Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to The Goodyear Tire & Rubber Company First Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the program over to Christina Zamarro, Goodyear's Vice President, Investor Relations. Please go ahead.

Thank you, Keith, and thank you, everyone, for joining us for Goodyear's First Quarter 2016 Earnings Call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Laura Thompson, Executive Vice President and Chief Financial Officer. Before we get started, there are a few items we need to cover. 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 earlier this morning. If I could now draw your attention to the safe harbor statement on Slide 2. I would like to remind participants on today's call that our 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 our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Our financial results are presented on a GAAP basis and, in some cases, a non-GAAP basis. The non-GAAP financial measures discussed on our call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation. And with that, I will now turn the call over to Rich.

Thank you, Christina, and good morning, everyone. I'll begin today's call by providing a summary of our first quarter highlights in each of our 3 regions. Then, with an eye on the next stage and our longer-term plan, I'll share an update to our strategy road map, which has been the cornerstone of how we operate our business. Laura will follow with the financial review and our 2016 outlook. We delivered strong first quarter performance highlighted by record segment operating income of $419 million. That's an increase of 14% in our core segment operating income, which excludes Venezuela from our 2015 base. On that same basis, our volumes grew 3% in the quarter. Demand for our premium-branded, high-value added products is robust, and our product mix continues to grow richer. Our results are not only consistent with our expectations for the quarter, but also with our long-term strategy and reflect the continued strong execution of our teams. As you know, this is our first quarter of results for our combined Americas business, and I'm extremely pleased with the team's performance. While we'll talk in some detail about how the U.S. and certain other countries are performing as part of our quarterly updates, I want to reinforce the long-term benefits we anticipate in managing the business internally as one consolidated unit. After adjusting for the loss of Venezuela's income, Americas segment operating income grew 15% in the quarter, driven by strong demand for our premium-branded HVA products. In the U.S., favorable demand has been created by lower fuel prices, higher miles driven and growing consumer OE needs, particularly in SUV and light truck. We are growing our OE profitability by winning fitments on many of the most popular vehicles and responding to the increasing complexity of OEM requirements. Our success in…

Thank you, Rich, and good morning, everyone. Today, I will cover our first quarter results and provide more detail on key income drivers in the quarter. I'll also provide an update regarding our full year outlook for 2016 before we open the call up for your questions. Turning to the income statement on Slide 5, you will see our results for the first quarter. Consistent with how we have provided our full year outlook at our call in February, we have provided callouts that remove the effect of deconsolidating Venezuela in order to provide better transparency to our underlying core business. On that basis, you see we had an outstanding quarter. Volume was up 3%, segment operating income of $419 million was up 14% and SOI margin of 11.4% increased 2.1 points. Looking at the income statement items as reported for the first quarter, the strengthening of the U.S. dollar against foreign currencies reduced sales by $141 million year-over-year. The sales comparison to prior year was also negatively impacted by the deconsolidation of Venezuela, which had $94 million of net sales in the first quarter of 2015. Gross margin improved 3 full points to 26.8%. Our earnings per share on a diluted basis was $0.68. Our results were influenced by certain significant items and after adjusting for these items, our earnings per share was $0.72, an impressive increase of 33% over first quarter 2015. In addition to our stronger overall segment operating income, interest expense and minority interest were lower by a combined $32 million versus last year, primarily driven by refinancing transactions we completed in 2015 and the dissolution of our global alliance with SRI late last year. As you will see on the step chart on Slide 6, which walks first quarter 2015 segment operating income to first…

[Operator Instructions] And we'll go first to Itay Michaeli with Citi.

This is actually Justin on for Itay. So a quick question with regards to the $6 million that you took for the motorcycle business this quarter. How should we think about the remaining $24 million throughout the year given the Q2 waiting? Is there a specific cadence that you can help us kind of drill down for the remainder of the year?

Yes, Justin, there is. And just -- it's actually similar to what we said in February when we gave the guidance, and for the full year, it is $30 million. Yes, we have the $6 million in the first quarter and the second quarter is going to get hit pretty hard as well, with really very little then in the third and fourth quarter. I would think of maybe close even to $20 million in the second quarter.

Perfect, excellent. And then I guess, can you briefly talk a little bit about pricing trends that you're noticing in North America and Europe, and maybe the subsequent migration to HVA as a percent of the unit volume in these regions? And how that's impacting the pricing environment that you're seeing?

Jason, I'll jump into that. I would say the trends that we're seeing, broadly speaking, differ from region to region. You almost have to do sort of a tour around the world to really see what's going on. I will say to your comment on HVA pricing, clearly, the part of the market that's growing, where the demand is -- still outstrips supply as we've reviewed many times in the past, I would say a very good demand-supply equation, and we are able to certainly capture the value of those products going forward. So as we've always said, our high-value segments, those targeted marketed segments, I would say still a very, very robust environment, and we're very pleased with how that's moving. I think if you look at pricing around the world, again, we don't really comment on pricing specifically, so I won't do that. But certainly in EMEA, it remains a very competitive market there. We've seen that in the past, and I think we expect that to continue. The industry clearly is showing some signs of strengthening, particularly in the OE part of the market, as we said. And we have many places we do business in Europe, so we manage that value proposition market-by-market, but we see it as still a very good place for us. The biggest impact that we continue to see is that of -- sort of Chinese or Asian tires coming into Eastern Europe and putting pricing pressure on there. In Latin America, we could probably use Brazil as a marker. Again, what we've seen there is the impact of the devaluation of the currency against tire raw material prices, so a lot of pressure there. We've had already a price increase announced in Q4 2015. And our way to do business there has always been to get the value of our products by recovering the cost of raw materials and dealing with the devaluation impacts there. That's exactly what we'll continue to do in that very difficult environment. I will tell you our volumes there, as we've talked down in the past, are increasingly mixing up the HVA tires to sort of 17-inch and above rim diameter tires, and that is a part of the market that is still very favorable for us there. And in North America, I would say really pretty stable environment that we've seen there. Not really a whole lot else to talk about there. The higher end of the market is doing very well for us. And in Asia-Pacific, what you're seeing there and will continue to see as raw material rises, remember that gets through our footprint -- our raw material cost quicker because of the cycle times. So again, we've been very active in the market there recovering those raw material prices as well.

And I guess I'd add maybe another data point, especially for the Americas. If you look at revenue per tire in the first quarter, and you -- excluding Venezuela, right, which we deconsolidated at the end of 2015, and excluding -- I guess, as you go, if you look at Americas and, granted, it isn't total for Americas, revenue per tire is flat year-over-year, really demonstrating that value proposition in the marketplace.

And we'll take our next question from David Tamberrino with Goldman Sachs.

The North America environment remains pretty robust from a demand perspective and the quarter was pretty good, albeit some of that's going to be from import tires coming in and easy comps year-over-year from some of the shipment disruptions, but your consumer replacement OE, I think, together the business was flat in the U.S. against this pretty strong backdrop. You mentioned that you're still capacity constraint, which is probably why we're still positive price/mix of the top line in the U.S. despite lower raw materials. I guess our question is, as you progress through the year, do you see this easing up at all or even against a pretty nice backdrop for volumes in North America given increasing VMTs and a growing vehicle carpark, whether your consumer business is going to grow or not?

And, David, to be clear, easing up meaning the supply? Is that what you're referring to?

Yes, if you're less supply constraint in the back half of the season.

No, no. I just wanted to be sure. But listen, I think you've actually capsulized it very well. If you look at the market and you look at our overall volume as a company, excluding Venezuela, we grew the 3%, which is really pretty much in line with what we said; strong volumes in Asia and EMEA. When you come back and look at the Americas, and you adjust, again, for Venezuela and then the GDTNA piece, what you see is Brazil was the weak spot in the Americas. And then you come down to kind of the U.S., if you like, if you want to call it that, you hit it on the head, we're about flat. And the way I would frame that up -- again, David, you kind of laid it out properly. If you look at consumer placement, just look at our EMEA numbers, it was up about 6%, but as you've said, very distorted by over 30% increase and sort of nonmember Asian imports coming in, and that is the long tail whipsaw of tariff buying. So you have all the industry being impacted by tariff buying really in the first half. The second half of 2014, if you think about this, there was a lot of prebuy, which meant Q1 2015, there wasn't really any buying going on. That buying sort of went back to trend line in Q1 '16 this past quarter, so you saw that big increase of over 30%. But if you follow it over the period, it's about on the normal sort of import purchases that the industry has always had. So distorted by quarter not really over the long term. If you look at members, members are up about 0.6%, call it, 1%. And I think in that environment,…

No, that's helpful. I mean, it sounds as if may be towards the back half of the year you should be seeing some ease of that, but really the release valve is going to be San Luis Potosí coming on line next year.

Well, we're going to keep working from today onward, trust me, to get more tires out. So that's our objective and that's where we're working towards.

That's fair. And then, just lastly from me. The Americas segment margin combined looked pretty good year-over-year. I think it was up 120 basis points. I think you commented that you were positive in, I guess it would be Latin America ex Venezuela, but that margin was still pretty strong in the first quarter of last year. When you say profitable, how profitable were you in Latin America? Just because -- what I'm trying to get to is what is the trajectory of your margin for the legacy North America business looked like. Because the biggest pushback we get here is that the North America segment is, at least relative to the rest of its peers, at peak margins given the environment that we're in? And maybe just if you could give us some of your thoughts on why there is maybe a little bit more margin expansion in the region going forward from here?

Okay, let me start -- maybe I'll start with the earlier part of your question on Brazil. So we were profitable in the first quarter. As we've said, we worked hard on cost, good volumes, good product mix, align distributions down there, but year-over-year for the first quarter, we're still down in Brazil, and we're really not expecting that. So better than the fourth quarter and the first quarter, but, again, year-over-year Q1-to-Q1, we're still down. And we, frankly, as we look at Brazil, we'll continue to take these actions and set ourselves up well for when things do recover, but we're really not seeing that in 2016. And then, if you think about, okay, that's Brazil within Americas, and you think about the U.S. market for example, as you look then at our guidance, the net price/mix versus raws, the cost savings versus inflation, volume, so on and so forth, all of that tells you that as we look at the Americas, and especially our U.S. business, we see continued improvement as we move through the year. We do not believe we are at peak margins.

Yes. And I'm just going to jump in. I think if I take a step back and give a view on how we think about the future, it's part of the reason that we redid internally our strategy road map and, frankly, shared it with you. As we look to the future, the focus on what's being demanded from us from the tire industry relative to the OEM requirements, relative to consumer requirements, is, frankly, only getting more and more difficult and more demanding, and we've always said, we welcome that complexity. It's actually a good thing for us. That part of the market that's growing both in demand -- both in volume and in profitability, is the toughest part of the market. That's where we're headed, that's where our focus is. And that's why I think as we look at where our margins will be, we're not giving a forecast next quarter or 3 quarters down the road. But as we look down -- out into the future, I think the opportunities are actually more exciting today than they were, let's say, 5 years ago. I think that's true about the auto industry in general in terms of what's coming. And maybe even a simple example, you saw some of our domestic OE customers investing in more SUV production. SUV tires and mixing up to SUV tires is really a good business mix for us. And so as we look at where the industry is going, I think the mix opportunities still get us very excited and we'll say that I don't think we look at it and say, "We are at peek margins and, boy, we're never going to go from here." I think the opportunities are actually pretty exciting.

And our next question comes from Ryan Brinkman with JPMorgan.

I think investors are increasingly trying to gauge the potential impact of any U.S. tariff on Chinese made TBR tires. I think there is a broad consensus this would negatively impact Cooper tires, because many of the TBR tires are made in China, but there's more uncertainty out there what it would mean for Goodyear. So where do you primarily source the TBR tires that you sell in U.S.? Do you bring them in from China? If could -- in the future, could you instead bring them easily from, I don't know, Brazil or something? How should we generally think about any possible TBR tire tariff impacting you?

So we certainly can't comment what the impact could be to any competitors. I would say just from a behavior perspective, we see prebuy ahead, when we've had the tariffs on passenger tires and you have already seeing some of that prebuy particularly in the replacement markets for truck tires. So that behavior, I think, is repeating itself and that's why you saw the OE side of -- the OE industry, actually, have some headwinds in the quarter where the replacement side was impacted less. That again is some of the prebuy coming in in anticipation of what happens. For us, most of our truck tires are made right here in the United States. We do import some tires, but essentially the bulk of our products are made right here in the U.S. And remember, we have very strong products, very strong linkages to the OEMs. I mean, you saw some of that slowdown in the quarter, but long term, our technology is valued by the OEMs and it's valued by the fleets, not only because of the products, but because of our entire solution -- fleet solution model to them as well. So again, can't say how it's ultimately going to play out, but, for us, we've got a very good, I would say, an envy of the industry truck business model here, and -- but we're going to continue to execute no matter what happens.

Okay. That's great to hear. And then last question regarding the price/mix to raw spread. I'm curious what you're seeing that allows the full year outlook to remain plus $75 million year-over-year on Slide 12, despite, you say, road map is tracking down maybe 2% versus 5% prior. Is it that price is stronger? Is mix stronger? Or are those like spot prices in dollars and the euro was rebounded some versus the dollar? No sure. Just what was the initial outlook may be conservative at the then prevailing spot prices? Or what's the offset that you are seeing?

Yes. So you saw our raw material forecast go from 5% down to 2%, so a difference in the benefit that we would get. And I would say as we look at that and we see less of a benefit, our value proposition, as we've talked about often, really is about getting value for our products in the marketplace through going out and getting rewarded, if you will, for our innovation, for our technology, for our products, for our brand, for our distribution, for our supply chain. And it's something that we've done very well over time. And even periods of, let's say, rising raw material cost, we have a very strong track record of being able to recover our cost in the marketplace because of that value proposition. So as we see raw material prices going up, which we do. I think today natural rubber as a proxy was like $0.71 a pound. That's up from $0.59 or $0.60 a pound not too long ago. Our philosophy has always been to recover our costs and get paid for the value proposition in the marketplace. It's our philosophy, and we execute tactically to go do that. And that's no different when we look at the environment that we're in right now. And again, I would say, rather than just saying we're going to do this, if you look at our track record of offsetting increased raw material costs, it is quite substantial. We've been quite successful at it, and we intend to really do it no different at this time. I would tell you, though, as we've spoken in the past in these environments, there can be a lag when we ultimately recover that because of the way the materials flow through our P&Ls. Goes faster through Asia, let's say, than it does in the U.S. But again, philosophically, our view is that we will recover the value of -- the value we bring to our customers in the marketplace and it's no different here, as we look at a change in our cost of raw materials.

And we'll take our next question from Rod Lache with Deutsche Bank.

It's actually Pat Nolan on for Rod. Just wanted to -- just one quick clarification on the price/mix versus raws discussion. So when we think about the change of going from -- to 2% benefit from the 5% benefit, and you've said pretty clearly that you hope to offset that with improving price/mix versus raws -- price/mix benefit from that. Can you just -- you need to see a sequential improvement in pricing and mix, right? It's not just a matter of there is less give back on the OEM business? You actually do need to see an upward movement in pricing and mix from current levels, correct?

I think, Pat, it's going to vary region-by-region, country-by-country. As I mentioned, places in Brazil, we've announced price increases already that are in place, so that would be an increase year-over-year. In other markets, it could be simply different how we go about achieving recovering the raw material prices. I don't think I can give you -- I don't think I can give you one answer for that. What I can say is just to reiterate what I said before, is that we have got a very strong track record of managing price/mix versus raw material. That's through a variety of things getting it back in the marketplace for value proposition, getting efficiencies through us, through our own internal processes as well. As we've done it in the past, our intention is to do that again.

Yes.

And on the European business. So replacement on the consumer side was up slightly. Is that a matter -- the end parts versus the industry, is that a matter of just being more disciplined on price, because it still remains competitive there? Or would you expect to be performing in line with the industry going forward?

Well, I think it's a combination of a lot of things. Again, I would go back and say that the European market remains a very, very good market. We do have sort of the industry headwinds of these low-cost Chinese tires that, remember, used to come to the U.S. than they went to Latin America, now they're going to Eastern Europe, that's having an impact on the industry there. But really when we look at sort of the mix-up that's going on over there, I'm really very optimistic on where the market is right now and where it's going and our opportunities in that market. I would tell you as well as we look at Q1, just to frame it, we do have a seasonal business over there and what we also saw in Q1 as an industry is that winter stuck around longer, which meant the summer changeover season didn't happen until later in the quarter, which also had an industry impact in terms of how tires float and tires changed over. So I think as you look at Q1, you've got a little bit of signal impact in there as well. But long term and 2016, very good market. Our focus is going to remain on driving our mix in both replacement and OE. We are focusing on sort of getting more disciplined in our line distribution, improving the alignment between ourselves and the dealers. We continue to introduce industry-leading new products there, which will help us. Our focus is growing in those higher parts of the market and really leveraging our Goodyear and Dunlop brands over there, and we're going to continue to drive that. And as we've mentioned, we've taken some cost actions on closing some facilities in the U.K. and Germany. We announced that a while ago. We're in process of doing that. We'll see the benefit of that going forward. And we will continue to focus on getting our costs in line as Europe, by definition, is a bit of a high cost region.

And we'll take the next question from Emmanuel Rosner with CLSA.

So first question on the volume outlook. So maintaining that at 3% for the full year, obviously, you did that in the first quarter. However, it feels like in the first quarter you essentially did it through Asian volume growth, right? North America was essentially flat-ish as was Europe. Is that the way you see it achieving it for the full year as well? Or is there any room in the developed markets to get a little more growth? And I guess as part of that question, I know, you started to import some of your own tires into the U.S. to sort of address these, I guess, strong demand, lack of capacity. Are you able to import more? Can we see throughout the year some improvement in the -- in sort of like your volume here, I guess, in the Americas?

I would say in terms of volume growth for the year, we didn't break it down by region, but I would say, clearly, we had growth in Asia by definition and by plan. It is a growth region for us and we'll continue to be more important to us. But we also had growth in certain mature markets as well. EMEA had growth and, by definition, that is a mature market, where we see opportunity. And while we don't break it down for you, I can say that by certain segments of our market within North America, we had year-over-year growth as well in terms of those high-value segments of the market that we targeted. So we are seeing growth in the places that are very important to us as well. In terms of the impact of imports going forward, I would expect that the amount of imports that we get increases over time and it will help to alleviate some of the supply problem that we have. I mean, that's kind of what we said in the past, and I think that will continue to happen.

And then to add on just, Emmanuel, our normal seasonality, right, Q2 and Q3 are going to be stronger than Q4.

Okay. That's helpful. And then just wanted to turn quickly to your comments around taking cost actions or I guess further cost focus in Europe. Clearly, when looking at your margins, you've had a dramatic improvement, but there's still a pretty decent gap, I guess, versus some of the other tire makers that operate in Europe. What sort of actions are you sort of contemplating and, more importantly, what sort of timing should we expect to see further benefits to the margin profile from these cost and restructuring?

Well, again, I'd go back to say some things that we have done already. You may remember that we closed our Wolverhampton, U.K. mixing and retread facility. We had a reduction of about 400 associates there. And I think starting in 2017, we'll see about an annual benefit of $30 million for that. So I tell you that just as an indication of that we continue to look at our footprint, our efficiencies and how we can make sure that we're getting our cost in line. We're doing the same thing around our SAG costs. And I think it's something that you'll see us continuing to do going forward. We don't have any other particular announcements to make at this time, but, Emmanuel, what I would say is I agree with you, and I think our team agrees with you, and one of the focus items of Jean-Claude Kihn, who just took over our European business at the beginning of the year, is making sure that we have the diligence on cost again on a tactical basis, but then also strategically as we look out to the future to make sure that we're getting our breakeven point lower in all the things that would entail both from an operations perspective, from a daily management perspective and from a structural perspective, and that's what we're going to continue to focus on.

And, ladies and gentlemen, we are at the top of the hour, and this will conclude the conference for today. We thank you for your participation. You may now disconnect, and have a great day.

Thank you.