Good morning. My name is Nicky, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's First Quarter 2024 Earnings Call. [Operator Instructions] Please note this call may be recorded. It is now my pleasure to turn the conference over to Greg Shank, Senior Director, Investor Relations. Please go ahead.

Thank you, Nicky. Good morning, and welcome to our first quarter 2024 earnings call. Today on the call, we have Mark Stewart, our Chief Executive Officer and President; and Christina Zamarro, our Executive Vice President and Chief Financial Officer. During this call, we will refer to forward-looking statements and non-GAAP financial measures. Forward-looking statements involve risks, assumptions and uncertainties that could cause actual results to differ materially from those forward-looking statements. For more information on the most significant factors that could affect future results, please refer to Slide 20 of the supporting presentation for today's call and our filings with the SEC. These materials can be found on our website at investor.goodyear.com, where a replay of this call will also be available. A reconciliation of non-GAAP financial measures discussed on today's call to the comparable GAAP measure is also included in the appendix of that presentation. With that, I will now turn the call over to Mark.

Thank you, Greg, and good morning, everybody. Thanks for joining us. Yesterday, after the market closed, we published our first quarter results. As you've seen, we've updated our quarterly earnings format with a goal to enhance our process and provide information to the investors, which they're most interested in. We are happy to take your feedback on our new format as we move forward. As we kick off with some reflections, I'd really like to begin today thanking the entire Goodyear team for delivering on our first quarter ahead of plan. We are fully engaged in executing the Goodyear Forward. And it is this level of momentum that is going to help us drive towards stronger results, stronger segment operating margins and stronger free cash flow over the next couple of years. I do want to point out that it's not just what our associates have accomplished, it's also about how they're doing it. We are focused on a very clear set of KPIs to deliver the Goodyear Forward, our operating plan, and we have the governance and accountability very clear through our chain. Through my first months here at Goodyear, it is clear our associates are committed to doing the right things and in the right way. This is why the company continues to be one of America's top trusted brands. Since I joined Goodyear just over 90 days ago, it's been inspiring to engage in discussions with our associates in our plants, at our retail centers, at our tech center and headquarter, and all of our stakeholders as well as I've worked to dive deep into understanding the business and making sure that I'm laser-focused together with the team to execute our Goodyear Forward transformation as well as the annual operating plan we have in front of us.…

Thank you, Mark. I'll start by echoing Mark's excitement about the execution we're seeing from our team on Goodyear Forward. With energy carrying throughout our organization, it's clear that the combination of this plan, our teams' knowledge of the business and their ability to drive results sets us up for success. I'll begin with our financial results, starting with the income statement on Slide 8. Our sales totaled $4.5 billion, down 8% from last year, driven by lower tire volume and unfavorable price/mix. The unfavorable price/mix was due to the impact of 2 factors: first, a weak commercial truck industry on our mix; and second, contractual price adjustments as feedstock prices have remained low over the last several quarters. Unit volume was down 3% from last year. Overall, replacement volume declined 7%, partly offset by higher OE volume, which increased about 9%. Segment operating income for the quarter was $247 million, up $122 million from a year ago. After adjusting for significant items, our earnings per share was $0.10, up $0.39 versus last year. The year-over-year drivers of our earnings are shown on Slide 9. The impact of lower tire unit volume was $28 million, reflecting a decline in shipments of 1.4 million units. Factory utilization was a slight benefit. Segment operating income benefited from favorable net price/mix versus raw material cost of $127 million. Raw materials were a benefit of $261 million, and price/mix was negative for the quarter due to commercial truck mix and contractual pricing adjustments. The negative impact of price/mix was $134 million. Having said all that, sequential pricing from the fourth quarter was stable. Goodyear Forward initiatives contributed $72 million in the quarter with benefits driven by plant optimization and purchasing. Inflation in the quarter was $58 million or about 3%, which was partly offset…

[Operator Instructions] I will take our first question from James Picariello with BNP Paribas.

This is Jake on for James. Congrats on a great quarter, and congratulations, Mark. Could you guys just help me put a finer point on your full year volume assumptions for Goodyear? If I work through the SOI bridge items you laid out, I get something at roughly $1.4 billion for the full year. I just want to see if there's any update going through to that.

Yes. So our full year outlook on volume, as we laid out in the presentation, is to be slightly behind the industry in consumer replacement. That's all going to be driven by our first quarter experience. And so when you look at the remainder of the year, what I would say, broadly speaking, is that we should be more in line with the industry. As we look at what's happened over the past few quarters, we've seen a lot of the destocking that we needed to sell through in Europe complete. And in the U.S., in the first quarter, we were cycling through a really easy comp on the import side of the house. But as we move into Q2, we've guided relatively flat volume. And in the back half of the year, yes, of course, depending on your assumptions for industry growth, but we see growth in volume just given that the consumer sellout has trended positively here in the U.S., VMT up a couple of points; in Europe, also up about 3% on a sellout basis. And so hopefully, that helps you with your modeling.

No, that's very helpful. And it looks like most of the upside in the restructuring statement this year from $350 million to about $375 million was captured in the first quarter. Are there any other opportunities to potentially push that number higher through the rest of the year?

Yes, sure. So on our fourth quarter conference call, we had said that we should benefit from Goodyear Forward actions in 2024 by about $350 million. And just given our experience, you're exactly right, in the first quarter, we've increased that outlook to at least $375 million, which does mean that we have good reason to believe that we should be able to exceed that level, although we need to continue to execute on our work stream realtime to be able to increase that amount publicly here. For now, we've increased both purchasing and supply chain. Based on savings, we do have line of sight to that was over and above that initial plan. I'd say supply chain is higher on better utilization and network optimization and in purchasing. We have added some new work streams since Mark came on board to deliver more value and indirect spend. This includes new MRO work streams, [ gray ] stock and other spend control programs in our factories. So a lot of good successes there. What I would say is we'll give you an update in the next quarter. We should be pretty much locked in on knowing where we land on the savings by Q3, just given our FIFO accounting. But at least where we're comfortable right now is at that at least $375 million level.

Yes. And I would just add to it a little bit, James (sic) [ Jake ], in terms of we've got really strong momentum, some great energy with each of our functional teams and each of the forward teams. And as Christina mentioned, right, with this $72 million of total actions already in that are -- or demonstrated results in the first quarter. But as we look through it, right, I'm personally as well as Christina, we're meeting across the work streams on a weekly basis with each of the functions, be it purchasing, be it manufacturing, across our retail, et cetera. And as we look across each of the 5 areas tying into that $375 million-plus number Christina mentioned, right, it really involves -- it's our footprint and plant optimization and the work that we're doing. We -- and we can talk a bit on it later on other questions, but we've been -- Christina and I and my staff are going out to each of our plants in the U.S., deep diving with our plant leadership teams and our manufacturing, engineering and purchasing groups, meeting weekly with purchasing in terms of the diligence. And really, we've tightened our KPIs across the organization, both at the staff level of what we're looking at on a monthly basis and diving, but within each of our teams with dedicated purchasing and manufacturing meetings weekly to ensure execution and also to add to those work streams. So I feel very good about that along with, as we mentioned earlier, our SAG streams of getting that SAG out of the system around the world for better cost competitiveness for the future state. And then the supply chain logistics cost savings are flowing through quite nicely as well as the actions that we've taken around complexity reduction and commonality of platforms and to enhance our margins, be it through repricing, be it through choosing not to run those other products that really don't fit into our portfolio.

Our next question comes from John Healy with Northcoast Research.

I wanted to ask about the volume side in North America. You talked about the low margin kind of -- low-margin product kind of going away a bit. Could you talk to what sort of volume impact that is maybe in terms of units, I assume, on the replacement side? And maybe what areas of the market or retailers or brands like that those are disappearing with?

Yes, John. So I'll start here, and I'll just say we've certainly seen some volatility over the last several quarters with respect to low-end imports. And if you take a broad step back, what I'd say is that the import activity was suppressed for the period immediately following COVID. And then what we've seen is this several quarters of overcompensation, if you will, over the next -- over the last several quarters. If I think about our share in 2023, I'd say, broadly speaking, we're about where we expected to be. If I look at nonmember imports over 2023, that low end part of the market, about 20%, 21% in 2023, that's about where it was for all of the last 5 years. So I think what we're seeing is a whole lot of choppiness. In the first quarter, in particular, though, the imports were 25% of the market, and that represented a pretty significant increase. Nonmember imports, if you will, John, were up 100%, which was about 1.5 million more units than what we would normally see in a quarter. But again, really believe that is lumpiness. When we think about a question -- maybe getting to the question on, is the consumer really trading down? At least in the U.S., what I would say is we don't have evidence of a consumer trade-down, especially in branded Tier 1 tires. So this would be all of the Tier 1 tire companies, including Goodyear. That share of the market has been very consistent over the last 5 years. I'd say more recently, over the last couple of quarters, we have seen some weakness in Tier 2 and Tier 3 accreting to Tier 4 in share. And I think, at this point, it's really not clear, John, whether that's weakness driven by consumer preference or whether that's something that's linked to distributor behavior because, historically, what we have seen is distributors going long on low-end tires in an inflationary environment. So this is one that we will continue to watch. I think what's different is what's happening with imports in Europe. And I think if you look over the last 5 years, the import -- low-end imports as a percentage of the market has grown from something like 20% to 27%. And so that -- what that means is that our distributors are more willing to stock or consumers are more willing to bolt on these opening price point tires. And I think that's really a reflection of the impact of the very high inflation on the consumers in Europe and also just the more recent macro events there. And so they're in line, the rationale for a couple of the major restructurings we've announced in Europe. Hopefully that helps.

No, it's super helpful. And then just a finer point I wanted to ask just about the price/mix outlook. I think you guys are saying price/mix would be positive in the second half of the year. Just thinking through some of the moving parts globally, with the destocking or maybe growth in the import brand, to me, it seems like that has a little bit of a risk to it. Do you see that as an area with risk to the business? And how do you get confidence that price/mix will be positive in the second half?

Well, I think -- yes, good question, John. I'd say by the end of the second quarter, we'll have lapped the commercial truck mix drag we've been seeing the last several quarters. Actually, that's mostly finished in the first quarter here. In Q2, we will lap the impact of RMI indexed agreements on price/mix. And so I think we get a clean base, if you will, for Q3 and Q4. And then the volume, I'm looking at, in our back half of the year in the Americas, really strong growth in our consumer OE business. We should outperform the market share just given our mix of fitments, obviously, heavily geared to truck and SUV, which creates a lot of rich mix for us. And then we also expect -- winter inventories in Europe are down 40% year-over-year, so really low, and that sets us up for a really good selling season in Q3 in EMEA mix also. So I think a lot of good reasons to believe in price/mix in the back half of the year.

Yes, I would just check on one on specifically around new products, John, and that's we look at the premium products launching around the world. We've got some great products coming into the marketplace for season. And it's -- for the Americas, we've got WeatherReady 2 launching and the fitments filling out the ElectricDrive 2 as well, which is an all-season EV tire for us, and the ElectricDrive 2. On EMEA side, we've got the Eagle F1 Asymmetric. We've got 6 sizes coming out, filling out that fitment. And then on the AP, we've got our version of the Goodyear ElectricDrive there. And we're seeing some really positive success in both luxury and premium performance markets in Asia Pacific and the continued strength of our wins on the EV segment. So all very positive trending news for us.

We will move next with Emmanuel Rosner with Deutsche Bank.

My first question is a follow-up on the volume question. So I think you've essentially identified 2 trends, right? Some of it is the lumpiness and this import dynamics in the U.S. and in Europe. And then some of it seems to be a little bit more deliberate as part of Goodyear's strategy. And you explained very, very well that lumpiness and the import dynamic and how that would move forward. I just want to focus on the second piece. I guess, how much more do you have to do in terms of amount of business or tire volume that you're not really interested in or that's not profitable and that will help your profitability from exiting? Just curious when I'm looking at, I guess, your volume outlook for the rest of the year, will this be a meaningful factor of potential performance versus the industry? Or are you mostly done with this?

Yes, Emmanuel, thanks for the question. And it's -- I would start with your last statement, and that's we've taken the actions through the first quarter that we needed to do with that. We're really using a ship cost and a profitability in conjunction, obviously, with the cost structure by tire basis and across our customer platforms. And so we've gone through to take a look at it. And it doesn't always mean that we're walking away, right? We're just working with those customers for the right price point for that product at that performance level. And so it's not a matter of everything totally going away. In some cases, it's just a reset of the price to the market based on the performance of those individual SKUs or tires. So we actually feel very positive on it that we've taken the actions we needed to take with it. And as we move forward, again, we work with some customers in terms of getting the price points reset, and that's actually been happening before my time, I think, over really the last 4 or 5 months or so. But we took the final actions to that towards the first quarter and expect those things to be relatively stable on that, as Christina mentioned before.

Okay, that's great color. Then I have a question about the Goodyear Forward plan. So it seems in the quarter, it helped Americas' profitability quite a bit. I'm curious, when could we expect to start seeing it helping EMEA's profitability? Is this going to be still within this year? Or is it a little bit more back-end loaded as a result of how things work in Europe?

Yes. As we mentioned at the opening, really, the SAG actions have already been well implemented, and we're on track to fully execute. The 1,200 roles, which were identified, are coming out on plan, if you will. And if we look at year-to-year, as we said, with EMEA really being about flat in terms of the earnings, but with all of the Goodyear Forward restructuring activities done as well as the 2 plants which were announced late last year in terms of Fulda, first of all, going through, and that's also proceeding to plan. So from that aspect of it, we are absolutely on track with the actions we've got in EMEA. Christina, anything else you'd like to add?

Emmanuel, I just said that when we announced the plan in November, we did say that the majority of the actions would benefit our Americas business. It was a split of like 70% of the $1.3 billion was going to be accretive to the Americas and the rest split between EMEA and Asia Pac. I think we should expect improving margins in EMEA over the course of the year. And then as Mark mentioned, with the factory restructurings coming more to bear next year, then again, another step-up in 2025.

That's very helpful. Would you think that 70% holds also for the $375 million in benefit expected for this year? Or is that more of like...

Yes, I would use the same math.

Okay. And then one final quick one, if I may. I guess, what can you tell us about the process to divest the noncore assets and how that's actually going? Any new or updated time line around potential future updates?

Yes. So we -- this is regarding the strategic review on our portfolio. And Emmanuel, I'd say that the process for each one of these assets is well underway. It's exactly where we expected to be at this point in time. And if you remember on our fourth quarter call, we said that we should be in a position to offer a more fulsome update on one or more of these processes by midyear, so you can think about that being our second quarter conference call. We are still working towards that time line. So no other update other than things are progressing and progressing well.

Our next question comes from Ryan Brinkman with JPMorgan.

Firstly, Mark, it was great to hear in your introductory remarks that you were able to come in initially as an outsider, dug into deeply into the Goodyear Forward plan. I reckoned that you were able to independently confirm for yourself the line of sight into the operating improvements that the rest of the management team had identified. At the same time, I recall you on the last call saying that while it has been extremely early days in your listening tour, et cetera, that you were looking to also identify some quick and easy wins or low-hanging fruit in terms of how the plan, which you said like good bones, how it might be augmented or accelerated in some ways. I'm just curious, the last 90 days, what incremental opportunities might you have found or are looking into that you think might have the most potential?

Sure. Thanks, Ryan. And as you said, many know, I sometimes have a big mouth, but I definitely listened a lot the first 5 weeks. One of the things, though, in the first 5 weeks which we did execute very quickly was to put Shawn Pace, our Chief Procurement Officer, on the senior leadership team staff, reporting directly to myself. It's very important that we have real-time visibility and ability to help Shawn and the purchasing team to -- in terms of speed of execution. And so we absolutely have done that. We've identified some additional savings streams in that area in quite a few. They've actually increased the speed of going through some of the global bid process starting here in the Americas, but are looking as well into both from the raw material stream, but as well into our MRO, which we have identified quite a few additional opportunities, MRO contract employees, the way our contracts are set up, we're going through things, basic manufacturing one-on-ones, if you will, such as our overtime planning, our scheduling within our manufacturing facilities with our plant leadership teams. We've brought in all of our plant leaders across the Americas, and I have had some sessions with those guys face-to-face as well as we do weekly sessions with them. And we've really got ourselves lined up slightly differently across process streams so that we can take our best-in-class performance benchmark and ensure that those are copied across the network in order to capture those savings, whether they were already in a plan, but maybe the timing was different. So we've been able to pull those in faster in terms of our execution within this year and next, as well as things that maybe weren't on the radar screen for a particular plant. We're also moving resources across plants, both engineering as well as our manufacturing resources, to speed those execution pieces as well, Ryan. So those are a couple -- just a couple of highlights to what we've been doing with that. The other thing we're in the process now is more of a centralized manufacturing footprint for consistency and for us to be able to take efficiencies in terms of OEE, reducing our scrap, commonality and complexity reduction, all tied in with our ship cost activity. So we've got ourselves lined up for that. We have reduced the number of KPIs that we're looking at into the important -- the top important ones for us that have the biggest lever for impact. And we're driving those on a week-by-week basis to make sure that we have clarity with the teams, that we have ownership with the teams and we have timing of when to do those things.

Okay. And then lastly for me, if I could just focus in the plan on significantly increasing segment operating income, that free cash flow will naturally follow and benefit also, of course, from the deleverage enabled by the nonoperating or divestiture aspect of the plan. But I'm curious how you're thinking about other opportunities to improve free cash flow relative to EBITDA and how important that is or should be as a part of the plan. We've sometimes seen big inflections in cash flow after management have changed the way in which their employees are incentivized, thinking of LKQ as one example in this industry. And I know there's rightly a ton of focus on driving margin and then getting those divestitures done to pay down the debt. But how large of an opportunity might there be around working capital efficiency, CapEx discipline, CapEx reusability, anything that you can, I think, to bring from your former employment, et cetera? And how are you thinking about the cadence of operating earnings improvement versus the cash flow as we progress through the plan? Maybe that one is more for Christina.

Sure. Maybe let me start on and Christina will add on to it. But when we think about the, again, things kind of coming from my past, right, of also highly capital-intensive businesses as well, so we've already -- we've got a very clear line of sight to the R&D that we have planned for as part of both Goodyear Forward and then in the years following as well, right? So a very disciplined approach on that. Another reason why we put purchasing to the leadership team of us working together with purchasing and in engineering, looking to what is our manufacturing equipment strategy, looking at the items again on a payback analysis on that best return on capital for the modernization activities, we have a tremendous amount of modernization going on this year, as an example, in our Lawton facility, but as well as many of the other facilities to get our cost basis to a very, very competitive level, if you will, and then balancing our products across the network for looking at the best cost. So in terms of how to do that, right, all these things are tying into that working capital, as you mentioned, right? So investing in the right things at the right time, looking with purchasing in terms of how we're negotiating that, just the 1, 2, 3s of our negotiation process, how we're bundling when we know we're going through a modernization period here across our equipment. If we know, for example, we're going to go from replacing 10 machines to possibly 30, 50, et cetera, but negotiating that in upfront so that we can get best price on that. So we're setting up our depreciation schedule and conserving cash upfront, but also making sure the cost structure is right, also where that equipment is being placed. The other thing is really working with our individual plant leadership teams around the world of looking at that cost efficiency level. And really, we're starting to talk to the plant leadership teams, not only on a cost center basis, but also on a P&L basis in their window, right? So things that they can impact, and it is things like MRO that ties up a lot of cash in a credit, if you will, around the world. So things such as shared spare part resources around the network and things like that, but again, more basic disciplined items when it comes to our spending. We have a weekly spend control as well, quite frankly, that we've installed so that if anything triggers higher than that, it escalates, we talk through it. So it's about changing patterns and behavior while putting the system and discipline, which we already have the systems in place, but getting the robustness of that really, really strong. Christina, do you like to add on to that?

No. Mark, I think you've covered a lot of it. I think internally to describe what it feels like, Ryan, it is that behavioral change where what we're emphasizing to the teams is when we get to a target, then it's not that we've necessarily done the job. We're going to continue to look for what else we can do. And I think it's that never-satisfied mentality. And as we've put together this plan, and as Mark has come in and added his experience and perspective to it, I think it's all about achieving that sustainability in cash flow, that sustainability in earnings. And when we look out to the fourth quarter of 2025, we would see an annualized cash flow on adjusted free cash flow basis of like $600 million or $700 million. And that's on an adjusted EBITDA of, say, about 2.7. So our goal is to not, obviously, to not have a good year or 2, but we're really trying to structurally change the cash flow profile of the business.

[Operator Instructions] We will move next with Itay Michaeli with Citi.

Just 2 final questions for me. First, on the inflation and other costs, can you just maybe walk through the puts and takes for second half of the year? I think first half is implied with just over $40 million. I think you've got over $200 million of a headwind for the full year. And then maybe going back, my second question, on the assumptions for second half for volume and pricing. Hoping you could just kind of review just the underlying assumptions for industry sellout trends, maybe your market share and then maybe the impact from some of the new products, Mark, that you alluded to before.

Yes. Itay, I'll start on the inflation question. And full year cost headwinds for us of about $215 million, you rightly pointed out this is weighted to the second half call base inflation, every quarter, about $50 million or $55 million for us. In the first half, we had the benefit of some lower transportation rates, particularly in the U.S. pulling through. We lapped that in the second half of the year. And then we will put on some additional costs because we've announced 2 factory closures in Europe, and we run that through our inefficiencies, if you will, as we scale those factories down and ready them for closure over the course of 2025 and 2026. We also have some insurance headwinds related to the tightness in the market, but also some of the claims activity that we've had over the last year. So that's the first half, second half story on cost. As I look at volume more broadly, and we talked through this a little bit earlier, I'd say we have good expectations for stability, I guess, I would say, in Q2, we've guided volume about flat. And that's good growth in OE still continuing and maybe a little bit of weakness in replacement. And then as we look to the back half of the year -- and I guess I would also say channel inventories in the U.S. and Europe are healthy. I would say the U.S. is down about 4% compared to year-end. EMEA is down 8% on a year-over-year basis. The year-over-year comp there is more important because we have these different seasonalities. And all of that time, Itay, that the consumer has been resilient. The sellout in Europe is up 3%. Sellout in the U.S. is up 1 -- it's been up kind…

Thank you. And this will conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time.