Good morning. My name is Keith, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's Second Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]I will now hand the program over to Nick Mitchell, Senior Director of Investor Relations.

Thank you, Keith, and thank you, everyone, for joining us for Goodyear's second quarter 2019 earnings call. I'm joined here today by Richard Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. 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 two, 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, on non-GAAP basis. The non-GAAP financial measures discussed on the call are reconciled to the U.S. GAAP equivalent as part of our appendix to the slide presentation.And with that, I'll now turn the call over to Rich.

Great. Thank you, Nick, and good morning, everyone. During today's call, I'll share some highlights of our second quarter operating performance and discuss the progress we're making with several of our initiatives. I'll also take a few minutes to highlight the recognition that our teams and products are earning around the globe. Darren will follow with the review of our financial performance and an update on the steps we're taking to mitigate the impact of the raw material cycle and the global OE slowdown. He will conclude by offering some insights into how we're thinking about our business going forward.Our U.S. business continues to perform well in the period, as we maintain the momentum from recent quarters. In all, our U.S. consumer replacement volume increased 4%. This growth was well balanced as shipments increased across all our major distribution channels, including retail, wholesale and mass merchants. I'm pleased to say that we accomplished this while increasing our revenue per tire relative to last year, which is a testament to the strength of our brand and our product offering.We continue to excel in the all-important high margin premium segment of the market. Shipments of large rim diameter tires increased by 9%. This growth was more than double the industry and came on top of a strong performance in the previous year. We benefited from the increasing premium supply aided by the ongoing ramp up of our newest manufacturing facility in the Americas, which remains on track to provide 3 million more tires by the end of 2020. Our fill rates are improving and back orders continue decline allowing our dealers and align distributors to better meet the high level of demand for our best-in-class products in the market.Our U.S. commercial replacement business maintain the momentum it gained earlier in the year.…

Thanks, Rich. While second quarter results were a bit disappointing, with both volume and price mix below where we wanted to see them. The first half overall was consistent with our expectations. We knew that a number of macro factors would be working against us through the first half. These included higher raw material costs, a stronger U.S. dollar, weaker OE volume, particularly in China and India, and increasing energy and wage inflation in Europe.Results for the second quarter were affected by these factors, while also being impacted by weaker than expected European replacement industry volumes. While the first half results were unfavorable versus the prior year, our expectations for the second half are better. I'll come back to this in a few moments. But overall raw material cost increases will not be a big factor in the second half, our volume outlook is more favorable and we expect faster progress on price mix than we saw in the last couple of quarters. And we should see some meaningful working capital improvements.In addition to factors impacting the second half, there are a couple of key positives I will also highlight as we look out over the next couple of years. First, is the benefit from cost reductions we have underway. These include the manufacturing footprint restructuring actions we have announced in Europe. Second, is a significant inflection in our OE volume after a decline of 2 million to 3 million units this year. This inflection is based on the fitments that we won over the last 18 months.I’ll come back to these future opportunities here in a few moments. But first let me review the results from Q2. Turning to slide nine our second quarter sales were $3.6 billion, down 5% from last year, reflecting the impact of unfavorable foreign…

[Operator Instructions] We'll take our first question from John Healy with Northcoast Research. Please go ahead.

Good morning, John.

Good morning, guys. I wanted to talk a little bit more about your excitement on the OE business. The 20% number three years from now is a big bogey. So I was hoping to understand what sort of global auto production assumptions are maybe in there. But also for the company, what geographies are you winning the OE business? And because my guess tells me, it's not just the U.S. So I was hoping to understand just big picture standpoint, more of the assumptions that go into the excitement on OE?

John, I think it's a fair question. I want to make sure that we're clear on the fact that we are using third-party projections for OE volumes, which, as they stand today have about 2% to 3% annual growth between now and 2022. So, obviously, that level of growth is what's built into the numbers. So -- and that would have an impact on the numbers. But I think we feel like anyone can do work trying to figure out where they think the industry is going.So better to let people take their own point of view on that. But this is -- we've tried to be transparent about the assumptions here. And so we do assume some steady growth in order to deliver the 7 million plus units. However, I think we're going to see some growth whatever assumptions that you make and I think that's a reflection of a couple of things and we talk about the higher win rate. Where over the last 18 months, we had a win rate well over 50% on the bids that we submitted where for several years prior to that our win rate was more like a third.So we’re seeing a very significant change and I think two points on that: one is I think we see some trends that are moving back in the direction of larger tire producers with greater engineering capability that's the difficulty of the fitments and that is something that will help the companies that have made the bigger investment in R&D.Second thing is, obviously, we're taking full advantage of that trend and making sure that we’re winning at least our fair share out of the fitments that are going to go to the more technical capable companies. And I think, particularly, seeing a lot of win rates, yes, very high win rate on electric vehicles. And there we’ll getting business awarded on two thirds of the fitments, which gives you an idea just the differential in capability that now exists as we're bidding on these fitments.

Great. And then, I just wanted to ask on the U.S business kind of foreshadowing event to come there. When might we realistically think about hearing the update on that, do you think we'll have a details on the plan before year end and anything you can add there?

Yes, John, I think we’ll probably we have the leave the U.S. restructuring comments with what we said. And that is that we are working on a significant restructuring, once that plan is finalized, we will make further announcements do some further communication. Obviously, we feel good about the track record we have, delivering these kind of initiatives and the savings associated with them. But there is inevitably some uncertainty in timing, given the steps we have to take prior to announcing something.

Sure. And then just one final question from me, as it relates to capital allocation, just your priorities there when I kind of do my chicken scratch model here, I have you guys still free cash flow positive for the year and was wondering if that is an assumption that you guys feel like that you can stay? And then if you had to utilize the balance sheet to pay the dividend, would that be something that you guys would do assuming tougher macro environment maybe in 2020 or 2021, where maybe EBITDA isn’t where it is today or were a step forward given macro factors.

So, John, I think first point that I will make is that we do take protecting the balance sheet very seriously and improving and reducing our leverage is something that is strategic focus area for us going forward. Having said that, I make the same conclusion that you offered that even at the run rate of our operating income over the last 12 months, I think given the other assumptions we still feel like we will generate enough free cash flow to more than cover the dividend. So I think at this stage, we’ve got the money to cover the dividend. So it’s not really a question of increasing borrowing in order to maintain it. So, I think, we’re generating enough cash at today's earnings level to still cover it.

Great. Thank you, guys.

Our next question comes from Ryan Brinkman with JP Morgan. Please go ahead.

Thanks for taking my question. Relative to the $50 million of equity income losses in TireHub showing in the other SOI driver categories, can you talk about how long the startup process is expected to last? And beyond that can you remind us should we think about -- how should we think about that line item going forward? I through maybe TireHub itself was designed to operate neither at a profit nor loss, but simply to enable your and Bridgestone’s core business to improve profit via better volume mix price, or should we be modeling some sort of loss there going forward?

Yes. So Ryan, I think there is not a need to model an operating loss in any sort of permanent sense, just to be clear. So I think what we're looking at here is a couple of things. And maybe just preface this by saying that we continue to see TireHub as a significant strategic asset, and a big enabler for what we want to do to achieve distribution alignment, and deliver on the initiatives, we have to make the tire buying process easier.So we feel if anything even more strongly about that today than we did a year ago when TireHub was starting up and TireHub is building momentum. So we're feeling very good about what they've been able to deliver and the fact that we've retained our customers and they have done a really good job executing on customer deliveries.Now, having said that, we are focused on making sure they are making the significant investments that will enable them to grow in the future. So -- and that's making sure that they've got distribution footprint everywhere we need them to support our distribution. I think we have good alignment with our partner on that idea that, we want to make sure that we're getting everything that we can out of what is a very strategic asset.And so, the fact that they're making these significant investments in the future right now for that growth, in addition to continuing and have some startup costs, I mean, it's a company that's only a year old, has led us to think, okay, this is not really a representation of the ongoing cost of TireHub as part of our distribution.And while I could take different points of view, given that all of our other distribution costs are embedded in our normal price mix calculation. I could take points of view that would either exclude it or include it. I think at this point, we've broken it out in order to provide some additional transparency.But as with several of the other factors that have been impacting our mix calculation, over the last six months, we see this one improving in the second half, and continuing to improve thereafter. So, I think that in the first half TireHub we've experienced about $15 million, which you see in the slide for the second quarter, we had about $10 million impact from equity losses in the first quarter. So $25 million year-to-date, and that's certainly something we expect to improve on in the second half.

Okay, thanks. And then lastly, for me, with raw materials now thought to be up a slightly lesser headwind for the year, how are you thinking about the outlook for pricing and for price mix to raw material spread? Maybe you could comment to in your response, on the reasons again, you think it has taken as long as it is to recover the higher raw material costs via greater pricing. And whether in any of your benchmarking analysis, you believe that other global tire manufacturers have had the same degree of profit headwind from this gap between price mix and raw materials, that you have both in the most recent quarters, and maybe since this driver began to turn negative in 2Q 2017, and if there is a disparity, what can you do to close that?

Yes. So I think that, I guess the first point is, this is something that in most ways is an equal opportunity offender. And that, there's very good evidence that everybody has experienced a great degree of this, and the industry's margins have reflected that. So, I think it is an industry problem. Now, I would also say that there are a couple of things that are a bit unique for us that make this a bigger challenge in this cycle. And maybe the most significant one is the strength of the U.S. dollar.And we do -- since a lot of these materials are purchased or benchmarked in dollars, and our local operations are buying them in local currency that does make the raw material headwind look larger, as we do those calculations in local manufacturing facilities for companies that are not denominated in U.S. dollars, that would look less significant.We have also had I think a -- harder to tell, but we've certainly had an impact from higher cost of and reduced availability of supply for some petrochemical inputs in China. As a result of increased enforcement of their environmental regulations. And again, it's a little bit tough to tell, and we refer to those as non-feedstock costs. And those have been significant for us this year. I think that we took advantage of opportunities to go after low cost supply.We did that in a significant way, to the extent we did more to take advantage of that, then as that low cost supply becomes less available, that may be a bigger hit to us. And -- but again, very difficult to find the transparency to figure out who has done more or less of that. But it's a significant impact for us. But overall, I think the industry has had this effect. There is -- it has been more evidence of increases in revenue per tire over the last nine months.So, as we look at this chart, we see improvement. And, I think that unless raw materials take another step down. I think there's a lot of -- there's continued reason that over time, we're going to have to work to recover them.

Yeah, I'll just jump in, Darren. I think well said, I think the other point is we have been here as a company and as an industry before. And I think our track record shows that, over time, between price mix, we're able to recover those raw materials. And I don't think anything has changed in our viewpoints that we can other than we're in that part of the cycle. And as Darren mentioned, it's lasting a bit longer than it has in the past.

Okay, thank you.

Our next question comes from James Picariello with KeyBanc Capital Markets. Please go ahead.

Good morning, guys. Just focusing on the U.S. Commercial replacement market. Obviously, you've taken your industry assumption down there. We all know, what's going on, from a tariff standpoint for the industry, and what the impacts are there, what some of the price increases have been. How would you assess the underlying demand relative to this down 7% to 11%? How much of this is just, the pricing causing folks not to buy?

Yes, I think the simple way to think about it, and we've seen this, particularly on the consumer side, in years past. We've talked about it extensively, if you go back in time. The same thing is happening here in the commercial business now, and that's really the impact of the tariffs. So as pre buys were done ahead of tariffs, you see sort of the industry being artificially stronger in some periods, and now coming down in others, as part of, let's say, pre buys ahead of tariffs and all those type of activities that are, let's say, less than normal.I think the real point that we've stressed here is the markets that we play in particularly the premium markets on the commercial side, we actually see continued strength in there. On the OE side, there we did see orders peak last summer. Those builds are just working their way down, they're still pretty robust. That's taking up some of our capacity is that those orders come down, we're going to see more product availability on the replacement side. And there, we still see trade conditions really robust.So I think there's sort of two different ways to think about that. One is the overall around the tariff impact, and one is the industry that we play in. And there it's been certainly steady state, and it's been actually very good for us.

Got it. Appreciate it. And then it just following up returning to the TireHub equity last dynamic down 10 in the first quarter down 15 this quarter. I just want to make sure I understood Darren's comment that by the fourth quarter equity income becomes a $20 million to $30 million positive per quarter.

No. Yes, so James, two different things. So -- and one thing is that we do expect our mix as part of our price mix calculation to go from what has been $20 million to $30 million negative in Q1 and Q2 to being $20 million to $30 million positive year-over-year by the time we get to Q4. Now that is exclusive of the TireHub equity losses. We also expect the TireHub equity losses to be less in the second half than they were in the first half.

Got it. Thanks, guys.

Great, thank you.

Our next question comes from Rod Lache with Wolf Research. Please go ahead.

Good morning, everybody.

Good morning.

I was hoping you can help me with the squaring a couple of things. The numbers miss consensus by quite a bit for the quarter, price mix and other accounted for a lot of that. So as you talk about the positives that you see into the second half, I was hoping you can maybe just address those two areas. So you just mentioned, that mix goes from being a $20 million to $30 million negative to becoming a $20 million to $30 million positive by Q4, you're currently running at price mix of mid-30s, on a year-over-year basis. Does that mean that we get to something like $50 million or $60 million potentially positive year-over-year by the end of the year?

So, Rod, I think that, a couple of things are going to happen, because certainly we're going to get the boost from stronger mix. So we're going to go from having -- effectively, in the first half, we had, what we were achieving on price, minus $20 million to $30 million of mix in order to get to our net price mix. So if you think that price mix for the second quarter, obviously, that number, -- the price part of that number is a lot bigger than the $35 million.As we get to the second half, we're going to have that positive mix. I will say we will start to anniversary some of the pricing actions. So absent any further pricing actions, then we might get a little less for price, but significantly more from mix. And I think in that those together, price mix will be stronger in the second half than what we see in the first half.

Okay. So, certainly moderate that a little bit because of the comp fund pricing, but it sounds like better than what you're seeing right now, so maybe north of $40 million. And you're suggesting that the raw material is kind of flat now. So just that one factor, would you -- would improve your exit kind of run rate of SOI by maybe -- by at least $40 million, I would think, correct me if I'm wrong. And can you talk about, how we should be thinking about that other line? And the chemicals business has been kind of a tricky thing to model on a quarterly basis. How should we be thinking about other on a year-over-year basis?

Yes. So we've got a number, -- so we -- Rod, I think, effectively, what's going to happen, and what will happen with chemical as well, is just as we're going to anniversary some of the positives on pricing, we're going to anniversary in the second half some of the negatives in other, and including the lower income in chemical, which -- and chemical wasn't good at the end of last year, either. So by the time we get to this year, it's an easier comp and less of an impact.So, I think that there are some elements there that are still reality. But I think if you take the chemical business, and you take the TireHub equity losses, which I already said, are going to be less of an impact in the second half. You take those two together, you got a couple of the major drivers in other that are going to be better in the second half.

Yes, I guess, what I'm driving at is people want to extrapolate from whatever numbers they're seeing right now. And there are a lot of moving parts. So as we think about how you're exiting the year, is it -- is there any reason to believe that you would not be -- and I know, you're not really giving guidance, but you are providing enough of the moving parts to kind of triangulate to something. Like a segment operating income in the low $300 millions as you get to the fourth quarter versus the low $200 millions right now. Is there any reason or anything you see at this point looking forward that would -- that we should be taking into account as we're adding these pluses and minuses up?

I mean, Rod, I don't -- I haven't heard anything you've said that I disagree with. And I think when we look at slide 17 in the presentation deck, what I think -- what I -- certainly what it feels like here is the second half puts and takes are pretty balanced in terms of the things that would be affecting our income year-over-year.And we have a couple of net positives that we see in the second half, and that is volume and price mix versus raws. And then we’ve got a couple of things I would put in the net negative category, which is because we are -- we took some production cuts in Q2, taken some more in Q3 so unabsorbed overhead is a net negative and we won’t get -- we got $50 million effectively one-time benefit from a settlement related to Brazil VAT that was split between Q3 and Q4 last year so that $50 million doesn’t repeat. So that’s a net negative looking year-over-year.But I put all those things together and it feels fairly balanced we’re through the first half there are a lot more things on the negative side of the ledger than on the positive side and that’s kind of what we experienced. But I think that’s one of the reasons that we feel very comfortable saying the second half is going to feel much better.

Okay. And, Rod, I think that’s your point run rate basis second half is better than the first, particularly as you look at exit rate.

Right. Okay, all right. Thank you.

[Operator Instructions] We’ll go next to David Tamberrino with Goldman Sachs. Please go ahead.

Hey, David.

Hi, good morning. A lot of questions, a couple follow ups from other conversations earlier you had. On the price versus raws, with raw materials coming down is it going to be tougher to hold on to price within the marketplace?

Listen I’ll start, Darren, I know you want to jump in on raws as well. But as look at it David, I mean, we’re continuing to see the benefit from the pricing actions that we took last year and we’re also -- we continue to fine tune our pricing particularly in the U.S. using some analytics that we’re doing. So I think if you look at that and you look at the new product portfolios that we put in place I think the basis for the value proposition that we have out there is pretty strong and I don’t’ think that the changes in raw material given the increases that we’ve seen now for three years running remember we had about 19% increase in 2017, 6% last year, looking at another 6% this year.So the moderations that we’re talking about are certainly beneficial first half, second half but there is still a substantial amount of raw material that we need to recover out there and I think as the earlier question said I don’t think we’re alone in that. So I think it’s really about putting in the value proposition out there and getting paid for it. And we actually feel pretty confident about that in the U.S., in Europe and frankly in China, as well.And when we look at things like channel inventories, which are in really good shape in the U.S. and Europe going into the winter season. I think all those things would say that we feel pretty good about where we stand relative to the market and relative to volumes in the second half.

Okay. But other indexation cost that you have for some of your OE customers some of your largest fleet buyers as again spot rates, or spot prices for a lot of commodities that are large inputs into your tires have come down?

So you wouldn’t necessarily see all that coming through in the second half that would -- those clauses take time to go into place. So, yes, those will come in, but also will some of the things that I just spoke of. And I think that’s not the headwind that we would say is a big one that we’re looking at right now, I’d say net-net it’s a benefit to us as these raws go down versus the detriment.

I think, David, -- I think right now I mean raw materials have moderated, but they have not come down dramatically. We’ve had some commodities in particularly synthetic rubber that has gotten less expensive we’ve had carbon black a natural lever that have gone the other way a little bit in the first half. So not a strong direction, I think either in this cycle we will see a stronger direction down in raw materials and that if we really -- if we get into a more significant downturn economically I think that’s what we would expect and that would give us -- in the past that has given us an opportunity to recapture our margin.Or the economy will sustain itself and in that case I think we might see raw materials turn the other way and the work that has to be done to increase prices to offset those raw materials would have to start again. So I think it can play -- I can see it playing out either way and in the past, it has played out each of those ways at different times. But I think the situation right now is -- has not given enough relief to really restore industry margins.

Okay. And then, I wanted to follow-up on your OE business wins. I don't think I caught where regionally you've been winning. I think you said you've been very strong in electric vehicles is that in China, that was locals, that was JVs, is that were European customers?

Yes, so, listen, a very good question. And I think John did, in fact, asked me that, and I may not have answered it. So the -- first of all, our win rates have stepped up significantly in all three regions of the world. So I would say the same -- we see the same dynamic in each region, we see the electric vehicle trend, and the wins in electric vehicles being much more weighted toward the markets where electric vehicle introductions are being done in higher numbers, and that is effectively Europe and China, to a much greater degree than in the U.S. But our -- but the step up in win rates has been significant across all three businesses.

Okay. And does that inflection start in the back half of the year, because, again, I was surprised by the favorable volume outlook in every region for the second half. I mean, is that actual orders from replacement channels and OEMs, is it inflection in consumer demand for GT branded tires, or is it just the easy compares that you're looking at?

Yes, so I think when we look at the OE business, David, the second half, I would call it more easy compares, than anything else. Is we're going to be able to start to deliver some volume growth, because we felt a lot of the reduction occur at the end of last year. So I think we're -- that's where we see some -- our growth in terms of our global OE volume.For replacement, I think there's a number of factors there, I think as we get in Asia there is an easier comparable, but as we look at the U.S. and Europe, I think we see very lean channel inventories. And we see very strong product line up on our parts. And we've got good momentum and market share. So I think we're feeling good about the replacement volume on more of a basis of sort of fundamental strength rather than just comparables.

Okay. And then just lastly, Darren, I think, earlier in the year, you said, with regards to full year SOI kind of hard to see improvement in the year. First half, obviously much weaker, I know, Rod and you kind of went through some of the puts and takes for the back half. But I mean, should we be -- it seems like it should be down year-over-year, but still be above $1 billion. Is that the right way to be taking your commentary today?

Yes, so I think David, I understand the question, but I think I'm going to stick with the comments that I made, I mean, through the first half, I mean, we're down close to $200 million. And as we look at the second half, we see a much more balanced picture. And in fact, a lot of things that we are feeling good about, they're going to feel a lot better. But, I guess, I'll stop short of giving any particular prediction for what the outcome of that is, because I think there are still some variables out there.I do think it feels good, and gives us confidence that we don't have the raw material cost variable in the second half, because we've effectively bought or contracted for most of what we're going to experience. So I think that gives us an opportunity to be more confident. And hopefully, you're hearing in today's call, the confidence that we do have, I mean, the second half is going to feel a lot better and get us moving in a much better direction. We knew the first half is going to be tough; we're going to have to get through it. Now we get to transition into the second half. We're feeling good about the second half.And as we exit the second half, I think we look out at what the OE portfolio is going to do for us. And I'll say that, a lot of that does come in 2021 2022. So we're looking at a two to three year outlook. But it gives us a really nice point of optimism that we know it’s going to start to rebuild, our volumes, start to allow us to grow, and start to provide some additional benefits on top of the restructuring costs that we're delivering and on top of any recovery that we can get on price versus raws.

Okay, thank you, Darren. Thank you, Rich.

Thank you.

Thanks, David.

And it appears we have no further questions and we have reached our allotted time frame. This will conclude today’s Goodyear’s second quarter 2019 earnings call. You may now disconnect and have a great day.

Thank you.