Good morning. My name is Margo, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's Fourth Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After some opening remarks, there will be a question-and-answer session. [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, Margo. Good morning, and welcome to our fourth quarter 2024 earnings call. Today on the call, we have Mark Stewart, our CEO and President; and Christina Zamarro, our Executive Vice President and CFO. 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 21 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 the non-GAAP financial measures discussed on today's call to the comparable GAAP measures 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, everyone. Welcome to our fourth quarter earnings call. I'd like to begin today by thanking our associates, our customers and all of our suppliers for helping us to deliver an outstanding year in 2024. As I'm sure you've seen in our release, we delivered fourth quarter segment operating income ahead of expectations and alongside of it, some exceptionally strong free cash flow relative to our past few years. It was a fitting end to the year marked by transformation, as we set out to strengthen Goodyear's financial foundation and position the company for long-term success. Looking back over my first year with the company, I'm really energized by all we've accomplished. Across our organization, we put the emphasis and the full force of our talented team on Goodyear Forward, and together, we executed nearly $500 million of transformation benefits through relentless program execution and follow through. It's a truly remarkable outcome, given the program kicked off in November of '23. To put this effort into perspective, we've now successfully delivered five consecutive quarters of margin expansion under our Goodyear Forward plan. We accomplished this growth by exceeding our Goodyear Forward targets each and every quarter this past year. The end result is, together, we've generated a turnaround in our earnings with full year segment operating income growth of $350 million over $200 million, excluding the benefits from the insurance recoveries. 2024 was the first year that Goodyear has grown segment operating income and margin since 2015, excluding the recovery year immediately following COVID. Our commitment to continued progress is clear throughout the entire company. We will continue to drive execution to unlock Goodyear's full potential as we move forward. In addition to our progress on earnings, we have also completed the divestiture of our…

Thank you, Mark. 2024 was an important year for us as we've executed on our transformation plan, while continuing to build our savings pipeline for 2025. We feel very good about where we stand with respect to our targets, as we look at both the goal to attain 10% SOI margin in the fourth quarter and net leverage of 2x to 2.5x by the end of the year. I'll begin the year-end review with the income statement on Slide 8. Fourth quarter sales totaled $4.9 billion down 3% from last year driven by lower volume. Unit volume was 4% lower versus last year in line with our expectations, given growth in low end imports in the U.S. SAG declined $77 million driven by Goodyear Forward work streams. As a percent of sales, SAG declined one full point versus last year. Segment operating income for the quarter was $385 million and SOI margin increased to 7.8%. After adjusting for significant items, including the final settlement of an insurance claim related to storm damage we incurred in 2023, our earnings per share were $0.39. Excluding insurance proceeds, SOI margin was 6.7%. Turning to the segment operating income walk on Slide 9. Lower tire unit volume and factory utilization were a headwind of $81 million in the quarter. Net price mix versus raw materials was unfavorable during the quarter, driven by increases in our raw material costs. Price mix was unfavorable $36 million. Now pricing was stable, but mix was negative, given declines in commercial replacement volume and an increase in our consumer OE volume. Continued strong execution on Goodyear Forward contributed $195 million, against inflation that was $50 million in the quarter. And as I referenced earlier, we collected $52 million of insurance proceeds in the final settlement related to our 2023…

[Operator Instructions] We'll take our first question from James Picariello with BNP Paribas.

My first question is just on your price mix expectation for the year? I know it's harder to call the farther out. But can you just confirm what the expectation is for the first half, if you already provided that. And then thoughts on the second half, raw materials, should we assume neutral or an additional headwind potential based on spot pricing? And have you seen any pricing actions from your peers thus far given the rather substantial raw material headwinds that the industry is facing?

Yes. Sure. James, I'll start, and I'll have Mark follow-up on the pricing environment. When we look at our SOI bridge for 2025, your price/mix should grow from the first quarter on into the second and third quarter. A part of that is the realization of our OE RMIs and our raw material index contracts with our fleets. Those generally were price on a 6 months -- in 6 months arrears. And so we don't have nearly the full run rate here in Q1. There's also been pricing actions that we've taken in our key markets around the world in the first quarter as well. And I'll let Mark follow-up on that. When we look at the raw materials, what I would say is the $350 million is baked based on current spot rates for the first half. If spot rates hold, we could see a headwind of about $100 million to $150 million in the back half of the year. Of course, while spot prices have been pretty volatile, so we'll continue to update you on that. But again, looking for price mix to grow into Q2 and Q3 before leveling off or just depending on what happens the rest of the year with gross. Mark?

Yes, James. Yes, just talking through some of our pricing actions that we've already happened, as Christina mentioned, right, since the third quarter call, pricing actions we've taken. We've done multiple rounds of pricing globally, commercial tires in Turkey, for example, across the Latin American countries as well as consumer pricing in Europe as well as Middle East. And then across the U.S. on specific product line, we've taken product actions in both in quarter 4 as well as rolling into quarter 1. So we'd expect to see the benefit of that going into the quarter 2 time period as that flows through the system. We continue to watch things to make sure that we are competitively priced based on our upgraded marketing intelligence. As we mentioned, it's a big area we focused on in ’24 was our scraping and making sure that we're benchmarking that we're in the right price position across each of the categories and really taking a look at that from a consumer-facing thing so that we are competitive in the marketplace.

Got it. No, that's helpful. And then I just have a quick 2-part question, one on volume. You have the full year industry volume assumption, consumer flat, commercial up 3% at the midpoint, again, at the industry level. Just your thoughts on Goodyear's, volume performance for the year. We could see the down 2% to 3% for the first quarter. Just curious what the expectation is for the second half on easier comps? Is there good pathway for likely growth given channel inventory levels at this point? And then just the -- in your Goodyear Forward savings in the fourth quarter, there was obvious upside. So I just had a question on what drove that upside. It seems like it might have been in the margin expansion effort. Is that just your pricing actions?

Yes. Let me talk about volumes to start and then we can talk about Goodyear Forward with Christina. Again, as you mentioned, in the consumer replacement side, we expect overall global growth in '25 with a stronger marketplace in Europe and Asia and continue to see -- we expect to see volatility in the U.S. market relative to the imports. In the South America or Latin American countries in Brazil, we expect to see some declines in the imports as new tariffs have gone into impact there starting in October. But for the consumer OE, we think there will be a flattish first half with growth on the second back end, as you mentioned, on the U.S. side. As we look at commercial, from a replacement demand, we think that's going to stabilize progressing throughout the year with non-imports declining as the tariffs that we recently announced begin to take impact, especially those coming on to Thailand. And then so overall commercial OE side, first half, I think will be relatively soft, continuing on from last year. And then second half being stronger with the new [JSD] regs going into place. And the fleet is beginning their pre-buy activities before those new regulations go into place. And then your second question and secondary part of that, how are we going to address those lower volumes? So we're doing that on multi-fronts. As we shared in quarter, we are aggressively growing. This was an area that we were behind on. We took a step back. We reorganized ourselves in terms of our engineering SWAT teams, our go-to-market teams and have dedicated focus on bringing 100 and some-odd nearly 200 additional SKUs into the marketplace in the high-end, highly profitable segments of the market that are going to generate the returns and greater value for us and also at a premium price. So that's a key area of focus for us. We've got 5 new power lines coming into the marketplace around the world, our WeatherReady 2s, our Wrangler workhorses, the ASM's 6 as we discussed is that are really on the premium side of our high-value UHP market, the Eagle F1 all season as well in the high segments and MaxLife 2, right, all of which are coming into the marketplace throughout this year, which again, is when we feel good towards that second half as these all are coming into the marketplace at volume and the right number of SKUs in each of those power lines, James.

And James, just a follow-up to your question then. I mean there's a lot of time Mark just spent on price action and a lot of that started in Q3 last year. And so you're seeing that in the good year forward programs, especially in the premium end of the market. .

We'll take our next question from Emmanuel Rosner with Wolfe Research.

I was hoping to actually follow up on the same topic, which is volume, price mix outlook, first half versus second half. So it seems the outlook contemplates a decline in -- so at least in the first half, but then growth in the second half. Can you just maybe just go back over for those volume, price and mix, what will be the anticipated drivers of improvement in the second half? And I guess, how much visibility and conviction do you have on this at this point?

Sure. I'll start out with the SOI Bridge for 2025. And if you look at the puts and takes, as we've talked about them, our 2024 SOI was about $1.3 billion. If we adjust that for insurance proceeds, we are at $1.2 billion. Now Goodyear Forward, of course, going to add $750 million for us against that base inflation of $225 million. We said we're also going to have headwinds in other costs outside of core inflation, and that's mostly driven by transportation. It's going to run $20 million a quarter. We also have 3 factories that we are ramping down or decreasing production in the third and fourth quarter of this year. So that will increase our manufacturing costs through some transitory inefficiencies in the third and fourth quarter by about $30 million. We talked a lot about raw material headwinds, about $350 million in the first half, about $100 million, maybe up to $150 million at current spot prices in the second half. And then spent a lot of time already on the call about how we're thinking around price/mix. We've given you the first quarter, but that should grow pretty materially in Q2 and Q3 and get to a run rate by Q4. And that's driven by pricing actions that we've implemented in the first quarter already. Pricing through our OE RMI indexed agreements with fleets as well. And then, obviously, Mark just spent a lot of time on the new product development, new product lines we're bringing into the market, which should also support our mix. OTR should be a headwind. We've outlined that in the presentation, $80 million on a full year basis, and then it does come down to volume. What we've laid out is a lower first half driven mostly by the U.S. channel stocking of low-end imports and lower OE volumes just following OEM production broadly and then moderate growth in the second half for us, driven by very low comps and a recovering industry broadly in commercial and in consumer OE. And so once you put all of that together, I think it's safe to say you should be able to model a level of SOI that's in line with our current year, including the insurance, which means that we should be demonstrating a very strong level of underlying growth in the business, something on the order of 10%.

That is super helpful. And then just -- so in line with currency, I mean, in line with 2024?

In line with --

'25 would be in line with '24, including the proceeds you got last year?

Yes. So like the 1,320 level.

Got it. Yes. No, that's -- that was our understanding as well. Perfect. And then if you could just help us set with the free cash flow walk as well. And then you call for positive free cash flow. I assume that this is before restructuring. How should we think about restructuring, which I think you quantified for this year, but also how much more is there to spend as part of the overall plan?

Yes, sure. So the positive free cash flow includes $400 million of restructuring. So we intend to be positive, including restructuring. This is really driven by that SOI we just talked about and you should get to an EBITDA of, call it, about $2.1 billion. After you go through the model that we just talked through on SOI. Working capital will be a benefit. We've laid that out restructuring. Of course, against that, taxes a couple of hundred million dollars -- $400 million restructuring, sorry. And then interest expense is coming down on a year-over-year basis. Interest income will offset that. We'll have our normal financing fees and the CapEx significantly lower than 2025, and all of that should get you to a fairly positive free cash flow expectation for 2025. And then if you think through to next year, we should see restructuring normalize. There's a little bit of carryover from Goodyear Forward thinking restructuring next year will be on the order of $100 million to $200 million. We'll see further interest expense savings once we close on the Dunlop transaction and finalize the strategic review of chemicals. So we would be in a position next year to drive cash flows, significant positive cash flow reflective of the underlying earnings run rate of the business.

Great. That's super helpful. Just final point. Is it -- is the overall spending on restructuring lower than initially anticipated? Maybe just my memory doesn't serve me right, but it sounded to me that the total budgets could have been sort of like north of $1 billion. Now we're talking about just $400 million this year and maybe $100 million to $200 million next year. So is it just an overall lower bill than expected?

I think, yes. Emmanuel, we had set aside about $1 billion as part of Goodyear for restructuring. And as I've just laid it out, we spent $200 million in 2024. The capital that we're going to allocate in 2025 is about $400 million and then up to $200 million next year. So we're probably going to land right around $800 million or so as part of the overall program. I think some of that is terrific negotiations with our constituents around the world. I think a part of that also is just the execution that we've seen in what Mark's describing about generating efficiencies in the factories to increase our volumes. And so no other announcements planned, nothing else in the pipeline. If anything changes, we'll keep you updated.

And our next question comes from Doug Karson with Bank of America.

Great. I want to maybe turn to the balance sheet for a moment here. Net leverage now as it's 3x almost a turn below what you had last year. So the forward program is certainly working. And I've just kind of pulled up your ratings at B1 and B Plus seemed pretty underrated relative to the progress you've made on the balance sheet. Have you had a chance to kind of refresh with the rating agencies to have them take a kind of newer look at where the balance sheet is headed? That's my first question. .

Yes. Thanks, Doug, for the question. And certainly making a lot of progress on the balance sheet. We intend to close on the Dunlop transaction a little later this year, and that will bring in $700 million more of gross proceeds that we intend to use to deleverage even further. We do talk to each one of the rating agencies very regularly. Last night, in fact, was the most recent conversation. And I think they do look at our forward forecast, I think there was a lot of emphasis placed on 2024 free cash flow, which you can see was slightly negative because of a lot of the restructuring programs that we had in place. And so I think as we look ahead, we would expect more positive outlook and sentiment from the rating agencies, just given the progress so far.

That's great. It's well deserved. I was impressed to see the close to 50% increase in the Goodyear Forward cost savings up to $750 million. And as I look at the environment, we're in there so much volatility between tariffs and raw material fluctuations. Maybe just help us think about some of those big line items you have $300 million for footprint optimization and $200 million for purchasing. Are some of these categories, less at risk, more at risk given the environment? Just trying to be thoughtful about the $750 million.

Yes. We -- Doug, we feel really, really positive about the look ahead, right? We executed very strongly in '24. We were able to put additional projects and they're grassroots projects, right, as well. So really good. It's coming from our associates from around the world. We've got our dedicated weekly session as part of governance across the 5 key work streams. And as I mentioned at the start of the call, we've now combined our manufacturing organization into one global organization with our 3 regional heads reporting to Don Metzelaar, our new VP there with a very strong 30-year track record. I spent a lot of time in the space myself last year with the teams as we went through just again, working on the nuts and bolts of manufacturing basics, right, of us really working on our efficiencies, our operating equipment effectiveness, our scrap rates, getting through the material flows and really upgrading things in terms of just the diligence and the few KPIs that make the most difference in terms of us really getting ourselves to a super strong position there. So we feel very good about our plant optimization. We announced the footprint actions, both last year as well as of the start of this year and our commercial truck operation to be in a position where we can compete in the marketplace there at the right cost structure. And we continue to drive those work streams. In the purchasing side, we're continuing to go through on looking at our cost in the purchasing arena, working with our supply base, both on current programs as well as future programs and a strong drive and efficiency improvement in our indirect and MRO activity. So we feel again, in that area, very strong. We've taken actions throughout last year as well as early this year in our SAG or SG&A, however you want to refer to that as of making sure that our overhead structure is in the right condition there and continue to look at that on a monthly basis as we take a look to say what are things that we can do more efficiently than we've been doing it. So those activities along with our R&D, looking at our equipment standards, so looking at how we spend, how we negotiate. And long story short of it, we feel very, very strong that the improved savings rate are going to continue. And it's just really gotten to a point that is embedded in our DNA.

[Operator Instructions] We'll go next to Edison Yu with Deutsche Bank.

Wanted to ask about the -- on the chemical side. I know you said you're still on track for a sale. Has the reception been a bit more muted? We speak to some chemical companies and obviously, there's some challenges just for the industry there. What are your latest thoughts on that?

Edison we don't have a lot more to say other than that, that review remains in process. I think that, generally speaking, I think the interest has been -- it's pretty across all sectors, whether you think about strategic or private equity. This one, in fact, was when we got into the market a little bit later, of course, the focus on OTR and Dunlop in the earlier part of 2024.

And then just a quick one on the SOI in APAC. And I apologize if I missed it earlier. It was actually very, very strong margin. Was there anything kind of one-off there some sort of kind of benefit that doesn't carry over? Just wanted to double check on that.

1 No. We've got -- we just have a really strong operation in AP. Their manufacturing process is very strong. Pricing in the marketplace, very good, new fresh products going in, winning with the right winners in the marketplace, particularly on the -- EV front there. And just really operations doing quite well on AP.

Got it. Actually, just one quick one -- one last quick one. I know you -- I heard earlier about the expansion in Oklahoma. Is that in any way kind of maybe mitigation in case of the tariffs?

No. We would like to tell you our crystal ball was good enough to do that, Doug, but that was not the case, right? It's just necessary modernization that we needed to make across our footprint. And that's one of our larger facilities or one of the largest, actually. And we just were taking all the right actions we needed to take there in terms of moving more into the higher RIM sizes, additional volume for the marketplace in that higher profit, higher margin segments.

And we have no further questions. I'd like to turn the call back over to Mark for any final or closing remarks.

Okay. So I'd like to thank you all for taking the time to join us today for the fourth quarter earnings call. We've come a long way here over the last year and still have a lot on our plate to action, but feel very good. We've got the right leadership team. We've got all the right associates around the world. And we want to -- we're really looking forward to sharing with you all the progress we make on our Goodyear Forward initiatives as we move throughout this year. Thank you all for joining us today, and everybody, have a great day.

Thank you. And that does conclude today's conference. We appreciate your participation. You may disconnect at any time.