Good morning, my name is Tony, and I'll be your conference operator today. At this time, I'd like to welcome everyone to The Goodyear Tire & Rubber Company Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the program over to Tom Kaczynski, Goodyear's Vice President of Investor Relations.

Thank you, Tony, and good morning, everyone. Welcome to Goodyear's third quarter 2013 conference call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. Also with us today is Laura Thompson, who, on December 1, will take over responsibility as Executive Vice President and Chief Financial Officer. On today's call, Rich and Darren will discuss our results for the quarter, along with the outlook for the remainder of the year. There are also a few items I need to cover before we get started. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com, and a replay of this call will be available later today. Replay instructions were included in our earnings release issued early this morning. If I could now draw your attention to the Safe Harbor statement on Slide 2. I'd like to remind you that today's presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in an earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, or future events or otherwise. The financial results presented are on a GAAP basis and in some cases, a non-GAAP basis. The non-GAAP financial measures discussed on the call are reconciled to U.S. GAAP equivalent as part of the appendix to the slide presentation. And with that, I'll now turn the call over to Rich.

Great. Thanks, Tom, and good morning, everyone. We've had an extremely active few months following our second quarter call in July. Since then, our new 4-year labor agreement with the United Steelworkers was ratified, setting us on a path to address our unfunded pension obligation. We held an Investor Day in New York, where we announced the reinstatement of a dividend and set new 3-year earnings targets, and we delivered a strong third quarter on the heels of a record results or a record second quarter. But before discussing our third quarter performance, I'd like to review some of the recently announced changes that will be taking effect over the next few weeks. As you know, Darren Wells will soon be leading our Europe Middle East and Africa business. So after something like more than 40 consecutive quarterly investor calls, first as Treasurer and then as CFO, Darren will be moving on to a new challenge. Replacing Darren as CFO will be Laura Thompson, who is joining us on the call today. Laura has been a key leader on the finance team for many years, and most recently, with the head of finance of our North American business unit, where she helped drive its dramatic turnaround. I'm looking forward to Laura and Darren working together on a seamless transition. Laura is certainly excited about helping implement the strategies and capital allocation plan we shared in our September Investor Meeting. You'll have an opportunity to get to know Laura better over the coming weeks. I'm also looking forward to having Darren leading the team in EMEA. Darren has spent significant time working in the region this year, helping set priorities and developing the playbook for delivering the profit improvement plan for that business. While there's been some improvement in the EMEA…

Thanks, Rich. As rich said, we're very pleased with our results for Q3, and we're extremely confident that our team's continued execution will position us to exceed $1.5 billion from segment operating income this year and set us up for continued earnings growth in 2014. Turning to the income statement on Slide 15. Our third quarter revenue decreased 5% to just over $5 billion. Volumes improved by 2%, slightly below the outlook we provided at the end of Q2. A couple of important points here. First, we feel good that the volume growth we achieved was the right volume growth. That is, focused in the right segments and generating good returns. This disciplined approach ensures we have sustainable earnings growth. Second, in Asia-Pacific, there's no question the environment has weakened essentially everywhere except China. Third, our Latin America volume was down, reflecting the choices Rich described, especially at OE, to ensure we can better serve our key replacement customers. Fourth, winter tire volumes in EMEA started slowly. Finally, our North America business showed volume growth for the first time in 10 quarters, a change we were expecting and where our team delivered, driven by strength in our industry-leading Goodyear brand. From a revenue perspective, foreign exchange and a lower revenue from third party chemical sales accounted for essentially all of the decline in net sales. Higher volume was offset by lower price mix, partially due to our raw material cost pass-through arrangements with our OE and other customers. We generated gross margin of 21.1% in the quarter, up 310 basis points from the prior year. Selling, administrative and general expense increased by $34 million to $686 million during the quarter, partly due to increased value of compensation programs linked to the increase in our stock price. Excluding discrete items, our…

[Operator Instructions] We'll take our first question from Itay Michaeli calling from Citi.

Just on classification on the guidance, I think for last quarter, for the unabsorbed overhead up on a full year basis, I think you're calling for kind of negative $25 million to $50 million. I see directionally, in the fourth quarter, you're looking for positive. Can you kind of size up the full year range relative to the expectation last quarter?

Yes. So, Itay, let me just address fourth quarter. I think that may be an easier way to do it. Our production was up in Q3, between 2.5 million and 3 million units. And so what you'll see is the benefit of that third quarter additional production rolling through in Q4.

Okay. Is that full year range, though, from last quarter still guided $25 million to $50 million? Or is that sort of kind of off the table at this point?

Yes. No, I think the full year range hasn't changed a lot.

Okay, perfect. And then just a point of clarification just on the OTR piece. I think last quarter, you were looking for up about $20 million in Q3. I think you might come in up $5 million. Can you just talk a little bit about that in the quarter and then just the different movements in that business?

Sorry, Itay, can you repeat your question? Because we just -- we missed a couple of words there.

Oh, sorry. But yes, just on the OTR piece. I think last quarter, the guidance, I believe, was about up $20 million impacting Q3. It looked like it came in at up $5 million. Just looking to get a sense of the walk and the delta there, perhaps talk about the chemicals business and some of impacts there, how we should think about that the next couple of quarters?

Yes. I think the -- yes, it's a fair point. We did have some headwinds there in the other tire-related businesses that related to our retail businesses, which are in the same category. Otherwise, not a big impact for us, one way or the other, in the chemical business. So net-net, the other tire-related came in a little less positive than we had expected. I think if you look at the guidelines that were given for the fourth quarter, I think the, yes, the $5 million is, again, similar to what we guided in Q3, yes. In fact we're expecting some of the same. There are some markets where our retail businesses have not been strong, and that's a headwind for us. As long as the chemical prices are -- in the marketplace are pretty steady, then there's not a lot of change one way or the other in the chemical earnings.

Absolutely. Then maybe a big picture question. Could just -- maybe Rich or Darren can update us on what you're seeing in the overall pricing environment and remind us sort of what you are baking into for your 2016 SOI growth projections for sort of price mix relative to raw materials, just kind of broadly?

Yes. Itay, from a price mix perspective, again, I'll just go, you -- take you back to how we think about it. And as we look at a world that has had a lot of movements over the course of the past few years, with raw materials increasing as much as 35% in some quarters and down, we're forecasting roundabout 10% for the year. At this point, we see a lot of volatility in there. And our philosophy remains that we've shown an ability to manage through those situations very effectively. We look at this overall in terms of the value proposition that we bring to the market, that's certainly partly priced. But it's also service level, it's also our brand, and it's also our customer relations that we have out there. And again, price is really part of that value proposition. And the way we look at it, we've got to ensure that could our value proposition ultimately and in the aggregate -- is really very competitive in the marketplace. And in some instances, we need to react to that in order to make sure that, that value proposition is fully competitive. Some cases with the rising raw materials, as you saw, so we had to react to that with price increases. As we've had to be competitive, we've had to react the other way as well. I think what we would still tell you very clearly is that we're pursuing a very disciplined strategy around price and mix. And I think our history bodes well for us to manage through those. And, Darren, you can talk to the projections going forward, which really are not the driver of what we're counting on to hit the targets we set out on our September meeting.

Then I think, Itay, going back to the discussion in the September meeting, when we talked about the 10% to 15% earnings growth from 2014 through 2016, which, by the way, we're still very confident of, the view is that that's a balanced earnings growth, balancing between growth and cost savings. And as we're balancing between growth and cost savings, obviously, the work we're doing to target more premium segments in the market is something that's going to be helpful for us and means that the volume is more valuable than volume may have been for us historically. But the -- but we are focused on the volume and our cost efficiency, which effectively means that we're assuming that our work on price mix offsets raw material costs over that timeframe. And I think overall, we are expecting that the raw materials are going to be rising during that 3-year timeframe, given the increases we expect in global industry volumes.

Next, we'll move to Patrick Archambault with Goldman Sachs.

Yes. Just maybe a shorter-term question, a longer-term. Just following up on that last question, I sort of get the modeling assumptions for the medium term on pricing versus raw mats. But let -- if we kind of just look out to the -- like maybe next year's time horizon, as we're trying to figure it out, you guys have carried over a positive variance, price mix minus raws for the fourth quarter. How do you think about that for next year? Mix seems to be one of the sort of stable improvers here. But from a pricing perspective, obviously, there's increased competition on the lower end, on the -- raw materials have started to increase a little bit. So any kind of guidance for maybe the next 12 months would be helpful. And then I have a longer-term question.

Yes. So, Pat, as we think about this for the next year, I think that there will be some dependency here on how quickly we see raw materials turning the other way. We've seen -- we're seeing some signs here the last couple of months of some raw materials coming off the bottom and starting back up. What we're -- what we've been able to do historically over time certainly is manage price mix to offset or, in a lot of cases, more than offset raw material costs. And over the long run, I could still say that is our expectation, that we'll be able to do that. If we look at times when raw materials increase, when those increases have happened rapidly, I think there have been times when we haven't been able to keep pace. And so certainly, there are times when that's happened. Over the long run and if you take a look at the course of 4, 6, 8 quarters, we've generally been able to catch up. And in periods like we've seen a decline in raws, we've been able to benefit from that. I will say this: as you look at 2014, as raw materials increase, there'll be some lag before the raw material index agreements that we have with certain OE fleet and OTR customers kick in. So that makes it -- that gives us a little bit of a challenge. I think in the replacement market, we're able to react more quickly. And I certainly think your point on mix is well taken, is we continue to target more premium segments of the market. And that has continued to deliver positive mix for us. So to the extent the -- we're able to manage the equation properly, there have been instances where we've been able to bring the mix to the bottom line.

Okay, yes, that's helpful color. On maybe sort of a longer-term on pricing, there's been a lot said recently about capacity additions in the industry and the potential to weigh on margins. Could you talk a little bit about your own capacity plans? Can you talk a little bit about what you're seeing in terms of capacity additions in the industry and whether you're concerned about it at this stage in this cycle, given the volume outlook you have?

Pat, I would tell you, as we take a step back and look at this, I think first and foremost, we really don't see the supply of HVA tires outstripping demand in the foreseeable future. And I think you can go back again to the investor presentation that we went through in September and look at the growth that we see coming in those HVA tires, both in mature markets but also in growth markets or emerging markets as well. So I think that remains our view of the tire industry on a global basis for the future as we look at it. I'd also say, though, that maybe even more important than that is, as we think about our business, we think about it very holistically. And I have to say that just adding a factory or having a factory doesn't really make a -- make one competitive. And certainly, Goodyear can make that point, given the capacity that we've taken out. We never would have closed a factory if it was only about having factories and having volume. Our view very much is -- still remained in a holistic approach to adding values to the customers. You can have a factory, but with that factory, you got to make the tires, you got to make the right tires, which means you have to have the technical capability as well as the ability to industrialize those tires. In addition to that, you've got to manage the incremental complexity that comes along with these HVA tires. And I say that both within the 4 walls of the factory but also relative to the distribution and the channels that you're going to play in. And finally, you've got to have a line distribution in terms of how you're going to sell…

And next, we'll move to Brett Hoselton calling from KeyBanc Capital.

Two questions here. First, just on volume front, third quarter underperformed your expectations a little bit. What were the 1 or 2 primary drivers of that shortfall, in your view?

Yes, yes, Brett, I would have to tell you, first of all, I'm actually -- I'm pleased with the way our business performed in the quarter. And I think our results show that I'm very happy with the way the business performed and the way the team executed. And I actually feel good about the volume we achieved because it was the right volume, it was focused in the right segments, we made progress, the right progress at the right brands, and we generated the returns that we wanted to. And again, I would tell you, we're following a very disciplined approach in line with our strategies, to focus on winning in the targeted market segments and creating that sustainable earnings growth over the long term. If you take a step back and you look at volume for the quarter, where we saw -- what we saw is really weaker volumes in Asia in particular. China was strong, but frankly, the industry was weak everywhere else. Our Latin America volumes were down. But again, as I think Darren and I both pointed out, that was due to some strategic choices that related to some timing relative to business decisions we had to make. I'm very comfortable with the choices we've made as they improve our profitability and allow us to serve our key replacement customers better in the region. Thirdly, in Europe, we got off to a slow start. I think the industry got off to a slow start relative to winter tires, primarily driven by weather. We see that trend reversing in October, and we think that, that will continue on into the fourth quarter. And relative to North America, we saw growth for the first time in 10 quarters. We called that, we expected it, and we delivered.…

And as I think about -- and this just kind of ties into one of your previous questions. As I think about your longer-term outlook, one of the underlying key assumptions is that your price mix is going to continue to outperform raw materials, or at least keep pace with the raw materials. I don't see -- you don't seem to see any degradation in that over the longer term. And then as I'm kind of thinking about your revenue per tire and I'm comparing it to where we're at today versus where we were at in 2009, revenue per tire is up about 38% in North America on average and for the entire company, up about 20%. Part of that is mix. Probably part of that is pricing and so forth. How do you feel the marketplace is going to react to price increases going forward? Or do you believe that you can continue to make substantial improvements in your mix going forward to drive that continued outperformance, price mix versus raw materials?

Brett, I'll speak to it from a macro perspective. I think Darren really addressed the price mix versus raw and -- raw question previously, that we've got a great track record to deal with it, both on the up and the down. But, Brett, I would tell you, we remain probably more optimistic than we ever have relative to the opportunities the market's going to present us with. If we go back to the MegaTrends that we reviewed, the market is mixing up. And we're, as I mentioned, gaining share in our targeted market segments in a flat market where those -- that HVA tire growth really hasn't kicked in yet as we still see pent-up demand out in the marketplace. So as we think about how we continue down a strong path of not only price but mix, it's really around how we can create a value proposition for our customers to do business with us. And again, I would go back to the innovative new products to meet the demands of the HVA trend going on. We have an excellent proven track record at that. We are, again, focused on those parts of the market where we can add value to customers. And frankly, that's what we're seeing. We're winning with customers who value the Goodyear brand and who are relying on us to help them deliver that going forward. And again, if we look at North America's results in particular, it's working. As I look at the operational excellence initiatives that we're putting in place, again, they're certainly about getting more efficient. But the real halo, the real benefit from it is being a better supplier to our customers, allowing them to meet the demands of the market with lower inventories and more reliable supply. That's a game-changer. And again, it's that the tire business isn't only about building a factory and pushing tire out to put in the dealers' inventory. It's the right tire, the right time and the right place. And that's value creation in the market. And that's what going to continue our business model going forward in a way that allows us to continue to grow this business profitably and sustainably in the future. That's how we think about it. It's not simply a question of price versus raws or solely just go up and down with industry demand. Certainly, we have to react to those things, but that's not what's driving us into the market.

And our final question will come from Rod Lache with Deutsche Bank.

I was hoping maybe just to take a step back. Just talking about North America and Europe replacement markets, presumably, the HVA replacement market has been and probably will continue to, over time, outperform the LVA market. And I understand that there's a weird comp this quarter and probably next quarter as well in North America. But just directionally, it makes sense that HVA replacement would be outperforming. And Goodyear, at this point, as you guys have said, disproportionately HVA. I think you guys said 67% HVA North America, even higher than that in Europe. So wouldn't it make sense from your perspective that at some point, we'd see Goodyear's growth outperform the market? Yes or no? And when would you expect to start to see that translating into kind of relative performance and market share?

Yes. So yes, Rod, I think the, yes, the points that you raised are the right points as we do -- yes, those are segments of the market that are growing faster that the market overall. Those are the segments in the market where we are being successful, and that's true in North America. And certainly, it was true in the summer market in EMEA. The winter market has just been getting started, so there's more to come on that one. But I agree with all those points. But having said that and having looked at what we're going to achieve over the next 3 years, I think the balance for us is an expected growth rate that is essentially in line with the industry. And that's relatively low overall growth in mature markets, higher growth rates in emerging markets but all of it weighted toward high value added. And that does say, well, if we're growing faster in high value-added tires, there is some of the lower-end business that we're doing less volume in because we can't do it profitably. And that's something we have to manage from a cost perspective, and we are. And that's one of the things that has caused us to look at structural cost savings in Europe because we've needed to. So I think on balance, the expectation that we're going to be in that sort of 2% to 3% unit volume growth category over the course of the next 3 years, it's consistent with us growing in HVA. And obviously, our HVA unit volumes are growing faster. But it also recognizes that there are -- as we make that shift, there are some lower-end business that we walk away from.

Would you think -- I mean, North America and Europe are almost 80% of the company. Would you think that those businesses in the replacement market are growing at this point? I'm just trying to reconcile that against the flat replacement market, and past couple of quarters have been a little bit lighter.

Yes. So I think 2 things, Rod. I think if you look -- if you're thinking about splitting emerging markets from mature markets, I guess it's important to recognize that there are parts of the market in Europe that are emerging markets as well and fit in that higher growth category. For the mature markets themselves in the third quarter, we saw both North America and EMEA with significant growth in the replacement market. In North America, Rich has addressed the fact that, that was really more low end-related growth, so still operating at historically low levels in North America in the replacement market. So even though we may get sort of more than market growth rates in high-value added tires, it still amounts to very little overall growth. In Europe, Middle East and Africa, we did see about a 4% increase in the replacement market in the third quarter. Yes, I would say that we were happy with our results in the summer market. We held our share in the summer market, and summer volumes were actually -- performed fairly well year-over-year. The winter market is off to a slow start. And I think the challenges there are a little bit bigger. And the good news is that we did get -- so there was some snow in some markets in October, and we've seen our order volumes pick up in October. So the start of the fourth quarter in the winter season is a lot stronger for us than third quarter was.

Okay. And just lastly, you guys have done extremely well in terms of just being very disciplined in terms of pricing and mix. And at this point, there are companies that are putting out some fairly lofty expectations, like Michelin talking about 20% per year growth and HVA over the next 3 years, something like that. Is it reasonable to assume that from Goodyear's perspective, that your priority is to preserve pricing and maintain that discipline to protect profitability? Or are you looking at some objectives for growth in HVA that at some point, take priority?

Rod, I think, I mean, I think it's a good question. And frankly, I think it's the one that we revisit internally as a management team as well. And we laid out a strategy about how we wanted to manage the business and how we saw best to do it. And we said, and you've heard us repeat often, we don't have a strategy that's just volume for volume's sake. It's not how we're going to manage the business. It's not how we've been managing the business. And it is also very tempting just to take tires and move them into the marketplace. That's not the strategy we've done. That's the discipline you're talking about, and we're committed to doing that. And I think in low industry volume environments, that's when that strategy is challenged. And we've been very disciplined in how we're going to manage that going forward. That said, Rod, life -- the industry isn't simple. We've got to balance things off. And that's to say that volume and volume in the HVA markets in the right -- the HVA tires in the right market segments is something that we are very focused on. So it's to say we have to balance those 2 things off, that we want to grow in the right markets, we want to invest in the business to be able to do that going forward. Thus, you see the discussions about investment CapEx in '15 and beyond from our September meeting. But we will do it in a very, very disciplined way. And I think that's been our strategy, and our intention is to stick to it. Everybody, thanks very much for listening again. We're very pleased with the results for the quarter, and we look forward to finishing the year strong. Thank you.

Thank you. And that does conclude today's conference. You may disconnect anytime, and have a great day.