Q3 2023 Goodyear Tire & Rubber Co Earnings Call
Speaker 1: you
Speaker 2: Good morning. My name is Nikki and I will be your conference operator today. At this time I would like to welcome everyone to Good Hears third quarter 2023 earnings call. All employees have been placed on mute to prevent any back.
Good morning, My name is sneaky and I will be your conference operator today.
This time I would like to welcome everyone to Goodyear's third quarter 2023 earnings call.
Lines have been placed on mute to prevent any background noise.
After some opening remarks, there will be a question and answer session.
You May register to ask questions over the phone by pressing the star and one on your telephone keypad.
You may withdraw your question from the queue, but pricing start to.
Today on the call, we have rich Kramer Goodyear as chairman and Chief Executive Officer.
And Kristina Tomorrow, Chief Financial Officer.
During this call Goodyear, we'll 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 2023, Investor later under filings with the S. E C, which can be found under website at investor Goodyear Dot com wherever.
Speaker 2: information on the most significant factors that could affect future results, please refer to the important
Speaker 2: the SBCC, which can be found on their website at investor.goodyear.com, where a replay of the SBCC, which can be found on their website at investor.goodyear.com, where a replay
<unk> 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. He's also included in the industrial later.
Speaker 2: that may be discussed on today's call to the comparable GAAP measures is also included in the investor letter.
I will now turn the call over to rich Kramer, Chairman and C E O.
Great. Thank you Nikki good morning, everyone and thanks for joining the call today.
Speaker 3: Great, thank you, Nicky. Good morning, everyone, and thanks for joining the call today.
Speaker 3: By now, you've seen our investor letter covering Q3 results, and also an announcement that we'll be with you again next Wednesday, November 15th, with an update on the results coming out of our strategic and operating review. Now, with that in mind, we're happy to take questions on the quarter this morning, but I'd ask that you hold any questions related to the review until next week, when we'll be able to say more. So thank you for that, and Nikki, with that, let's go ahead and take the first question.
Now you've seen our investor letter covering Q3 results and also an announcement that will be with you again next Wednesday November 15th with an update on the results coming out of our strategic and operating review now.
Now with that in mind, we're happy to take questions on the core to this warning, but I'd ask that you hold any questions related to the merger you until next week, when we'll be able to say more so thank you for that and Nikki with that let's go ahead and take the first question.
Thank you and just a reminder, if you would like to ask a question. Please press the star and one on your telephone keypad.
Speaker 2: And as a reminder, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question at any time by pressing star.
We draw your question at any time by pricing start to once again to ask a question. Please press star one on your telephone keypad.
Speaker 2: our first question from Rod Lachey with Wolf Research. Please go ahead. Your line is open.
We will take our first question from Rod Lache with Wolfe Research. Please go ahead. Your line is open.
Good morning.
I.
Speaker 4: was hoping to ask two questions, maybe just higher level. I know you don't want to get into any details on the strategic and operational review, but just first of all, at a high level, maybe you could talk a little bit about the Europe business, which is
Was hoping to ask two.
Two questions, maybe just higher level I know you don't want to get into any details on the strategic and operational review, but I'm just first of all it at a high level, maybe you could talk a little bit about the European business, which is still quite weak with a with a one 5% margin.
Speaker 4: still quite weak with a 1.5% margin.
Speaker 4: And just at a high level, the worry is that it's a very structurally challenging market that would require a lot of investment. Right now, your restructurings typically take three to four dollars of restructuring cash for every dollar of savings. So could you maybe just talk to us?
And just at a high level there. There's the worry is that it's a very structurally challenging market.
That would require a lot of investment right now you're you're restructuring typically take three to $4 of restructuring cash for every dollar of savings.
So could you maybe just talk to us a little bit about the.
Speaker 4: the changes that are being made there and whether some of the, you see some structural changes that make this more fixable. And on the strategic side, I expect that you'll give us more specifics over the next couple of weeks, but at a high level, any indications of interest that you're assessing on businesses within Goodyear.
The the changes that are being made there and whether some of the you see some structural changes that make this more fixable and I'm on the strategic side, Yeah, I expect that you'll you'll give us more specifics over the next couple of weeks, but any highlight at a high level any indications of interest there.
Youre assessing on an businesses within within Goodyear.
Speaker 3: Yeah, Rod, first of all, I, you know, I think we would agree with you relative to the performance.
Yeah, Brad first of all you know.
I think we would agree with you relative to the performance.
Speaker 3: You may recall, we said our near-term goal was to get back to the, you know, sort of the 50 million, pre-COVID 50 million.
EMEA you may recall, we set our near term goal was to get back to that.
The $50 million pre Covid 50 million per quarter run rate and in Q3, while a little bit better than Q2, certainly is well below that run rate and that's the issue that needs to be addressed to your point.
Speaker 3: per quarter run rate, and Q3, while a little bit better than Q2, certainly is well below that run rate, and that's the issue that needs to be addressed, to your point.
Speaker 3: You know, I point out again, as you know, the industry is still really challenged relative to 2019. You know, if you've seen in our investor letter, we included the 2019 numbers.
Point out again as you know the industry is still really challenged relative to 2019.
If you have seen in our Investor letter. We included the 2019 numbers, where you see the consumer business is down let's call. It still 15% in the truck business, 22% versus 2019, so look it's not back to normal, but having said that you know to your point, we've been in and are evaluating EMEA.
Speaker 3: where you see the consumer businesses down, let's call it still 15%, and the truck business 22% versus 2019.
Speaker 3: So look, it's not back to normal, but having said that, you know, to your point, we've been and are evaluating EMEA and looking at, you know, looking at all options to generate value in the near term and continuing to assess sort of the long-term solutions as well, given the macro environment of what's going on over there. And particularly, I think we've all seen sort of the recent, sort of.
And looking at you know looking at all options to generate value in the near term and continuing to assess sort of the long term solutions as well given the macro environment and what's going on over there and particularly I think we've all seen sort of that the the recent sort of.
Speaker 3: number of articles talking about the ice, the EV conversion, the competitive challenges.
Number of articles talking about the ice to EV conversion the competitive challenges high cost of doing business, there and the like and I think that's the tough environment that you've referred to so I'd say Rod you know near term like we have where we're acting now and I'd say more to come what we're doing now as you've pointed out.
Speaker 3: high cost of doing business there and the like. And I think that's the tough environment that you've referred to. So I'd say, Rod, near term, like we have, we're acting now, and I'd say more to come. What we're doing now is, as you've pointed out, we've announced already some manufacturing and some plant actions there and some SAG actions as well over the last two quarters. We've also seen some competitors do some similar things like that.
We've announced already some manufacturing and some planned actions there.
Some S. A G actions as well over the last two quarters, you've also seen some competitors do some similar things like that.
Speaker 3: And also in the near term, what we're looking to do is make sure that we stabilize those earnings in the near term and not lose the benefit of those cost savings that we've done as we know that's happened in the past as well. So,
And also in the near term what we're looking to do is make sure that we stabilize those earnings in the near term.
Not lose the benefit of those cost savings that we've done is as we know that's happened in the past as well so.
Speaker 3: I'm going to go back to my opening statement and say, look, we are continuing to actively assess this, including with our review committee. And I would just say more comments to come next week as we look at this. But it is certainly a challenging area, I would agree with.
I'm going to go back to my opening statement and say look we are continuing to actively assess this including with our our review committee and I would just say more comments to come next week as we look at this but but it is certainly a challenging area right I would agree with you.
Yeah.
On the I O I's.
Speaker 4: On the IOIs, at a very high level, are you receiving any indications of interest from other players in your businesses? It's pretty well known that you're going through the strategic review and you'll have more detail to come, but can you just offer any kind of high-level comments on that?
Just relative to you at a very high level are you receiving any indications of interest from from other players in your businesses.
It's pretty well known that Youre going through the strategic review and you'll have more detail to come but can you just offer any kind of high level comments on that.
Speaker 3: Yeah, Rod, I get it. I'd have to say we'll be back to you next Wednesday on a separate call. You know, the committee is doing all inclusive, including email, comprehensive review, evaluating all the options, again, with the idea of maximizing shareholder value. So we'll come back to you on Wednesday.
Yeah, Brian again, I'd have to say it will be back to you next Wednesday in a separate call you know that the committee is doing all inclusive, including EMEA a comprehensive review of evaluating all the options again with the idea of maximizing shareholder value. So we'll come back to you on Wednesday.
Speaker 4: Okay, then just maybe one thing that you may be able to answer is just you've had a pretty nice improvement in raw materials versus net pricing again this quarter, but obviously oil prices starting to move in an adverse direction. Any thoughts on how things are kind of shaping up into early 2024?
Okay, and just maybe one thing that you may be able to answer is just you've had a pretty nice improvement in raw materials versus net pricing.
Again this quarter.
But obviously oil prices starting to move in an adverse direction any thoughts on.
How things are kind of shaping up into early 2024.
Yeah, I mean, Brian maybe I'll, let Kristina jump in I would just maybe add to your to your point you know, we're still seeing a very stable pricing environment. In Q3, we continued to see that in October as well and you know our our business this quarter really focused on those areas, where we can.
Speaker 3: Yeah, I mean, Rod, maybe I'll let Christina jump in. I would just maybe add to your point. You know, we're still seeing a very stable pricing environment in Q3. You know, we continue to see that in October as well. And, you know, our business this quarter really focused on those areas where we can drive value again, which is that premium part of the market where our value proposition holds up really well. And that's, you know, that's what we did. That's what we saw. And I would tell you, you know, that part of the market, even as we get into 2024, and, Rod, you'll remember this, is we sort of bifurcate the market. The premium part of the market still has the dynamics that are favorable to us.
Drive value again, which is that that premium part of the market, where our value proposition holds up really well and that's our that's what we did that's what we saw and our and I would tell you that part of the market even as we get into 2024 and Rod you will remember this as we sort of bifurcate them.
Market the premium part of the market still has the dynamics that are favorable to us.
Certainly in terms of segments its the profitable it's the most profitable profit pool. If you will of the market, it's where we have 18 inch above growing.
Fairly significantly I think about 7% in 2023, our products our brand our technology, both Goodyear and Cooper plate really really well there and again the demand to supply dynamics still at work.
In our favor and I think that's what you saw in Q3, that's what you'll see in Q4 as we move ahead and.
Speaker 3: And look, maybe I'll turn it over to Christina, we'll certainly still see some inflation coming at us and you'd be right to think that we're going to go to offset that in the marketplace with the value of our products, but Christina, you might want to jump in.
Maybe I'll turn it over to Christina will certainly still see some inflation coming at us and you'd be right to think that we're going to we're going to go to offset that in the marketplace with the value of our products, but well Cristina you might want to jump in on it.
Speaker 5: But Christina, you might want to jump in on it. Yeah. Hi, Rod. So I'll just, you know, anchor us back to what we said on the second quarter call. We had given some guidance for the first half of next year, indicating that we thought our raw material tailwind would be about $400 million over the first half. With the increase in spot rates across our base commodities, we would say that feedstocks are down about $120 million since then, so implying a benefit of about $280 million.
Yeah, Hi, Ryan So I'll just yeah.
Speaker 5: Hi, Rod. So I'll just, you know, anchor us back to what we said on the second quarter call. We had given some guidance for the first half of next year indicating that we thought our raw material tailwind would be about $400 million over the first half with the increase in spot rates across our base commodities.
And goes back to what we said on our second quarter call. We had given some guidance for the first half of next year, indicating that we got a raw material tailwind would be about $400 million over the first half with the increase in spot rates across our base of commodities.
We would say that feedstocks are down about 120 million. Since then so it was a benefit of about $280 million in the first half I think we right now we still see a benefit in Q3 may be a slight headwind in Q4, but we are continuing to assess.
Speaker 5: We would say that feedstocks are down about $120 million since then, so implying a benefit of about $280 million in the first half. I think we right now would still see a benefit in Q3, maybe a slight headwind in Q4. But we are continuing to assess all opportunities on non-feedstock savings as well, some of those energy transportation costs are coming down. So we'll continue to refine the assumptions and come back to you on our fourth quarter call. But that's how we're seeing it right now.
Opportunities on non feedstock savings as well some of those energy transportation costs are coming down so well continue to refine these assumptions and come back to you on our fourth quarter call, but that's how we're seeing it right now.
Great. Thank you very much.
Speaker 6: Thanks, Ron.
Thanks Rod.
Thank you and once again it is star one touchtone phone if you would like to join the queue Star and one we will move next with James Picariello.
Speaker 2: Once again, it is star and one on your touchtone phone, if you would like to join the queue. Star and one.
Please go ahead your line is open.
Speaker 3: Hey, good morning, everyone. Just for the fourth quarter guidance framework, if we want to call it that, the only the only missing piece. And, you know, of course, you continue to appreciate the color on on the quarterly Outlook roll up the only missing piece would be the other line. Right. So in the third quarter, for instance, you had
Hey, good morning, everyone.
Is it just.
For the fourth quarter.
Guidance framework, if if we wanted to call it that.
The only the only missing piece and you think.
Of course, if you continue to appreciate the color on that.
Quarterly.
Outlook rollout the only missing piece would be the other line right. So in the third quarter for instance, you had.
Speaker 7: Uh, your chemicals business incur 21Million dollar headwind. Uh, 32Million overall for other, how should we be thinking about that? 1 line item in the 4 key guidance.
Our chemicals business incurred $21 million million dollar headwind.
32 million overall for other how should we be thinking about that one line item in the <unk> guidance for Soi.
Speaker 5: Yeah, James, so we've indicated a $15 million SOI impact from the fires that impacted our factory in Poland in the third quarter. That's a discrete item. And that is what will be shown in other. We won't have a continuing impact from chemical sales like we saw earlier in the year. We're laughing that confident.
Yes, James So we've.
Indicated a $15 million soi impact from the fires impacted our factory in Poland in the third quarter that.
A discrete item.
That is what will be shown in other we will have a continuing impact from chemical sales like we saw earlier in the year, we're lapping that comp in Q4.
Okay. So excluding the fire impacts the other.
Speaker 7: Okay, so excluding the fire impact the other other lines should be. Something close to neutral.
Other lines should be something close to neutral.
Okay.
Speaker 7: Yep, okay understood and then um
Yep, Okay understood and then.
As we think about restructuring spend and free cash flow for next year.
Speaker 7: structuring spend and free cash flow for next year. And just focusing on the series of actions that you guys have announced throughout this year with detail on what the intended cash spend is for those actions.
And just focusing on.
The series of actions that you guys have announced.
This year with detail on what the intended cash spend is for those actions.
Speaker 7: Can you speak to what cash restructuring could look like for next year relative to the 100 million that you're guiding for this year?
Can you speak to what.
Cash restructuring could look like for next year relative to the $100 million that you're guiding for this year.
Yeah, So we've announced programs.
Speaker 5: You know, in-flight programs so far this year totaling $100 million in savings for 2024. And Rich mentioned earlier a couple of programs in Armenia, one that was a larger SAT restructuring program, also a reduction in our production at a fold-a-factory. And then there's also been an announcement related to a change in our go-to-market model in Asia Pacific, in Australia in particular.
Yeah in flight programs, so far this year totaling $100 million in savings for 2024, and Richard mentioned earlier, a couple of programs in EMEA. One it was a larger S. H a restructuring program also a reduction in ore production at all of the factory than theirs.
Also been an announcement related to a change in our go to market model in Asia Pacific and Australia in particular.
So with those in flight programs and what's been announced to date restructuring cash next year would be around $300 million.
Speaker 8: So, with those inflate programs, and what's been announced to date, restructuring cash next year would be around $300 million in 2024. Those programs also have a stub into 2025 of about $60 million. Okay, all right, thank you very much.
24, there's programs also have a stub of into 2025 or about $60 million.
Yeah.
Okay, Alright, thank you very much.
Mhm.
Thank you Andy.
And this does conclude our Q&A session as well as our conference call. Thank you all for your participation and you may disconnect at any time.
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