Q2 2025 The Goodyear Tire & Rubber Co Earnings Call
Speaker #4: Please stand by. Your program is about to begin.
Speaker #3: Good morning. My name is David, and I'll be our conference operator today. At this time, I'd like to welcome everyone to Goodyear's second quarter 2025 earnings call.
Speaker #3: All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session. You may register to ask a question at any time by pressing star and one on your telephone keypad.
Speaker #3: You may withdraw yourself from the queue by pressing star and two. Please note this call may be recorded, and it is now my pleasure to turn the conference over to Ryan Reed, senior director of investor relations.
Speaker #4: Thank ou and good morning, everyone. Welcome to our second quarter 2025 earnings call. With me today are Mark Stewart, CEO and president, and Christina Zamarro, executive vice president and CFO.
Speaker #4: A couple of notes before we get started. During this call, we'll make forward-looking statements that involve risks, assumptions, and uncertainties that could cause actual results to materially differ from those forward-looking statements.
Speaker #4: We'll also refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results, and for reconciliations of non-GAAP measures, please refer to today's presentation and our filings with the SEC.
Speaker #4: All our earnings materials can be found on our site, at investor dot goodyear dot com. Where a replay of this call will also be available.
Speaker #4: With that, I'll hand the call over to Mark.
Speaker #5: Thank ou, Ryan. Good morning, everyone, and thank you for joining our call today. Let me start by saying our second quarter results were below our expectations, and reflect an unprecedented level of industry disruption.
Speaker #5: Given changes in global trade that negatively impacted our consumer and commercial businesses globally. At the same time, the midterm outlook is also turbulent given what we're seeing in terms of industry environment.
Speaker #5: I'll talk about what we're eing in detail before we move on to the financials and to your questions. While the near term has proved to be significantly more challenging, I am confident in our ability to regain our momentum once the market stabilizes and we work through some of the transitory headwinds we're seeing today.
Speaker #5: Within the current environment, our focus continues to be on controlling that which we can control. We have executed consistently on Goodyear forward, where P&L benefits continue to be achieved ahead of schedule.
Speaker #5: We've increased pricing in the US and Canada in response to the tariffs. We've won significant share in consumer OE in the US, as well as in Europe.
Speaker #5: We've increased the vitality, or the refreshing, of our product portfolio. We grew in the greater than 18-inch segments of the market, and we're on track with our new 18-inch plus skew developments and launch timing.
Speaker #5: We've expanded our margins in Asia Pacific. Our SG&A, or SAG costs, are down, and finally, we're on pace to deliver a strong balance sheet by the end of the year, supported by the three divestitures we committed in Goodyear forward.
Speaker #5: NetNet, we're paving the way for our organization to deliver increased value and focus on becoming number one in tires and service. Market factors, the things that we don't control, they certainly had an impact during the quarter, and I'll share more about that shortly.
Speaker #5: As we look ahead, once this turbulence around the pre-buy and the first half of the year settles down, we are well positioned with our U.S. footprint, with our products, and with our distribution. We're also looking at raw material benefits beginning in Q4.
Speaker #5: If we turn to the industry environment in the second quarter, there are several factors limited our ability to mitigate rising costs. First, the market continued to feel the effects of OE's navigating new complexities of the global supply chain.
Speaker #5: Specifically, we saw the consumer OE industry contract more, then we anticipated in both the Americas and in Europe. In addition, we continue to see weakness in our Asia Pacific OEM's volume, given our own premium mix of customer and fitments.
Speaker #5: Consumer preferences in Asia Pacific continued OEM price discounting, and favorable government incentives in China are leading to a disproportionate amount sales of opening price point vehicles, which is well below where we focus in our targeted segments of the luxury and the SUV EV segments.
Speaker #5: Having said that, even while our OE volume was weaker than expected, we continue to register significant OE shares in the US and Europe. Which is a relative sign of strength.
Speaker #5: Highlighting our industry-leading technology and service, we've recently seen increased demand from our OEs, as they've sought to rebalance their tire supply with more focus on USMCA capacity.
Speaker #5: We believe we're in the early endings as it relates to this opportunity and see positive momentum. Second, the consumer replacement market was characterized by increased competition, particularly in the Americas and in EMEA, which impacted our volume.
Speaker #5: Despite new installed tariffs, the second quarter US non-member growth in imports was actually higher than in the first quarter. As dealers and distributors prioritize shelf space and liquidity to stockpile the imports.
Speaker #5: What's more, we've already seen some of this excess volume materialize in US sell-out market. As you all know, we've announced broad-based price increases in the US and Canada that became effective in the second quarter and remain intact today.
Speaker #5: It's clear that our relative positioning impacted our overall consumer replacement volume and the price mix. Although we did continue to record gains in the 18-inch and above run sizes.
Speaker #5: Another contributing factor influencing our views on the US consumer replacement market is related to distribution. As many of you know, we made a strategic decision earlier the quarter to rebalance our US distribution to ensure high levels of customer service and mitigate credit risk following the second bankruptcy of ATD.
Speaker #5: Other manufacturers have taken similar actions. As distributor relationships are important for reaching end customer accounts, some manufacturers, as well as distributors operating in the U.S. market, introduced new and meaningful incentives during the quarter.
Speaker #5: These programs presumably shift retailers to new distribution networks. These actions serve to further increase competition in today's markets. There are two additional developments to highlight as we think about the outlook for our consumer business.
Speaker #5: First, North America consumer replacement margins steadily improved throughout the quarter as we implemented price and mix actions into the market. Second, U.S. growth in non-member imports started to ease recently, and we expect to see declines in the level of imports beginning as early as Q3.
Speaker #5: On a related note, the EU recently launched an investigation on imported tires from China. While we don't have any final second quarter data yet, we believe the announcement led to an increase in imports over the last several months as we have seen distributors prioritize liquidity and warehouse space for the imports.
Speaker #5: Our EMEA business is well positioned, and should tariffs timately be implemented in Europe. Finally, turning to our commercial business, the truck tire market. Which had been running at recessionary levels for the last couple of years, took another significant leg down during the second quarter.
Speaker #5: Positioning us now at a point where we expect our full-year volume and mix to register below COVID year levels. As many of you know, the U.S. OE industry fell nearly 30% on the back of uncertainty related to the implementation of the 27 EPA mandates.
Speaker #5: In addition, global replacement demand also contracted relative to our expectations, as truck tire customers remain cautious about freight conditions, and broader economic trends. In spite of these dynamics, US non-member imports increased over 30% in the quarter, and European imports rose as well.
Speaker #5: So in summary, in the coming quarter, we expect market headwinds to persist as US dealers work through elevated levels of low-end import inventory. And weak demand in the global commercial truck market.
Speaker #5: We're making the necessary internal changes to drive performance, and control the working capital. As we look at the second half, while global trade disruption is weighing on our full-year outlook, I assure you our team is positioned to win with customers and consumers as the turbulence dissipates.
Speaker #5: It isn't a matter of if, but when. As our fundamentals are strong, and we have firmly positioned our business to deliver our targeted margin once the market conditions improve.
Speaker #5: And our organization isn't waiting passively for the upswing. We're continuing to develop new premium products to generate our own organic growth tailwinds. In May, we introduced the Eagle F1 asymmetric six, and in July, the Assurance MaxLife 2 in North America.
Speaker #5: In Europe, we've extended the lineup of our premium winter tire, the UltraGrip Performance 3, we will increase its total offering to over 250 SKUs this year, making it our most extensive winter offering to date.
Speaker #5: Additionally, within all season, we were recently awarded the top rating by Europe's largest auto association, ADAC, for the Vector 4 Seasons Gen 3 tire.
Speaker #5: These new product introductions and third-party reviews are crucial, because ultimately we expect the recent challenges we've ienced in our markets will give way to the opportunity.
Speaker #5: We continue to expect to realize benefits from trade policy changes over time, as well as to capitalize on our organizational focus on winning in the premium segment of the marketplace.
Speaker #5: Now I'll ask Christina to take you the second quarter financials, and we'll move on to the Q&A.
Speaker #2: Thank you. And good morning, everyone. Mark has shared important context for what impacted our second quarter, relative to our expectations. Looking at the financials, about half of the miss in the quarter came in our commercial business, given materially weaker OEM replacement demand globally.
Speaker #2: The other half was driven by lower consumer OEM replacement volume. Second quarter sales were four and a half billion, down 2% from last year, given lower volume and the sale of OTR, partly offset by increases in price mix.
Speaker #2: Unit volume declined 5%, reflecting the impacts of global trade disruption on OE production distributor and fleet buying patterns, and consumer sell-out trends. Gross margin declined 360 basis points, SAG was lower by 39 million, consistent with results in Q1.
Speaker #2: Segment operating income for the quarter was 159 million. Goodyear net income increased to 254 million, driven by a gain on the sale of the Dunlop brand.
Speaker #2: Our results were impacted by other significant items, including rationalization charges of 59 million, after adjusting for these items our loss per share was 17 cents.
Speaker #2: Turning the segment operating income walk on slide 10. The sale of the off-the-road business reduced earnings by 23 million during the second quarter. After this change in scope, our SOI declined 152 million versus last year.
Speaker #2: Lower tire unit volume and factory utilization were a headwind of 51 million. Price mix was a benefit of 91 million, driven by a recent pricing actions in the US and Canada.
Speaker #2: Price mix came in 44 million dollars lower than we guided on our first quarter call, driven by headwinds in commercial truck of about 30 million, and lower mix in the Americas, as US dealer and distributor demand was geared toward our lower price point products in advance of announced price increases.
Speaker #2: Raw material costs were a headwind of $174 million, and Goodyear forward contributed $195 million of benefit during the quarter. Inflation and other costs were a wind of $127 million, and other was a headwind of $18 million.
Speaker #2: The second quarter also included the non-recurrence of 2024 net insurance recoveries of 63 million. Turning to the cash flow and balance sheet on slide 11.
Speaker #2: Our second quarter use of free cash flow was stable versus last year, despite increases in working capital. Our free cash flow includes benefits of 191 million in the quarter, and 376 million year to date, from proceeds from the sale of OTR and Dunlop.
Speaker #2: This amount includes $86 million of inventory held for sale that will transfer at the end of the year, and $290 million for long-term supply and transition agreements that we are amortizing into SOI over roughly five and a half years.
Speaker #2: Net debt declined over $600 million, reflecting the proceeds from asset sales this year, net of cash used for working capital and restructuring as part of Goodyear’s forward strategy over the last 12 months.
Speaker #2: We continue to expect to receive gross proceeds of 650 million from the sale of our chemical business later this year. Moving to the SBU results on slide 13.
Speaker #2: America's unit volume decreased 2.6%, driven by headwinds in consumer original equipment (OE) and replacement. While the U.S. consumer replacement markets were up 5%, low-end imports continued to outperform and grew approximately 15% during the quarter, achieving an all-time high following a record quarter in Q1.
Speaker #2: US industry sell-out is about flat year to date. In addition to the churn we're seeing in the consumer business, America's commercial OE volume declined to 22%, where speculation surrounding changes to the implementation of 2027 EPA mandates negatively impacted demand.
Speaker #2: At the same time, commercial non-member imports grew 32% during the quarter. America's SOI was 141 million, or 5.3% of sales. A decrease of 100 million compared to last year.
Speaker #2: Driven by higher costs, net of Goodyear forward benefits. On slide 14, EMEA's second quarter unit volume decreased 2%, driven by declines in replacement volume, where we saw channel de-stocking in summer tires.
Speaker #2: This trend was driven by distributors prioritizing imports ahead of potential tariffs. In late May, the EU announced it had launched an investigation on Chinese passenger tire imports, with potential for applicable rates to be between 41 and 104%.
Speaker #2: The investigation should be complete by the end of the first quarter next year, although the EU has begun to register the imports beginning in late July, for potential retroactive tariffs.
Speaker #2: This change led our distribution channels in EMEA to prioritize deliveries of imports during the quarter, similar to the actions we saw in the U.S.
Speaker #2: On the other hand, EMEA's consumer OE volume grew 11%, and registered share gains of about two and a half points, despite significant contraction in the industry.
Speaker #2: This growth helped to offset some of the weakness in the summer sell-in season. Like our experience in the Americas, we also saw significant weakness in Europe's commercial business, with truck registrations declining 15% across the EU.
Speaker #2: Fleet replacement demand was also extremely cautious, given the impact of tariff uncertainty on the flow of cross-border logistics and steeper costs. Segment operating income in EMEA was a loss of 25 million, consistent results in Q1.
Speaker #2: Turning to Asia Pacific on slide 15. Second quarter unit volume decreased 16%, driven by replacement volume, reflecting our strategic decision to rationalize less profitable SKUs.
Speaker #2: Additionally, replacement trends were impacted by weak demand in China. OE volume was also lower, despite overall industry growth, given our ustomer mix. We expect that our China OE volume will improve over the course of the second half.
Speaker #2: Segment operating income was 43 million and 9.4% of sales. Excluding the sale the OTR business, Asia Pacific's segment operating income was flat, and SOI margin grew 150 basis points.
Speaker #2: Turning to the outlook, and as we consider the industry environment more broadly, we expect the themes that we saw in the second quarter to remain with us through the near term.
Speaker #2: In commercial truck, we are seeing a recalibration to changes in global trade, and based on what we know today, we would not expect a recovery for truck business until 2026.
Speaker #2: Our current demand forecast would take our full-year commercial earnings about 135 million dollars lower than our prior forecast, and to the lowest absolute level we have on record.
Speaker #2: This decline represents about 650 to 700 thousand units less than our prior forecast, reductions in price mix, and higher inefficiencies in our factories, given very low levels of utilization and the flattening variability our cost curve.
Speaker #2: In addition to impacts in lower truck tire volume, we also expect higher tariffs related to US supply coming from our truck tire joint venture in Vietnam, and supply of US retread products, which are sourced from our Brazil operations.
Speaker #2: The near-term outlook for the consumer business has also weakened since our first quarter conference call. We now expect global OE volume reductions beyond what we had accounted for in our prior forecast.
Speaker #2: More significantly, we expect consumer replacement volume to be challenging, driven by disruption in the US market. We also expect increased risk in EMEA with the announcement of the tariff investigation in the EU, creating risk as dealers and distributors may continue to allocate liquidity and shelf space for imports, which could soften our sell-in of winter tires.
Speaker #2: We expect to mitigate some of the higher costs we will incur as result of lower production with proceeds from business interruption insurance, related to the fire at our factory in Poland in late 2023.
Speaker #2: At the same time, we'll continue to execute on Goodyear forward to best position our costs for when the environment stabilizes. As we look at industry factors, influencing our outlook, we expect that it will take longer for us to achieve our 2025 year-end margin and leverage objectives.
Speaker #2: While we continue to expect to exceed the original goals of Goodyear Forward, both in terms of cost savings and in gross proceeds from asset sales, the recent disruption related to tariffs and impacts on the global supply chain have overshadowed our success.
Speaker #2: We remain confident in our ability to recover and return to growth and earnings once this turbulence subsides. Turning to the third quarter, we're expecting volume that is more reflective of our first half experience, with global volume down about 5%.
Speaker #2: In addition, we expect higher unabsorbed fixed costs of 50 million, driven by lower production in the second quarter. As we reduce inventories in line with our sales, we expect our unabsorbed fixed costs to increase in the fourth quarter.
Speaker #2: Price mix is expected to be a benefit of approximately 100 million, driven by the benefit of our recent pricing actions and raw material index contracts with our OE and fleet customers.
Speaker #2: Raw material costs will increase approximately 50 million. At current spot and currency rates, Q4, would be a benefit of approximately 15 million. Goodyear forward will derive benefits of approximately 180 million.
Speaker #2: Inflation, tariff, and other costs are expected to be a headwind of approximately 180 million, reflecting higher costs given US tariff impacts and a global inflation rate of about 3%.
Speaker #2: This amount captures above-average increases in freight rates and transitory manufacturing costs associated with announced facility closures. We expect this amount to increase in the fourth quarter.
Speaker #2: Based on rates in effect today, our annualized tariff costs are about 350 million, up from our prior estimate, with increases in applicable rates in Brazil and Vietnam, both impacting our commercial truck business.
Speaker #2: Foreign exchange will be a benefit of 5 million. And finally, the non-recurrence of insurance proceeds received last year is 17 million, and the sale of OTR is 10 million.
Speaker #2: With that, we'll open the line for your estions.
Speaker #3: At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind you can remove yourself from the question queue at any time by pressing star and two.
Speaker #3: Again, it is star and one to ask a question today. We'll take our first question from Ryan Brinkman with JP Morgan. Please go ahead.
Speaker #3: Your line is open.
Speaker #6: Okay. Thanks for taking my estions. I'd like to start by asking around the surge in low-cost imports that ou referenced across your key markets.
Speaker #6: I mean, firstly, outside the US, on your last call, you did mention, you're more balanced near-term view and considered the impact of tires originally destined for the US to be redirected to other markets.
Speaker #6: So, just curious if that was a more considerable headwind than you earlier expected. And then in the U.S., you know, just given the 25% Section 232 automotive sectoral tariff in place for much of the quarter on consumer tires, I guess the 15% increase in non-U.S. MTA imports is, on the surface, somewhat surprising.
Speaker #6: Maybe you could help us a little bit. I recall you ioning on your one queue call on May 8th, something about tariffs beginning be collected on May 3, whereas I thought they were to go into effect on April 3, at least for non-US MTA compliant parts.
Speaker #6: And so maybe you can clarify that, because if it was May 3, then that could explain the ability for there to be a pre-buy.
Speaker #6: Was there a surge then in April and it's already subsided, you ow, beginning in May? And on commercial tires, which get the reciprocal rather than sectoral rate, I guess, did you see a pre-buy there during the 90-day pause?
Speaker #6: And I know that pause only ended yesterday, but maybe like based on your conversations, do you expect that to be effectively over now?
Speaker #2: Yeah. So good morning, Ryan. Thanks for the questions. And I'll start on the first one, which was, an ask around the guidance for the second quarter, where we had said we wanted to be balanced because we knew with tariffs in place in the US that that might, in fact, send imports into other of our international markets.
Speaker #2: What, in fact, happened is that those, you know, the imports that were coming into the U.S. still came in a big wave, and then we had a wave in Europe.
Speaker #2: And so instead of seeing US imports redirected to another market, we just had a surge across our key markets in the, especially the US and Europe.
Speaker #2: So I think that's the difference there. When it comes to the effective dates, you know, for Section 232, for tires, that was early May.
Speaker #2: And I think we are still seeing, in the U.S. market, a very significant increase in imports here in the second quarter. It is counterintuitive, what I would tell you.
Speaker #2: I think, you know, the, the order rate and the time on the water for tires coming out of Southeast Asia could be anywhere between three to five months.
Speaker #2: And so the tires that are showing up, I think now are more related to this on-again, off-again discourse around tariffs and speculation about tariffs actually potentially being pushed out further.
Speaker #2: We're at a point in time where the, you ow, the tariff narrative seems to be settling down, and so our expectations are that when we move into the third quarter, we might begin to see some declines in the imports in the US.
Speaker #2: I think what that means for Europe, though, is, you ow, the potential for some additional tariffs coming in, because those, those, that investigation will not be complete until the first quarter of next year.
Speaker #2: Having said that, you know, there is this idea that, you ow, the tariffs might be applied retroactively back through July. So we'll just have to see how some of this, plays out over the next quarter.
Speaker #6: Thanks for that explanation. you know, second and last question is still on price mix, but from the perspective of end color that you could please provide on the relative contribution of price versus mix, you know, are you seeing pricing tailwinds partly offset by a mixed winds, given general consumer affordability angst issues?
Speaker #6: And then how to think about that going forward. It ems like the pricing component of price mix can improve in a straightforward manner once the pre-buys are finally over, but how should we think about mix?
Speaker #6: Is mix going to be helped by the fact that the lowest tier tires will increase proportionately the most because they're the ones that are, you know, disproportionately imported?
Speaker #6: Or do you expect there to be a headwind to mix as consumers shift to lower feature tires to try cope or compensate for the higher like-for-like tire pricing?
Speaker #2: So I guess what I would start with is just to say that the price announcements that we made in early May are effective. Mark mentioned this in his script.
Speaker #2: I an, they are installed and effective, and that's what you're seeing show up in our second quarter walk. Mostly offset by a couple of items.
Speaker #2: The biggest driver of the offset is commercial truck mix, just given the downdraft that we've seen in that industry. And then there's a little bit of an impact because when we implemented pricing, you know, a lot of the demand in the US came at the lower end of the market.
Speaker #2: I think there is speculation that there will be more price inflation in the industry overall at the low end of the market. I mean, we can't really talk about forward pricing.
Speaker #2: What I would say is, we do have some seasonal mix impacts here especially as we head into the fourth quarter; we always tend to have a strengthening mix heading into the end of the year.
Speaker #2: And then you know, as Mark mentioned also, I mean, we are introducing just a ton of new products in greater than 18-inch rim sizes.
Speaker #2: We've got 11 new product launches in the back half of the year in North America, in particular, that should really help drive a rich mix for us as well.
Speaker #6: Yeah, globally we mentioned the 230 SKUs on the rich winter mix in EMEA. In total, Ryan, we've got over 500 new SKUs between the U.S. and EMEA, as well as AP.
Speaker #6: But all heavily focused on the 18-inch and above. That, as we've as we've discussed in earlier earnings calls, are really about us participating in and gaining share in that premium mix of the market.
Speaker #2: Thanks.
Speaker #3: And we'll take our next question from Edison U with Deutsche Bank. Please go ahead. Your line is open.
Speaker #7: Hey. Good morning, guys. This is James Mulholland on for Edison. I have a estion and then a quick follow-up. Just on your walk in the quarter, if we look at it, there's a significant headwind that came from this bucket of other costs I was wondering if you could just uble-click on what that 74 million is.
Speaker #7: And whether it's something we should have in our models for the next few quarters.
Speaker #2: Hi. What was the figure you quoted, James?
Speaker #7: There's a 74 million other costs that's sitting within your inflation and other costs bucket, and that's I think it's quite bit higher than it has been in past quarters.
Speaker #7: So I'm just curious what's in there.
Speaker #2: Oh, sorry. Yeah. I'm sorry. I was focused on another basket on the SOI walk. But when we look at, you know, all of the buckets kind of concentrated in and around manufacturing cost, I'd break it down into a few major drivers.
Speaker #2: You know, the first is annualized inflation that runs about 225 million dollars across our cost base and that's 3%. Annual inflation. Also included in that figure is about 350 million dollars of annualized tariff costs.
Speaker #2: You know, that's new coming into the cost base, so that's probably the increase you're seeing. I'd expect that number to be on the order of magnitude of $60 million in Q3.
Speaker #2: 70 million to 80 million in Q4 as we continue to incur tariff costs across our global supply chain. And then we'll expect to get to that run rate in 2026.
Speaker #2: The third factor I'd point out, and this is a big part of our Goodyear forward programs, is we're carrying some incremental manufacturing inefficiencies. That would generally just attract costs more than what we would normally expect because we are ramping down some factories especially in Germany, first involved in Fulda, so as we get to full facility closures on those, those costs will come out, and those dates are public and announced for each one of those factories.
Speaker #6: Great. That's helpful. Thank ou very much. And then within that commercial vehicle headwind that we saw in the quarter, should we accept a should we expect a similar SOI impact going forward for the next few quarters, or was this maybe the peak of it and then as you ramp down a little bit to adjust for it, it shouldn't be as significant?
Speaker #2: Well, the way I would have you think about it is we talked about a 30 million headwind in mix and that's because the contribution from commercial truck profit is so significant.
Speaker #2: And I think about having, you know, we didn't give a robust outlook for the third and fourth quarters, so I would think about having to lap that.
Speaker #2: But then there's some additional that will come on top in Q3 and Q4 as we adjust production and so I would think about that being an extra 25 million in unabsorbed, over the course of the second half and then I mentioned we're also incurring some new tariff costs, you know, the Brazil rates have gone up from 10 to 50% and that's where we source our retread products from our own operations.
Speaker #2: And then we're also doing some sourcing from our truck tire joint venture in Vietnam that will increase our costs. That's 20 million new on an annualized basis.
Speaker #6: Perfect. Okay. Thank you very much, guys.
Speaker #2: Take care.
Speaker #3: We'll take our next question from James Picariello with BNP. Please go ahead. Your line is open.
Speaker #8: Hey, guys. This is Jake Scholand for James. so it looks like tariffs are trending a little bit worse. so do you guys have any mitigation efforts in the hopper as we think the annualization to next year?
Speaker #8: And it looks like you know at a higher level, this was a pretty significant reset to the full year with, you know, depending on your volume assumptions, three-queue SOI running towards the, you know, 285 to 290 million range.
Speaker #8: versus the previous walk, which was a total of about 400. And the full year, at about 1.0 billion from the prior 1.3. So can you just confirm if we're thinking about those numbers correctly?
Speaker #8: Thank you.
Speaker #2: So just a couple of comments. You you started with the the note that our tariff costs are going up from about 300 million this year to about 350 just given some of the changes in rate.
Speaker #2: I do think you know, we will make adjustments to our supply chain you know to to limit that risk on our P&L over the course of the second half.
Speaker #2: And we'll able to come back to you at the end of the year or early next year with our plans, but certainly have you know cost savings actions as well as sourcing actions that will help mitigate that number going forward.
Speaker #2: There's obviously been a lot of volatility there. I mean, as I I think about you ow the you know, the outlook, I mean, what we're what we're experiencing is really connected to an exceptional period of time in our industry.
Speaker #2: And you know we're delivering against what we can control Mark mentioned that our Goodyear forward targets are cost savings on path. And when I think about the the fourth quarter, I mean, you know I don't want to be too positive or too negative.
Speaker #2: I think for us, we want on volume in particular. I an, I've given a lot of perspective on on how price mix is likely to play out.
Speaker #2: In my script, I gave a lot of perspective on how you should be thinking our cost. And so in the fourth quarter, that the the variable that's left is really all around volume.
Speaker #2: And and I do think that and potentially some additional price mix. But I do think you know the way that we're characterizing the industry environment right now says that not a lot of visibility into when we'll see this pre-buy sell through.
Speaker #2: You know our thinking is that that will play out over the course of the third quarter, but we want to have you know see through that experience before we give you our perspective on volume in Q4.
Speaker #8: Yeah. The other thing, James, I would put out on is just reiterating Christina mentioned, right? And we talked about it at the ning. Which is really around the cadence the governance and the diligence behind our Goodyear forward actions.
Speaker #8: And it, you know, we continue to bolster the robustness of our cadence of sessions with all the associates around the world, continuing to refill our pipelines with projects.
Speaker #8: And and really focused on the ones that are are value-add or cost controlling all around the world, right? So that that's been embedded in our DNA, and we'll continue to focus on the flex to make sure that we are controlling every cost possible during this period.
Speaker #6: Thank you. And then for the one the, you know, the wind down of the Cooper brand's relationship with ATD, can you talk just the, you know, potential disruption that may have had on volumes in quarter?
Speaker #6: And when would you expect that to resolve? Thank you.
Speaker #8: Yeah. Maybe I can start and then and Christina can pick up. You know, I guess taking a step back, why why did we exit ATD, right?
Speaker #8: Our our very clear strategy at Goodyear is to make sure we're working with aligned distributors that are representing our full product portfolio, right? And and working together with us to build our Goodyear brands in the marketplace.
Speaker #8: You know, we are constantly looking and doing super careful assessments around operational capabilities, you know, the service rate stability and alignment.
Speaker #8: And and we decided to strengthen our nerships specifically with Tire Hub, which is our joint venture with Bridgestone, and some other key partners who have long-standing aligned distributors that are you know in keeping with partnership with Goodyear.
Speaker #8: And and we see a lot of benefit for us working with with fewer, but much more aligned distributors building our Goodyear family of brands and servicing our dealers and our retailers effectively, efficiency with a full product screen which we have available to the marketplace.
Speaker #8: You know, we don't want to work with with individuals that aren't representing our full portfolio. And you know, as we looked in, as I I shared in in my comments at the beginning, right, we we took risk assessments, we took service assessments, and again, we feel that it absolutely is the right thing to do there.
Speaker #8: By the way, ATD was less than 5% of our total consumer replacement volumes.
Speaker #2: Yeah. Maybe I'll just pop in to say you know, had a a distribution that we had to transition you know, retailers that we had to transition to new distribution.
Speaker #2: I would say by the end of July, nearly all, and 95% of the retail base voluntarily made that switch, and all of our orders are coming in through those new distributors.
Speaker #2: We do have some private label volume at ATD as well. That's something that we expect to wind down over time, and in a very orderly way.
Speaker #2: And you know, we expect to offset that volume through mutual commitments with other distributors.
Speaker #3: And as a reminder, if you'd like to ask a question today, please press the star and one keys on our telephone keypad. We'll take our xt question from Emmanuel Rossner with Wolf Research.
Speaker #3: Please go ahead. Your line is open.
Speaker #9: Great. Thank you. Good morning. I appreciate all the elements of outlook into the third quarter. just curious if you could comment on how you would see therefore the full year play out on some of the main metrics.
Speaker #9: it doesn't look like some of these issues are probably going to be going away. super quickly. So any sense, you know, where that's sort of like leaves us and you know, SOI or free cash flow on a on a full year basis, or another way to ask potentially is, what are percentage sort of like going to Q4?
Speaker #9: Are we seeing some things expected to get better or not necessarily?
Speaker #2: Yeah. Sure, Emmanuel. I'll hit the fourth quarter SOI. I mean, 've given you a lot of the different drivers for Q3. And these are factors that we know.
Speaker #2: Q4 raw materials should be favorable. Goodyear forward should be a benefit of 175 million. I think unabsorbed overhead in the fourth quarter is going to be a little or higher than the third quarter just given that we will be making appropriate ticket reductions in our factories in order to align with demand and manage for cost and cash.
Speaker #2: Other costs, I mean, we've talked about this a little bit already. Other costs in the fourth quarter will be higher due to new tariffs.
Speaker #2: And some incremental factory inefficiencies ultimately depending on that production in the third quarter. We want to be again aligned with demand, and that environment is very uncertain.
Speaker #2: Price mix, I've made some comments about. We have some seasonality benefit in the fourth quarter, in mix in particular. And then what that leaves us with is volume.
Speaker #2: And just having come through such a disruptive and challenging quarter, I think 's it's hard for us again to to determine exactly how that's going to play out in the fourth quarter because we don't know how long it's going to take for some of this churn in the US market is going to to take.
Speaker #2: I ink we're looking for some data that will help us give you more of a forecast around stabilization in the US. And that's data to support things like import slowdown and import channel inventory sell through.
Speaker #2: And we're ecting that to come through over the course of the third quarter, maybe into the fourth quarter. But we just don't have that data yet to guide on the volume.
Speaker #2: When I look at free cash flow, Emmanuel, we've laid out those drivers as well. Last call, what we said is we would be slightly positive in free cash flow.
Speaker #2: working capital's come down just a touch. you'll ed to adjust the earnings and so your cash flow should be lower and then there's I talked about in my prepared remarks, there's an add-back related to supply agreements.
Speaker #2: And at the end of the year, the add-back in our operating cash flow should be 265 million dollars. And those are related to those supply agreements on both OTR and transition agreements on Dunlop.
Speaker #2: I think overall, Emmanuel, I'd say our balance sheet position is going to be very strong at the end of the year. Even with yeah, a little bit of this downdraft we're seeing right now in the industry.
Speaker #6: Okay. and just clarification, and then I have a separate estion, but these add-backs related to the supply agreement, those are those were not calculated your previous free cash flow walk?
Speaker #2: No. They were not.
Speaker #6: Okay. and then separately, you know, I wanted to sort of, you know, just ask you a ittle bit about the the longer-term view and picture.
Speaker #6: So you know, sort of like I've heard your remarks around looking at the question of when, not if, you know, when things settle down, industry conditions.
Speaker #6: Then you'll be able to perform. Just, you know, curious around, you know, the drivers of your confidence there. it's sort of feels that essentially, whenever one market puts a bear's in place, like the tariffs, then these imports, they'll make their way to sort of like another market where, you know, that is significant for Goodyear as well.
Speaker #6: And so now the U.S. may be potentially stabilizing, but then you have Europe. So I guess we're, you know, what gives you confidence essentially that sort of like at some point this would essentially stabilize and enable you to really show the benefit from your actions?
Speaker #2: Well, Emmanuel, I guess I I'll start and let Mark finish up. I I would say, you ow, to especially turbulent environment, and you know, we still should benefit.
Speaker #2: I mean, we completely expect to benefit with the strength of our US manufacturing footprint. And all at the same time, what's a little bit new news that's also really good for us is that there are these new contemplated tariffs in Europe too.
Speaker #2: And those rates are punitive; 41% to 104% is what the EU has disclosed as far as those tariffs. I think it's really hard for us to give you clarity on timing right now because I do think we're going to have to work through some of this disruption.
Speaker #2: But we're confident today as we were last quarter that as the market stabilizes, we're going to be able to capitalize on those opportunities.
Speaker #6: Yeah. No. Exactly as as Christina said, right? It's the the the investigation into into the pricing around around Europe with the tariffs that should be ultimately backdated, right, to the start of that investigation.
Speaker #6: for sure creates a of a churn in terms of speculative pre-buy, we assume. from the the folks there. But again, working through that and as that would take effect, assuming end-of-year, start of next year, right, the the goodness there would start to to flow through.
Speaker #6: we're also very encouraged, right, by winter sell-out season from from our side with that. In terms of the the, the US, as we said, right, the kind of the the on and off or the push-outs and and different thing, things in the in the US marketplace, you know, created these these gaps of opportunities for for additional pre-buy.
Speaker #6: So it's it's speculative as to when that will work through or churn its way through. We're starting to see those in the sell-out in the in the marketplace.
Speaker #6: so, you know, it's a bit of a crystal ball of when that works through. But again, we are we are definitely positioned very well with our US footprint.
Speaker #6: we're having lots of conversations with various OEs that are already starting to flex to more USMCA based, which we certainly are a benefactor of that, particularly with the US footprint.
Speaker #6: So again, that's why we are confident. The timing of the start piece is the question mark, right? But we are absolutely lined up right for that.
Speaker #6: And and as we mentioned as well, Emmanuel, right, the the, h, the push that we have in developing launching and bringing to market the the 18-inch and above, you know, higher performance and premium mix of tires, particularly in the Americas market, in areas that we did not participate in before, in a in a meaningful way, gives us all of that confidence to things are as things start flowing, right?
Speaker #6: We are going to do it. And we we actually saw that as well though in the quarter in terms of our growth in the 18-inch and above, we're very pleased with that that part of it.
Speaker #6: And it will continue to be so with the new launches coming throughout the rest of this year and into quarter one of next year.
Speaker #6: Thank you.
Speaker #3: And we'll e our next question from Itay Mikieli with TD Cohen. Please go ahead. Your line is open.
Speaker #10: Great. thank you. Good morning, everybody. just to follow up to to last question, I I know it's it's early to really talk about 2026 in any detail, but 'm curious, as you think about how the industry has progressing this year, what are the puts and takes to think , you know, at a high-level impacts next year?
Speaker #10: When we start to think about the SOI bridge and, and, and, and kind of how this year's events may, you know, impact the bridge into next year.
Speaker #2: Yeah. And good evening, Itay. I think Mark just touched on the difficulty in calling the timing with some of this disruption. Certainly, we would hope that by Q4, some of this is rolled through.
Speaker #2: But we're we're right now having difficulty in even calling volume in Q4, just given the level of disruption in the US market. But as we look into 2026, there are variables that we do know.
Speaker #2: I mean, raw materials have flipped to a tailwind. And that at least right now, and I realize it's only August, but the, you know, the baseline of that at current feedstocks would be a couple hundred million dollar tailwind next year.
Speaker #2: Goodyear forward should be a benefit of at least $250 million. That's just what's going to be in the flow-through. And as we discussed a little bit earlier, we've got sourcing changes and other cost savings in the pipeline that we will, you know, share more with you about as we head into the end of the year.
Speaker #2: But again, just looking to see some of that stabilization as we firm up our our thinking around 2024. The other you know, the other pieces I I just want make sure I remind everyone of is that like all a a, you know, as we think about the ability to, you know, scale earnings next year, a 1% price increase in our US consumer replacement business is worth 55 million dollars.
Speaker #2: And so far, you know, we've implemented 4% in the US market back in May. In the same way, you know, a 1% price increase in EMEA is worth 25 million dollars on an annualized basis.
Speaker #2: And then, of course, volume, I mean, when we talked about benefits that that we may that we expect to see as a, you know, out of all of this, you know, we may also improve the volume and that's about $40 including sales margin and overhead absorption on a per unit basis.
Speaker #2: So a whole lot of opportunity once we see some of this churn kind stabilize, a sell through and stabilize in the market.
Speaker #10: That's very helpful. thank you for that. And then just given some of the near-term challenges, I'm ious if you are thinking about, you know, additional cost cutting or even restructuring actions, just given, you know, the the asset sale proceeds and incremental cash you'll be bringing onto the balance sheet.
Speaker #10: not sure if if you're at that point yet, but just curious if if there's potential additional actions that you're contemplating.
Speaker #8: Yeah. I think I tell you that, you know, it would be super speculative at this point for us to make any comments around any additional restructuring to the to the cost base above and beyond what we've already committed to and are in process with.
Speaker #8: You know, again, we don't we don't believe this current environment is reflective of the long-term part of the business. or the normalized industry environment.
Speaker #8: You know, with with that said, you know, we are in the process of closing the three factories in Europe. We announced the South Africa one last month or the month before.
Speaker #8: So, the two in Germany plus South Africa. And we, you know, we're right-sizing plants all around the world on a regular basis.
Mhm.