.
And uncertainty and the Unabsorbed overhead.
Impact for us there'll be maybe some of that in the fourth quarter. Some of that may carry across to Q1.
That's really the only area that is.
As of significant concern to us as.
As we go into the to the fourth quarter. So we had a couple of businesses running well, we've got one business that's facing the <unk>.
Certainly I guess everyone's spacing and <unk>.
Europe , right now and James I would just add to Dan's comments, maybe building a little bit of what I said before we.
We've seen these environments multiple times certainly the last three years, but as to the test again, but.
We're putting a lot of focus a lot of discussion on price and mix as well. We showed the team has done a tremendous job executing it if we would've said, we would've gotten over $2 million of broker $2 billion of price mix at the beginning of the year you probably wouldn't have believed us. So team has done an excellent job being able to manage through this situation I think as you.
Think about Europe , and you think about working capital and cash flow.
We know that we've got some potential headwinds as we worked through Europe . We've taken some actions that we're going to continue to focus on.
Not only getting value of the product in the marketplace, but also looking at the cost structure over there as we see some of the changes around energy costs around what's happening in some of the geographies there to make sure that we're going to use this as an opportunity to set ourselves up for for some of the upside that Darren talked about earlier so so.
It's good to talk about volume price and mix, but but just remember we're focused on the cost equation there as well.
Yeah, No that's helpful.
There any way to dimension, what the what that absorption headwind could be in Europe .
Because that means but its still kind of run the rule of thumb of $13 a tire.
$1 5 million units.
So I think.
Actual cuts in Europe are essentially in our consumer business.
And the modeling assumptions, we provide which now that we.
Want to.
Started using the Investor letter format, we actually have those those modeling assumptions as part of the supplemental slide deck that is in the financial reports section of the website, but those modeling assumptions have a for EMEA consumer assume eight to $12 a tire of overhead absorption.
<unk>.
She is.
Given the range of different production costs in Europe , but if you pick the midpoint of that $10. We've said, we're cutting about $1 million in half units.
Albert production.
So and that would come out to be about $15 million.
Yes, some of that fall in Q4, some of that could be held in inventory.
And come out in Q1, but I think that's the way to dimension it.
Yes.
Really helpful and then just lastly.
Think about Europe's energy inflation.
$33 million headwind in the quarter it sounds as though there's likely does run higher or at least we know that your net inflation.
Runs higher in the fourth quarter just.
Maybe clarify if you could clarify what does that quarterly run rate will look like at the energy inflation line.
And does this carryover through the first half of next year get worse or possibly get better through mitigation efforts just how do we think about that Europe energy inflation.
Yeah, Yeah, So I guess just to.
You mentioned that that $33 million, we saw in Q3, I mean that.
More than doubled the energy cost for the EMEA business.
And I think we're looking for it to be even a bit worse in the fourth quarter and we've got our energy costs. We do tend to lock in a few months in advance. So I think we're going to go through in the first half of next year to the extent energy stays where it is we would see similar type increases through the first half.
Before we start to anniversary the increases that we saw in Q3.
I guess it's.
It seems as if there's a good chance that those energy costs may come back down in the middle of next year, but.
I think where we're allowing for that but I think through the fourth quarter and through Q1, we're going to continue to see some pressure there.
Thanks, guys.
Thank you and we will take our last question from a tiny Kelly with Citi. Please go ahead. Your line is open.
Okay.
Hey, good morning, everybody.
A couple a couple of follow ups.
Back to the free cash flow I, just want make sure just to clarify.
The full year to be around breakeven can we get a bit of a youth just because I know there's a couple of moving pieces on the working capital Capex Naturalization payments I just wanted to revisit that and then maybe one for Rick as well, hoping you could just expand a bit more on some of the EV OE Fitments that you won in the quarter.
Okay.
Yes, so I think.
So the cash flow question, you're asking is it's the 2022 free cash flow question.
Yes, the full year.
Yeah, Yeah, So I think yes.
The assumptions that we have which we have.
Yes listen on page 15 of the Investor leather.
Yes.
So we're we don't give we don't give specific guidance, but I think from the beginning of the year. We've said that we were going to invest at levels that youre still took into account our desire to protect the balance sheet.
And with a focus on not increasing our net debt.
And we've made.
Mindset is important to us given the longer term balance sheet objectives that we've got.
So when we're moving forward from the second quarter to the third quarter do you effectively see four things changing.
In the.
And the financial assumptions that relate to cash flow.
Two of them are more significant in the working capital.
Increased from a use of about $300 million to a range or a use of $3 million to $500 million. So I guess, if you pick the midpoint. There then that use is up about $100 million.
On the other hand, the range of capital expenditures came down from one one to one two down to $1 billion to 1 billion won so that came down to 100 million. So those two just sort of equal amounts in opposite directions.
Now in addition to that our income tax.
Cash income taxes have come down a little bit like that range, we've tightened up and brought down a little bit rationalization payments have gone up a little bit. So those two kind of offset each other as well so I think the overall picture.
Obviously, the yeah. There are some things that have evolved during the year, but I think the picture in aggregate really hasnt changed much.
So that was the first question. The second question I think you wanted some color on our success winning EV fitments in the quarter as I mentioned in the letter around that is hoping you could expand a bit about upon that.
Yes.
I would tell you. We have we have had continued success winning OE fitments and I would say, it's part of our you know.
Our ability to go to the ollie's and help them solve what I would still suggest you there.
Their most complex problems that they need to to solve getting these vehicles on the road again around what we've you know we've talked about in the past around range around performance and handling and ground sound around everything and.
And the teams continue to deliver with solutions that are very very difficult specs to meet and our teams are doing that.
I would say that the margins still come in at levels that were very pleased with the poll is very high we are only on the front end of that as you know, but the pool is very high relative to the vehicles that are that we're on and I would tell you on a geographic basis, it's kind of been.
Very balanced.
I would say most recently we've had.
Even in the quarter, a number of big wins in China I'll leave some of the names off for a moment I would say, they're both transplants into China as well as domestic in China, who are really looking to lock in supply, particularly around EV fitments and the team over there is doing a great job.
Same in Europe , I think in Europe , you are seeing is.
Sort of keep pace with the evolution that the German automakers are going through as they make that shift from ice to evs. So we're I would say getting a bit of.
Equal or more share on those vehicles moving forward and then in the U S.
We are continuing to win on Evs again, both with the traditional call. It our traditional Oems as well as a lot of the new startups that whose names we know and a lot of that is in light truck as well and I think that's one of the things that Goodyear was known for was where our products on light truck vehicles.
Our share in light trucks, as well above our overall share and now adding to that the Cooper brand as well as now evs coming in on light trucks and that's that.
That's something where the team is coming through in winning a number of fitments as well. So I would say overall, we're on pace as you know the percentage of Evs is small, but it's going to grow and our positioning is is exactly where we want it and equally important the profitability is exactly where we want it and when we <unk>.
Look at the pull through.
It's exactly what we what we want to see happen and beyond that <unk> will talk more in the future of starting to put some intelligent tire features on some of those key evs as well and I think there'll be more of that to come in the future. So so feeling really good about that.
That's all very helpful. Thanks, so much.
Thank you and it looks like we have a follow up from Emmanuel Rosner with Deutsche Bank. Please go ahead. Your line is open.
Alright. Thank you so much Oh, yes, I was hoping to take advantage of your brand new format.
A few more questions if thats okay.
Okay.
So I guess.
First of all on the demand side I think your some of your prepared remarks and to show a little later, so just mentioned.
Sequential.
<unk>, especially on the on the replacement side.
In some regions can you maybe.
Talk a little bit more about what youre seeing there.
The ground and maybe comments around.
Obviously, Goodyear built some unit inventory and expecting to build some towards the end of the year, but our dealer and distributor inventories also on the heavier side.
Okay.
Yes.
You can start and I'll jump right in.
<unk>.
We've seen it a couple of different things.
<unk> generally.
<unk>.
The situation has.
<unk>.
Yes, it's been evolving bolt in the U S and in Europe .
And.
The fact that our trade inventories have been coming down I think partly it does relate to the comment that I made earlier on.
The influx of imports after imports have been hard to get into the markets.
A good part of the last 12 months.
So I think that there is some repositioning there and I wanted to I guess make that connection.
Part of it part of what we've seen I think is just a reflection of some warehouse space shifting to accommodate.
Some of the imports that had been ordered last year.
And started showing up during the course of the summer.
And we've had trade partners.
Didn't really have a choice they had.
To make room for those tires and they know now that there is I think better supply.
And the industry. So there yeah.
Got.
Got used to us being good suppliers, they've been able to normalize their supply in some of our there their stock in some of our brands.
Yeah.
Okay.
No Darren I think you said it.
If you just go around.
Last year in the U S. We had a really big restocking that got done and.
That was that was really good that as Darin said that the shelves are there supply is more reliable carrying cost of inventories a little bit higher and you have this sort of bump of new tires coming in from the Asian supply. So that's kind of a darrin I think what we would say it's sort of a normalization.
We get these bumps you know through Resupplying Destocking resupplying imports coming in once that smooths out I think youll see our business continues to do very well our channel inventories are holding up very well, there's not they're not long on Goodyear tires right now so I think that sets us up very well as we think about.
Going ending 'twenty, two and going into 'twenty three in Europe , obviously, youre seeing a little bit more headwinds there are little uncertain uncertainty of.
Of demand so distributors are taking a little bit of a step back, but our channel inventories are actually better positioned at the end of the third quarter in terms of volume or in terms of stocking than they were at the end of the second quarter. So we feel pretty good about how we're positioned there as well and I'll just reiterate something Darren has talked about at length.
And that is and I think you know this when we get through tumultuous times like this or a slowing economy.
We are a straightaway focused on cash flow, which means working capital and we don't build tires, we don't need we don't want those in inventory our focus is on generating cash and as Darren said, a slowing economy generally results in us generating more cash than lesson I would say historically thats the case and Thats exactly how were thinking.
It right now.
Okay. That's helpful.
Full color and then maybe.
Final one from me maybe for Darren.
So.
Would you think that.
The second half annualize soi.
He is a good starting point for us to model 2023.
And if so what would be the broad puts and takes you know starting from second half of this year into how to think about next year.
Yeah.
So I actually think the.
As we're moving through.
The second half.
We have had.
I guess, maybe take this is four points.
So our volumes in the second half.
So far has have reflected.
Some do.
Reduction in dealer stock.
And so to the extent that reduction in dealer stock related to sort of one time need for our dealers to accommodate.
The imports that were arriving then yes, I think as we move into next year.
Wouldn't expect that to recur.
So I think it actually.
Create a volume environment is a little bit better.
And particularly if we're thinking about the Americas and Asia I think Europe is.
A little bit harder to predict given the macroeconomics.
Conditions there however.
I think we're also looking at 2023 is a period where.
At least some of the.
OE production should continue to.
Cover.
So we've got potentially.
A good set.
Better set up for replacement.
Just given if dealers have reduced stocks then that could end and we've got continued recovery.
So I think from a volume front I think there is some reason.
Potentially some reason for some optimism.
And even if we get a little bit of recessionary impact generally thats.
Only two or 3% impact on vehicle miles traveled in on replacement tire consumption.
The cost increases.
I think we see those continuing into the first half of next year.
But raw material increase in raw materials will be coming down and we will.
Other than the energy cost in Europe , you were going to be Anniversarying, a lot of the cost increases that we saw on ocean freight on inland freight.
The labor cost bump that we got during the year. So I think we're looking for moderation.
In both raw materials and other costs setting aside the questions around energy costs in Europe .
And I think generally we're looking at the middle of next year is a period of time, where we may have costs coming back down.
And that once we've gone through this period that we've gone through where prices have risen dramatically once we get to that moment in time, where car cost start to drop that tends to be an opportunity for margins to expand.
Yes. So we did have a decent set up on volume decent set up on margin moving into the second half of next year.
Obviously, we're going to continue to work on addressing OA profitability.
Had a lot of costs beyond raw materials that have not been captured in the raw material index agreements with our OE customers and our fleets and we've been having constructive discussions there that I think could.
Could provide us some benefits next year that we haven't been getting this year.
And then finally.
We'll get by Middle of next year, we'll get to our full Cooper synergies.
Yes, so in the third quarter, we got about $25 million of benefit from Cooper synergies.
And so that is obviously a run rate of about $100 billion a year, we're looking to get ourselves up to that two <unk> level on an annualized basis by middle of next year. So that's something that also would help.
<unk> creates some optimism around what would you get so first half of next year, we still got some of the same challenges by the middle of next year I think there are a number of things here.
You.
Cost and Cooper that could all be fairly constructive setup.
Yeah.
Perfect. Thank you so much.
Sure.
Yeah.
Thank you and this does conclude our Q&A session as well as our conference call. Thank you for your participation you may disconnect at any time.
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