Q4 2023 Goodyear Tire & Rubber Co Earnings Call
Operator: Good morning, my name is Niki, and I will be your conference operator. At this time, I would like to welcome everyone to Goodyear's 4th Quarter 2023 Earnings Call. [inaudible] After some opening remarks, there will be a question and answer session. You may register to ask questions at any time by pressing the star and 1 on your telephone keypad. You may withdraw your question from the queue by pressing star 2.
Good morning, My name is sneak in and I will be your conference operator today at this time I would like to welcome everyone to Goodyear's fourth quarter 2023 earnings call.
These have been placed on mute to prevent any background noise. After some opening remarks, there will be a question and answer session.
Speaker Change: You May register to ask questions at any time, but pricing their start and one on your telephone keypad you.
Speaker Change: You may withdraw your question from the queue by pressing star two.
Operator: Today on the call, we have Mark Stewart, Goodyear's Chief Executive Officer, and Christina Zamarro, Chief Financial Officer. 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 4th Quarter 2023 Investor Letter and its filings with the SEC, which can be found on the website at investor.goodyear.com, where a 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 now turn the call over to Mark Stewart, CEO. Thank you, Nicky.
Speaker Change: Today on the call, we have Mark Stewart, Goodyear's, Chief Executive Officer, and Christina Tomorrow, Chief Financial Officer.
Speaker Change: 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.
Speaker Change: On the most significant factors that could affect future results. Please refer to the important disclosures section of Goodyear's fourth quarter 2023, Investor later in their filings with the S. E C, which can be found on the website at investor daughter, Goodyear Dot com wherever replay of this call will also be available.
Speaker Change: 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.
Speaker Change: I will now turn the call over to Mark Stuart C E O.
Mark Stuart: Thank you Nikki good morning, everybody and thank you for joining Kristina and I. This morning.
Mark Stewart: Good morning, everybody, and thank you for joining Christina and me this morning for what is my first conference call as the Goodyear CEO. I'm just now over two weeks in my new role. I could not be more excited to join this iconic company. As you guys can imagine, I'm working diligently and quickly to gain a deep understanding of our business. I'm meeting with our people, visiting our factories, getting to know our customers, our products, our cost structures, and doing that through an operational deep dive. I'm looking forward to engaging with the investment community as well over the course of the next several months to gain your perspective as well. As many of you have read, my most recent role was at Stellantis, where I ran the company's North America operations and was a key leader on the global executive team.
Mark Stuart: For what is my first conference call as the Goodyear CEO and just now over two weeks in my new role I cannot be more excited to join this iconic company.
Mark Stuart: As you guys can imagine I'm, working diligently and quickly to understanding deep understanding.
Mark Stuart: All of our business and meeting with our people visiting our factories getting to know our customers our products our cost structures and doing that through operational deep dive I'm looking forward to engaging with the investment community as well over the course of the next several months to gain your perspective as well as many of you have read my most recent role as.
It's still an says where I ran the company's North America operations and acute later on the global executive team.
Mark Stewart: I will bring a perspective from an automotive OEM and an automotive supplier background and the understanding of needing to lead through industry cyclicality and a clear focus on manufacturing, purchasing, engineering, and logistics in order for us to achieve our financials. What this means is that, in addition to spending time meeting our customers, understanding our products and product placement, you can expect me to focus heavily on Goodyear's manufacturing operations and distribution, understanding them at every level, and working with the team to enhance capability and our cost effectiveness. As well, I will focus on clean sheeting and ship cost activities, our SKU, or product complexity, as well as our go-to-market strategy. Like all other aspects of our business, that focus will be centered purely on our Goodyear Forward program in the coming months. I'm engaged in deep dives on each element of the program, the associated work stream, and our amazing teams, and committed to delivering the outcomes of the Forward Plan.
Mark Stuart: Bring them perspective from an automotive OEM automotive supplier background and the understanding of needing to lead through industry cyclicality and a clear focus on manufacturing.
Mark Stuart: <unk> engineering and logistics in order for us to achieve our financials. What this means is that in addition to spending time meeting our customers' understanding of products and product placement you can expect me to focus heavily on goodyear's manufacturing operations and distribution understanding it on every level and work.
Mark Stuart: And with the team to enhance capabilities and our cost effectiveness.
Mark Stuart: As well our focus on clean sheeting and shed cost activities are.
Mark Stuart: Our SKU or product complexity as well as our go to market strategies like all other aspects of our business that focus will be centered purely around our goodyear forward in the coming months.
Mark Stuart: I'm engaged in deep dives on each element of the program the associated work stream, our amazing teams and committed to delivering the outcomes of the forward plan.
Mark Stewart: I've been a part of leading transformational efforts and driving results in my past roles and bringing them to the bottom line through clear KPIs, definition, tracking, and speed of execution. For Goodyear, for us, it's about maximizing our strength and our market position in North America. It's improving our cost structure, as well as de-risking our balance sheet. Ultimately, I'm confident Goodyear Forward will drive our company's next stage of profitable growth and success. It's clear, and I fully support the plan. With that said, you have probably read our investor letter from yesterday evening. Christina and I would like to get right to your questions. So with that, Nikki, let's open the line.
Mark Stuart: I've been a part of leading transformational efforts and driving results in my past roles and bringing them to the bottom line to be clear kpis the definition the tracking.
Mark Stuart: Speed of execution.
Mark Stuart: For good year for us, it's about maximizing our strengths and our market position in North America is improving our cost structure as well as derisking our balance sheet.
Mark Stuart: Ultimately I'm confident Goodyear forward will drive our company's next stage of profitable growth and success.
Speaker Change: It's clear and I fully support the plan.
Speaker Change: With that by now you were at our Investor letter from yesterday evening Christy.
Speaker Change: Kristina and I'd like to get right to your questions. So with that Nikki let's open the line.
Operator: And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. And at this time, 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 2.
Speaker Change: And at this time, if you would like to ask a question. Please press. The Star then one on your telephone keypad.
Speaker Change: You may withdraw your question at any time by pressing star two.
Speaker Change: Once again to ask a question. Please press star one on your telephone keypad.
Operator: Once again, to ask a question, please press the start and 1 on your telephone keypad. I'm going to take our first question from Rod Lache with Wolf Research. Please go ahead. Good morning, everybody.
Speaker Change: We will take our first question from Rod Lache with Wolfe Research. Please go ahead.
Rod Lache: Good morning, everybody a good to talk to you again Mark.
Rod Avraham Lache: Good to talk to you again, Mark. I understand that you're just two weeks into working at Goodyear, but I wanted to give you a little bit more of an opportunity to talk about what you see as the most important to create a durable industrial turnaround and what you think the timeline will be for you to kind of put your stamp on the plan. Yeah, thanks.
Rod Lache: I understand Mark that you just two weeks into a working at at Goodyear.
Rod Lache: But I wanted to give you a little bit more of an opportunity to talk about what you see is most important to.
Rod Lache: To create a durable industrial turnaround.
Rod Lache: And what do you think the timeline will be for you to kind of put your stamp on the plan.
Rod Lache: Yeah.
Mark Stewart: You know, I think what's clear is going back again to the very well thought out Goodyear Forward plan, which was rolled out November 15th, right? And that is my focus. It's about streamlining the portfolio. It's about getting to sustainable operational margins of 10%, getting our net leverage to two, two and a half X by the end of 25, and having that sustainable free cash flow that's going to increase our overall financial flexibility. So specifically, you know, with a whopping two weeks and a day here, I'm right in the middle of this onboarding process.
Speaker Change: Thanks Rod.
Speaker Change: What's clear is it's going back again to two the very well thought out Goodyear forward plan, which was rolled out in November 15th right and that is my focus it's about streamlining the portfolio is for us to get to sustainable operational margins of 10%.
Speaker Change: Our net leverage to two two and a half X by the end of 'twenty five.
Speaker Change: And having that sustainable free cash flow, that's going to increase our overall financial flexibility. So specifically you know where the lumping two weeks and a day here [laughter] and right in the middle of this onboarding process and again I was spending the majority of my time and plan to do so in the near term listening to our team here a good year.
Mark Stewart: And again, I'm spending the majority of my time and plan to do so in the near term listening to our team here at Goodyear, both at headquarters, in the plants, our retailers, our customers, meaning in retail, OE, and distribution. And I really am looking forward to meeting you guys as well, Rod, in a different light from the past, right? But I am deep diving into the operations, going through the functions, the financials, to really thoroughly understand the business right now. And so I'm asking lots of questions, taking lots of notes, continuously reviewing that, especially in this first 30, 60, 90 days, to challenge what I think about coming in, to gain understanding from our team, also to get clarification of things that maybe we can put into some quick win categories in areas that learnings that I've had from the So again, it really is about trying to keep that fresh eye look, with a hard drive to execution, and it is about speed of execution.
Speaker Change: Both at headquarters in the plants are retailers, our customers, meaning in retail OE and distribution.
And it really is looking forward to meeting you guys as well right.
Speaker Change: In a different way from the vast right I am deep diving into the operations are going through the functions. The financials, it's really thoroughly understand the business right now.
And so I'm asking lots of questions taken lots of notes are continuously reviewing that especially in this first 30 60 90 days to challenge, what I think and coming in to get it to gain the understanding from our team and also to get clarification of things that that maybe we can I can put it into some.
Speaker Change: Quick win categories in areas that are the learnings that I've had from the past as well. So again it really is about trying to keep that fresh I look with a hard drive to execution and it is about speed of execution, it's about us delivering that good year forward plan.
Speaker Change: Yeah, a couple of the observations that have in the first couple of weeks again, there's incredible momentum in the Goodyear forward plan.
Speaker Change: Meeting with the teams just the as you look to the plans well thought out.
Speaker Change: Step by step timing ownership execution, and so that is what I'm here to do is to help Kristina and the rest of the team in terms of helping to lead and guide those initiatives across the finish line right.
Mark Stewart: It's about us delivering that Goodyear Forward Plan. A couple of the observations I've had in the first couple of weeks, again, there's incredible momentum in the Goodyear-Fuller plan, meeting with the teams, just the, as you look at the plans, well thought out, step-by-step timing, ownership, and execution. And so that is what I'm here to do, to help Christina and the rest of the team in terms of helping to lead and guide those initiatives across the finish line. Thanks for that.
Speaker Change: Great. Thanks for that and just on the business.
Speaker Change: Maybe Kristina you can help us with this cost performance is obviously starting to look a lot better now and I presume that that's not really with much benefit from the Goodyear forward plan yet so that the question just looking at the numbers just continues to be market share and I know theres factors that affected it in every region, but even in.
Speaker Change: In isolation just.
Speaker Change: Good years year over year volume performance wasn't great.
Rod Avraham Lache: And just on the business, maybe Christina, you can help us with this. Cost performance is obviously starting to look a lot better now, and I presume that that's not really getting much benefit from the Goodyear Forward Plan yet. But the question, just looking at the numbers, just continues to be market share. And I know there are factors that affect it in every region, but even in isolation.
Kristina: So I'm, hoping you can maybe just talk to us a little bit about you think.
Kristina: Theres markets stability for good year or is that kind of a work in progress in other words do you think that even beyond Goodyear forward more realignment is going to be needed.
Kristina: To the to that portfolio.
Speaker Change: Yeah sure Rod.
Speaker Change: They get by region and I'll start with the U S.
Speaker Change: Our fourth quarter.
Speaker Change: Replacement market share in the U S. In 2022 was yeah I'd have to characterize it Brian is just abnormally high and it approached 28% and that was all driven by you know you referenced to the volatility of the imports that we saw over the course of 2022, even at the tail end.
Christina L. Zamarro: Goodyear's year-over-year volume performance wasn't great, so I'm hoping you can maybe just talk to us a little bit about that. Do you think that there's market stability for Goodyear, or is that kind of a work in progress? In other words, do you think that even beyond Goodyear Forward, more realignment is going to be needed in the portfolio? Yeah, sure, Rod.
Speaker Change: Of 2021.
Speaker Change: When I look at our consumer replacement share in the U S. In the fourth quarter. What are your 23 I would say it's in line with year to date results and reflects a more normalized level of sell in share.
Christina L. Zamarro: I'll take it by region, and I'll start with the US. And our fourth-quarter replacement market share in the U.S. in 2022 was, you know, I'd have to characterize it, Rod, as just abnormally high, and it approached 28%. And that was all driven by your reference to the volatility in imports that we saw over the course of 2022, even at the tail end of 2021. When I look at our consumer replacement share in the U.S. in the fourth quarter of 2023, I'd say it's in line with year-to-date results and reflects a more normalized level of sell-in share. And even with the significant change on a year-over-year basis, you know, looking at the volume decline, what I'd also point out to you is that our sell-out share, so what's getting bolted on to vehicles at retail, was in line with the industry. And so that gets to your question around the level of stabilization.
Speaker Change: Even with the significant change on a year over year basis, you're looking at the volume decline what I'd also point out to you is that our sell out share. So what's getting bolted onto vehicles at retail was in line with the industry and so that that gets to your question around a level of stabilization. So we would expect a much more of a norm.
Speaker Change: <unk> market share going forward in the U S certainly with margins in excess of 10%.
Speaker Change: We are in a good market position in terms of share that doesn't mean that we won't make changes to the portfolio around the periphery. We said that we will do that as part of Goodyear forward too.
Speaker Change: SKU consolidation through our customer programs as we look to continue to grow our margins, but I don't think there's anything that significant there rod.
Speaker Change: Do you feel that we've stabilized in the U S compared to last year, having said all of that he does yeah. The forward outlook for our mature markets say U S and Europe principal slow growth for 2024, something like up one 2% feels tougher in the first half than in the second half when we know we also have recent.
Christina L. Zamarro: So we would expect a much more normalized market share going forward in the U.S., certainly with margins in excess of 10%. We are in a good market position in terms of market share. That doesn't mean that we won't make changes to the portfolio around the periphery. We've said that we will do that as part of Goodyear Forward through SKU consolidation and our customer programs, as we look to continue to grow our margins. But I don't think there's anything that significant there, Rod.
Speaker Change: Lines raw material, so that there's that to put into the calculus as well.
Speaker Change: So when we think about EMEA you know the past headwind has been our sales volume performance really going back to 2019, yeah. We've been hurt by you know our position in OE.
Speaker Change: And that's where the industry certainly fallen pretty dramatically off its peak, it's also hurt in replacement where.
Speaker Change: We do tend to be more profitable as you know.
Christina L. Zamarro: I do feel that we've stabilized in the U.S. compared to last year. Having said all that, the forward outlook for our mature markets, say the U.S. and Europe, is both slow growth for 2024, something like up 1% to 2%. It feels tougher in the first half than in the second half.
Speaker Change: I think going forward, we see a little downside risk and so we are always forecast yeah globally.
Speaker Change: 2024, something that feels a lot more forward.
Speaker Change: There's a lot more.
Speaker Change: Level.
Speaker Change: But when I think about the consumer replacement market share in Europe, what I'd say is it was lost a lot of market share since 2018 to imported budget brands.
Speaker Change: And they have grown as it.
Speaker Change: Part of the industry.
Christina L. Zamarro: And we know we also have recent declines in raw materials. So there's that to put into the calculus as well. Now, when we think about EMEA, you know, the past headwind has been our sales volume performance really going back to 2019. We've been hurt by, you know, our position in OE.
Speaker Change: About 15 million units since 2019, and that's at the same time the industry shrunk 7 million units until we've lost our fair share of that.
Speaker Change: And that's why we're directing the restructuring dollars as part of Goodyear for award.
Speaker Change: To the factories in EMEA and that that was all announced in the fourth quarter.
Speaker Change: So just Cristina was that once the restructuring is done in Europe, you would expect that business to be.
Christina L. Zamarro: And that's where the industry's certainly fallen pretty dramatically off its peak. It's also hurt in replacement where we do tend to be more profitable, as you know. I think going forward, we see a little downside risk to OE. Our OE forecast globally for 2024 is something that feels a lot more positive or a lot more level. But when I think about the consumer replacement market share in Europe, what I'd say is it lost a lot of market share since 2019 to imported budget brands, and they have grown as a part of the industry, about 15 million units since 2019, and that's at the same time the industry shrunk 7 million units, and so we've lost our fair share of that, and that's why we're directing the restructuring dollars as part of Goodyear Forward So just, Christina, with that, once the restructuring is done in Europe, you would expect that business to be... more defendable or more stable at that level. Yeah, I mean, I would say.
Speaker Change: More defendable, we're more stable at that level.
Cristina: Yeah, I mean, I would say.
Cristina: We will we're addressing the cost competitiveness.
Cristina: Just a couple of factories out I think there will be more work for us to do beyond 2025, I think we can get you up to a high single digit Soi margin performance I don't think we'll get there by the end of 2025, but we're beginning the work we are laying the groundwork we've announced the two factories.
Cristina: We've also announced the big S. A G restructuring worth $100 million.
Cristina: And email will also get their fair share of the purchasing and some of the corporate initiatives that we're running as part of Goodyear for it. So we do have a good path to earnings growth in the future in Europe, but I think it's going to take a little bit longer than this two year plan period that we're talking about as part of <unk>.
Cristina: Going forward.
Speaker Change: Got you okay. Thank you.
Hmm.
Speaker Change: Thank you and our next question comes from James Picariello with BNP Paribas. Please go ahead.
James Albert Picariello: Hi, good morning, everyone and welcome aboard Mark.
James Albert Picariello: Yes.
James Albert Picariello: Just on the restructuring.
James Albert Picariello: The restructuring actions the Goodyear forward savings plan, so you're calling for $350 million for.
Christina L. Zamarro: We're addressing cost competitiveness. With the couple of factories out, I think there will be more work for us to do beyond 2025. I think we can get Europe to a high single-digit SOI margin performance, but I don't think we'll get there by the end of 2025.
James Albert Picariello: For the full year $50 million in the first quarter.
James Albert Picariello: Just curious how we should be thinking about the remainder of the year in terms of the cadence.
And then more broadly as we can.
James Albert Picariello: Think about divestitures and the need for.
Christina L. Zamarro: But we're beginning the work. We're laying the groundwork. We've announced the two factory closures.
James Albert Picariello: The execution there to fund the heavy lift on the Goodyear forward plan in 2025, right to achieve that $1 billion.
Christina L. Zamarro: We've also announced the big SAG restructuring worth $100 million, and EMEA will also get their fair share of the purchasing and some of the corporate initiatives that we're running as part of Goodyear Forward. So we do have a good path to earnings growth in the future in Europe, but I think it's going to take a little bit longer than this two-year plan period that we're talking about as part of Goodyear Forward. Thank you. Thank you. And our next question comes from James Picariello with BNP Paribas. Please go ahead.
James Albert Picariello: Plus our exit rate.
James Albert Picariello: It does.
James Albert Picariello: All that needs to take place this year for for.
James Albert Picariello: The timing to two are used to be maintained here in terms of the timeline. Thanks.
James Albert Picariello: Yeah.
James Albert Picariello: Hi, James So on the with Goodyear forward program $350 million on a full year basis $50 million in the first quarter. You can think about that is oh, yeah, a big step up in Q2, and then a little bit of a leveling the rest of the year.
James Albert Picariello: And what I would say is still ramping onto the fourth quarter. As you can imagine we're building into our run rate through the end of 2025 with all of these programs.
James Albert Picariello: Hi, good morning, everyone, and welcome aboard, Mark. Thank you. Just on the restructuring, the restructuring actions, the Goodyear Forward Savings Plan. So you're calling for $350 million for the full year and $50 million in the first quarter. You know, how we should be thinking about the remainder of the year in terms of the cadence. And then, more broadly, as we think about divestitures and the need for, you know, the execution there to fund the heavy lift on the Goodyear Forward Plan in 2025, right, to achieve that billion, billion-dollar-plus exit rate, just, you know, Does all of that need to take place this year for the timing to be maintained here in terms Hi James.
James Albert Picariello: I look at the asset sales I would say that the processes related to the sales of the three respective assets that we talked about on November 15th is underway and progressing as planned. So we'll be back to you when we have significant developments.
James Albert Picariello: I'll note that the outlook items. It was in the Investor letter don't contemplate and asset sales. So we'll have to come back to you and adjust our box once we close on any sale, but I would say for the 2024 plan no requirement.
James Albert Picariello: For for additional funding this year from an asset sale in order to achieve our plan.
Speaker Change: Alright, and maybe this is a question we could oh, we could answer offline, but but it's just for context.
Speaker Change: No divestiture takes place this year right just just for context, what what would be the additional what would be the additional restructuring could you forward savings that would be in store for for next year.
Christina L. Zamarro: So, on the Goodyear Forward Program, $350 million on a full-year basis, $50 million in the first quarter. You can think about that as, you know, a big step up in Q2, and then a little bit of a leveling off the rest of the year, but then, what I would say is still ramping on through the fourth quarter. As you can imagine, we're building into a run rate through the end of 2025 with all of these programs. When I look at asset sales, I'd say the processes related to the sales of the three respective assets that we talked about on November 15th are underway and progressing as planned, so we'll be back to you when we have significant developments. I'll note that the Outlook items within the investor letter don't contemplate an asset sale, so we'll have to come back to you and adjust our box once we close on any sale.
Speaker Change: Just any incremental year over year.
Speaker Change: Yeah. So when we laid out the plan in November James We had said 350 million in year, one and $750 million in your Q.
Speaker Change: Right.
Speaker Change: What about under the hypothetical that you know.
Speaker Change: The divestitures don't take place this year again purely hypothetical just what what would be the incremental pushed to next year without that additional funding source for the additional or does that make sense. So as of today we've announced.
Speaker Change: Restructurings of about $750 million as compared to that guidance of $1. One that was in our November announcement. So we said $300 million of that sits in 2024 three.
Speaker Change: 356 in 2025 and that leaves the remaining stuff in 2026.
Speaker Change: Got it much appreciated and then if I could just ask one more just on the full year.
Christina L. Zamarro: But I would say for the 2024 plan, there is no requirement for additional funding this year from an asset sale in order to achieve our plan. Right, and maybe maybe this is a question we could answer offline, but just for context, if no divestiture takes place this year, right, just for context, what would be the additional restructuring Goodyear forward savings that would be in store for next year? Just on an incremental year.
Speaker Change: Kind of a follow up to Rod <unk> question.
Speaker Change: Just on a full year basis would you be surprised if goodyear's unit volumes were down for the full year right you've got the minus 2%.
Speaker Change: For the first quarter, just just wondering if we could kind.
Speaker Change: Kind of establish that barometer.
Speaker Change: Just expectations.
James Albert Picariello: Yeah, so when we laid out the plan in November, James, we had said $350 million in year one and $750 million in year two. Right, but what about under the hypothetical that, you know, the divestitures don't take place this year, again, purely hypothetical. What would be the incremental push to next year without that additional funding source? for additional access.
Speaker Change: Later.
Speaker Change: Up or down for the full year in terms of units. Thanks.
Speaker Change: Yeah, I mean, maybe all of them.
Speaker Change: I'll take the opportunity to James to just talk through a year over year Soi view.
Speaker Change: That'll get you at least sort of how I'm thinking about volume, but I'll go through all the drivers at once if that makes sense.
Speaker Change: On a year over year basis, if you start with our 2023 of that and so I have 968 million Goodyear forward, obviously, I said 350 million against base inflation of 215 million. Other costs. So these are costs and transportation and energy on a full year basis should be about flat.
Christina L. Zamarro: Does that make sense? So, as of today, we've announced restructurings of about $750 million as compared to that guidance of $1.1 billion that was in our November announcement. So we've said $300 million of that sits in 2024, $350 million sits in 2025, and that leaves the remaining stuff in 2026. Got it, much appreciated.
Speaker Change: But I do see right now a tailwind of $75 million in the first half that's driven by transportation rates, but will slip two headwinds in the back half of the year driven by increased insurance premiums as well as some transitional manufacturing inefficiencies related to our announced foot.
Speaker Change: Print actions anemia.
James Albert Picariello: And if I could just ask one more, just on the full year, kind of a follow-up to Rod's question, on just a full year basis, would you be surprised if Goodyear's unit volumes were down for the full year, where you've got the minus 2% for the first quarter? Just wondering if we could kind of establish that barometer, you know, in terms of just expectations, ladder, you know, up or down for the full year in terms of units. Yeah, I mean, maybe I'll take the opportunity, James, to just talk through a year-over-year SOI view, and that'll give you at least sort of how I'm thinking about volume, but I'll go through all the drivers at once, if that makes sense.
Speaker Change: Then separately.
Speaker Change: To blow now at full production, we should get a 50 million dollar benefit in the second quarter.
Speaker Change: On a year over year basis, and then raw materials, we've set our seven $375 million in the first half first quarter price mix down a 130 million and then we'll lap that about $60 million drag that we've been carrying with us as part of the commercial truck decline.
Speaker Change: Since the second quarter of last year, we'll lap that in Q2, so our price mix in Q2 should be better than Q1.
Speaker Change: We're also looking to build a couple of million units of inventory in the Americas as levels are lower than what we need for optimal service levels levels. As a result of the tornado and are managing the business for cash last year that should benefit second half and absorbed by about $40 million. I know, we said 14 had though will be.
Christina L. Zamarro: On a year-over-year basis, if you start with our 2023 SOI of $968 million, Goodyear Forward obviously adds $350 million against base inflation of $215 million. Other costs, so these are costs in transportation and energy, on a full-year basis should be about flat. I do see right now a tailwind of $75 million in the first half that's driven by transportation rates, but we'll flip to headwinds in the back half of the year driven by increased insurance premiums as well as some transitional manufacturing inefficiencies related to our announced footprint actions in EMEA. Then separately, with two below now at full production, we should get a $50 million benefit in the second quarter on a year-over-year basis. Then raw materials, we've set our $375 million price mix for the first quarter down $130 million.
Speaker Change: Neither a source or a use for 2024, but we do have some goodyear four work streams that will help us offset that particularly around procurement then it comes down to and this was your question James.
Speaker Change: James what it comes down to is what you want to assume on volume price and mix for the rest of the year.
Speaker Change: I think yeah. If you look at Asia Pacific, we have been seeing steady growth of mid single to high single digit in our consumer replacement business. If you wanted to model that Q2 through Q4, I think that that would give you another $35 million or so on volume and unabsorbed.
Speaker Change: And then you get to the mature markets, where you have to.
Speaker Change: The balance.
Speaker Change: The slower volume growth environment call, it up 1% or so against the declining raw material environment and what you think that means for our price mix.
Speaker Change: Super helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you and as a reminder, it is star one on your telephone keypad, if you would like to join the queue.
Christina L. Zamarro: Then we'll lap that about $60 million drag that we've been carrying with us as part of the commercial truck decline since the second quarter of last year. We'll lap that in Q2, so our price mix in Q2 should be better than Q1. We're also looking to build a couple million units of inventory in the Americas, as levels are lower than what we need for optimal service levels. As a result of the tornado and our managing the business for cash last year, that should benefit the second half unabsorbed by about $40 million. I know we've said working capital will be neither a source nor a use for 2024, but we do have some Goodyear forward work streams that will help us offset that, particularly around procurement. Then it comes down to, and this was your question,
Speaker Change: We'll move next with Emmanuel Rosner with Deutsche Bank. Please go ahead.
Emmanuel Rosner: And congratulations Mark.
Emmanuel Rosner: Thank you.
Emmanuel Rosner: Good morning.
Emmanuel Rosner: Good morning, So Kristina I appreciate all the good color around the walk I frankly didn't have a chance to put it all in my little calculator, so investing in real time, so just trying to.
Emmanuel Rosner: I understand maybe.
Emmanuel Rosner: In terms of bottom line versus your view.
Emmanuel Rosner: You in November I think when you presented the plan through to all of US I think your high level view at that point was look we're exiting 2023.
Emmanuel Rosner: For the fourth quarter margin of 7%, which you know clearly you know over delivered on so that's cool Cola Taco.
Emmanuel Rosner: At the time, you said $1 4 billion sort of like annualize that so why.
Emmanuel Rosner: And then on top of that we can have net cost savings.
Christina L. Zamarro: James, what it comes down to is what you want to assume on volume, price, and mix for the rest of the year. I think, you know, if you look at Asia Pacific, we have been seeing steady growth of mid-single to high-single digits in our consumer replacement business. If you wanted to model that Q2 through Q4, I think that that would give you another $35 million or so in volume and unabsorbed. And then you get to the mature markets where you have to balance this lower volume growth environment, call it up 1% or so, against the declining raw material environment and what you think that means for our prices. Super helpful, thank you.
Emmanuel Rosner: About 100 million so that the gross savings minus the inflation and so you work through I think suggesting that like one five.
Emmanuel Rosner: That is potentially.
Speaker Change: That's a reasonable target.
Speaker Change: What does this look like now that you have all the other puts and takes.
Speaker Change: Please note versus.
Speaker Change: What you were describing a few months back.
Speaker Change: Okay.
Speaker Change: Oh sure Emmanuel also turning back to our November 15th announcement, you're right, we said that they.
Speaker Change: The run rate of the business.
Speaker Change: You know the back half of the year felt like about 1.4, if I look at it today.
Speaker Change: And adjusting for first quarter seasonality, we do have a big step down in Q1 always.
Speaker Change: Because of yeah, we we generally sell about 4 million units less in Q1 than we do in Q4, we also dragging some inefficiencies from the holiday shutdowns into Q1.
Emmanuel Rosner: Thank you. And as a reminder, it is a star and one on your telephone keypad if you would like to join the queue. We will move next with Emmanuel Rosner from Deutsche Bank. Please go ahead.
Speaker Change: But what I would say on top of all that we do have to absorb about $60 million.
Emmanuel Rosner: And congratulations, Mark. Thank you. Good morning. So Christina, I appreciate all the good color around the walk.
Speaker Change: In OE, our mindset arent in the run rate so on a run rate basis I would start you know knowing knowing where we closed at the end of the fourth quarter I would start a run rate at 13 50.
Emmanuel Rosner: Frankly, I didn't have a chance to put it all into my little calculator. It's sort of back in real time. So just trying to understand maybe in terms of the bottom line versus your view in November. I think when you presented the plan to all of us, I think your high-level view at that point was, look, we're exiting 2023 with a fourth quarter margin of 7%, which you clearly over delivered on. So let's call it like, At the time, you said $1.4 billion sort of annualized SOI, and then on top of that, we could have net cost savings of about $100 million, so like the growth savings minus inflation, and so you were sort of, I think, suggesting that $1.5 is sort of like something that is potentially, you know, a reasonable target. What does this year look like now that you have all the other, you know, put-and-takes in place versus, you know, what you were describing a few months ago? Sure, Emmanuel.
Speaker Change: And then we know that we have you know the positive of Goodyear forward is 350, we have a negative inflation of 135.
Speaker Change: And then outside of inflation I I didn't calculate it on a year over year walk just the $75 million headwind in the second half driven by higher insurance premiums and then some of these manufacturing inefficiencies related to our recently announced factory shutdowns in EMEA. So those are that's new news.
Speaker Change: And then against all of that again that $60 million in OE, our mindset, we're going to absorb that is weighted to the first half is even more weighted to Q1.
Speaker Change: And then that leaves your assumptions on how you want it builds volume on top of that Emmanuel. So hopefully that gives you some clarity around the run rate.
Speaker Change: So sorry, just to clarify the changes versus.
Speaker Change: You know sort of like the new news I guess versus the.
Speaker Change: Remember framework is a little bit of a lower run rate.
Speaker Change: Nicole.
Speaker Change: 50, new ones as an extra terrific and then sort of like this 75 million headwind in the second half and then.
Speaker Change: And your assumption on.
Speaker Change: Our price mix volume is that is that it or do they need something that oh, yeah. I mean, I would say Oh, we are mice, we knew back in November you know and when I answered. The question at me well in November we said, we have to come back in February and lay out our guidance for the full year and so our where our minds are certainly a piece of it.
Christina L. Zamarro: So tracking back to our November 15th announcement, you're right. We said that the run rate of the business exiting, you know, the back half of the year felt like about 1.4. If I look at it today, you know, and adjust for the first quarter seasonality, we do have a big step down in Q1 always because of, you know, we generally sell about 4 million units less in Q1 than we do in Q4. We also drag in so many efficiencies from the holiday shutdowns into Q1. But what I would say on top of all that, we do have to absorb about $60 million in OER mines that aren't in the run rate. So on a run rate basis, I would start, you know, knowing where we closed at the end of the fourth quarter, I would start a run rate at $13.50. And then we know that we have, you know, the positive of Goodyear forward of $350,000. We have a negative inflation of $135,000.
Speaker Change: Insurance premiums are a headwind against the run rate and then we have these transitional manufacturing costs as part of the recently announced closures in Europe.
Speaker Change: Okay.
Speaker Change: And then on the cash side so.
Speaker Change: So the Capex guidance.
Speaker Change: There's quite a bit harder than it's been recently lets see one two to $1 3 billion.
Speaker Change: I don't remember it being sort of black okay. So could.
Speaker Change: Can you maybe just elaborate on what is sort of.
Speaker Change: We need to and then Conversely, I think the restructuring patch is the initial plan was going to be 600 million I believe in 2024 and now its three.
Speaker Change: 300 million.
Speaker Change: When does this relate to others incremental efficiency or timing of spend and does that impact the timing of season.
Speaker Change: Yeah sure. So I'll start on the Capex question, and our our guidance implies a $200 million increase at the midpoint to support new programs. We've given a range here what I would say is.
Christina L. Zamarro: And then, outside of inflation, I articulated on the year-over-year walk just a $75 million headwind in the second half driven by higher insurance premiums. And then some of these manufacturing inefficiencies related to our recently announced factory shutdowns in EMEA. So that's not new news.
Speaker Change: If you assume a weaker environment over the course of 'twenty 'twenty four will find ourselves at the lower end of that range and at the higher end is it more in a more constructive volume environment and that's typically how we've managed our capex spend historically the step up is really driven by two different new programs in the Americas.
Speaker Change: To drive mix up once the factory modernization wanted the factory expansion modernization going to convert about 9 million units from L V to HVA and that would be at an annualized run rate by the end of 2025 and then another it I've mentioned it.
Emmanuel Rosner: And then against all that, again, that $60 million in OERMIs that we're going to absorb, that's weighted to the first half, and it's even more weighted to Q1. And then that leaves your assumptions on how you want to build volume on top of that, Emmanuel. So hopefully that gives you some clarity around the run rate. Sorry, just to clarify, the changes versus... So, like, the new news, I guess, versus the, you know, the November framework, is a little bit of a lower run rate, call it, like, $50 million as an exit rate. And then sort of like this $75 million headwind in the second half, and then any assumption on...
Speaker Change: Expansion, that's going to add call it two and a half a million dollars of HVA capacity for us and annualized run rate by the end of 2020 six so getting the full year benefit of that in 2027.
Speaker Change: The second question on restructuring them you know the guidance is part of the November 15th announcement was $1 1 billion, we didn't save it for you what we've announced up until now is $750 million and just based on the timing of the factory closures that we.
Christina L. Zamarro: I would say OERMIs. We knew back in November, and when I answered the question in mid-November, we said we had to come back in February and lay out our guidance for the full year, and so OERMIs are certainly a piece of it. Insurance premiums are a headwind against the run rate, and then we have these transitional manufacturing costs as part of the recently announced closures in Europe. Okay, thank you.
Speaker Change: We've outlined 300 of that falls in 'twenty 'twenty four 350 of that falls in 2025 and the remainder in 2026. So it does feel like timing of manual versus maybe what you had written down to start.
Emmanuel Rosner: And then on the cash side, so the capex was guided to, you know, I guess quite a bit higher than it's been, you know, recently, I think 1.2 to 1.3 billion. I don't remember it being sort of like a piece of the plan. I think you may be just elaborating on what this is sort of related to. And then conversely, I think the restructuring that the initial plan was going to be $600 million, outplayed in 2024, now it's... $300 million. What does this relate to? Are there incremental efficiency or timing savings of spend? And does that impact the timing of shape formation?
Speaker Change: Okay, and you're talking about the spending there.
Speaker Change: The cadence you just gave.
Speaker Change: I'm, sorry, Matthew I didn't quite hear you.
Speaker Change: The $303 50, and then the remainder of this is the timing of this family.
Speaker Change: That's the timing of the $715 million of announced restructuring.
Speaker Change: Understood. Thank you.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Thank you and this will conclude our Q&A session as well as our conference call. Thank you all for your participation and you may disconnect at any time.
Speaker Change: Uh huh.
Speaker Change: Hum.
Speaker Change: Uh-huh.
Christina L. Zamarro: Yeah, sure. So I'll start on the CapEx question. And our guidance implies a $200 million increase at the midpoint to support new programs. We've given you a range here. What I would say is, If you assume a weaker environment over the course of 2024, we'll find ourselves at the lower end of that range and at the higher end in a more constructive volume environment, and that's typically how we've managed our cap expense historically. The step-up is really driven by two different new programs in the Americas to drive mix-up.
Yeah.
Speaker Change: Yeah.
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Christina L. Zamarro: One's a factory modernization, one's a factory expansion, and the modernization's going to convert about 9 million units from LVA to HVA, and that will be at its annualized run rate by the end of 2025. And then another, I mentioned an expansion, that's going to add, call it $2.5 million of HVA capacity for us and an annualized run rate by the end of 2026, so getting the full-year The second question on restructuring, you know, the guidance as part of the November 15th announcement was $1.1 billion. We didn't phase it out for you.
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Christina L. Zamarro: What we've announced up until now is $750 million. And just based on the timing of the factory closures that we've outlined, $300 of that falls in 2024, $350 of that falls in 2025, and the remainder in 2026. So it does feel like timing, Emmanuel, versus maybe what you had written down to start. Okay, and you're talking about standing here, the cadence you just... I'm sorry, Emmanuel, I didn't quite hear you. This is the 300, 350, and then the remainder. This is the timing of the span. That's the timing of the $750 million in announced restructuring on the street.
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Emmanuel Rosner: Thank you. Brinkman, Justin Barell, Richard Kramer, Christina Zamarro, Justin Picariello, John Healy, Emmanuel Rosner, Christian Gadzinski, Mark Stewart, John Healy, Emmanuel Rosner, Goodyear Tire & Rubber Co. And this will conclude our Q&A session, as well as our conference call. Thank you all for your participation, and you may disconnect at any time. www.goodyear.co.uk [inaudible] www.goodyear.co.uk
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