Good morning. My name is Stephanie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's First Quarter 2025 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.

Thank you and good morning. Welcome to our first quarter 2025 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 and welcome to our first quarter earnings call. We're building on our momentum with a strong start to the year, driven by solid operational execution during the first quarter. As we look at our results, Goodyear Forward work streams delivered $200 million of benefit, the single highest amount we've realized in any quarter as part of the program since we launched. At the same time, we're progressing on our planned asset sales and positioning the company's balance sheet for competitiveness as we move forward. This kind of consistent execution is critical as we work through significant inflation in our raw material costs in the first half of this year. It's also what creates the power behind our full year outlook and what gives me confidence in our ability to deliver on our Goodyear Forward target at the end of this year. Turning to the business environment. Light vehicle production has become significantly more uncertain in the near-term as the industry reacts to friction in global trade. We remain well positioned in our consumer OE business with our mix of luxury, EV, and light truck fitment wins. As you've seen in our results, we continue to demonstrate significant growth in the OE market share in the U.S. as well as EMEA. Importantly, we remain confident in the continued strength of our value proposition with our OEM customers going forward. In consumer replacement, first quarter industry volume followed recent trends with the low-end imports outperforming industry members in both the U.S. and in EMEA. With that as a backdrop for us in the first quarter, we gained share in the more profitable 18-inch and greater rim size. And that segment, as you know, is very important for us and we outperformed industry members in the…

Thank you, and good morning, everyone. As Mark mentioned, we've made significant progress on our deleveraging goals this year with the sale of our OTR business in February and as we announced last night, the finalization of the sale of Dunlop to SRI. Thank you to all of our associates who have worked to deliver these tremendous outcomes as part of Goodyear Forward. Under the Dunlop sale agreement, Goodyear will continue to manufacture, sell, and distribute Dunlop-branded consumer tires in Europe through a transition period that will last through the end of this year. During this time, we'll pay a royalty to SRI on Dunlop sales, but will otherwise retain all profits. Beginning next year, we'll supply tires to SRI under an offtake agreement for a period of up to five years. Further details about the transaction can be found on our Investor website in a separate presentation. I'll note that the Chemicals business remains under strategic review, and we are engaged with multiple interested parties on this potential transaction. We'll share more as we're able to in the future. We continue to expect to generate gross proceeds of at least $2 billion from asset sales as part of Goodyear Forward. Turning to our first quarter results. I'll begin with the income statement on Slide 9. First quarter sales were $4.3 billion, down 6% from last year, given lower volume and unfavorable foreign currency translation. Unit volume was 5% lower, driven by declines in consumer replacement volume in Asia-Pacific and Americas. Gross margin declined 70 basis points. On the other hand, SAG costs were lower $46 million, which relates to Goodyear Forward. Segment operating income for the quarter was $195 million and slightly ahead of our expectations. Goodyear net income increased to $115 million, driven by a $260 million gain…

Thank you. At this time, we'll open the floor for questions. [Operator Instructions] We'll go first to James Picariello with BNP Paribas.

Hey, good morning everyone. I appreciate all the great color on the call this morning. So, I just want to clarify, I thought it was pretty crystal clear. But for price/mix in the third quarter and fourth quarter, it's $150 million year-over-year in the bridge for each quarter in the back half.

That's right. That's right, James.

Okay. And that's -- are you seeing other -- your competition also follow through on price? I imagine everybody is pricing to an extent, right, with tariffs right in front of it. But yes, can you just maybe provide some competitive color on the pricing because raw materials are now guided about $100 million lower for the full year, right, for yourself. So, yes, if you could speak to that. Thanks.

Yes. Sure, James. I mean we won't comment on any individual competitors. I'd say across the board, we've seen very significant price increases among the competitive set. I mean, I think that's all just in relation to the tariff exposure that we described in our prepared remarks. I mean our own exposure is probably about a quarter of what others will see. When you look at the $300 million that we laid out, I'd say you could think about 80% of that flowing through into our consumer business. That equates to about $4 per tire. And I think that based on our analysis of the competitive set, our competitors will be anywhere in the area of 3 times to 4 times that level of exposure. And so there's a big need to go out there and offset some of this cost. It's -- there's just so much many imports coming into the U.S.

Yes. And given your predominant U.S. footprint, I imagine market share opportunities will be -- will present themselves. One clarifying question as well on tariffs. Within the $120 million inflation and other bucket for the second quarter, what constitutes tariffs specifically there? And then for the full year, the same question? Thanks.

Sure. So, I'll take you through all of the basket of inflation, tariffs and other costs. And I'll start with the annual, James. It's -- our annual inflation runs about $225 million. That's 3% on our cost base. And then the tariff, we've already said $300 million in annualized cost. We also then -- and if you do the math on Q2 for modeling, you should get to a number of close to $50 million in Q2. And then that will take a step up in Q3 and Q4. Other cost inflation, though, also includes any excess cost over and above inflation. You'll see that, that increases a bit in the second half of the year, particularly as we have three restructurings occurring at the same time in the second half, and that's the ramp down of two factories in Germany, one in the U.S. and that temporarily creates inefficiencies in our factories, increases our costs, but that's all included in that guidance for $175 million in the third quarter and then in the fourth quarter as well.

Much appreciate. Thanks.

Sure.

Thank you. We'll move next to Itay Michaeli with TD Cowen.

Great. Thanks. Good morning everybody and I appreciate all the details as well. Just two questions for me. First, on the tariff impact, the $300 million. Just curious whether there's some potential for mitigation for that over time, just given your strong U.S. capacity opportunity and maybe other offsets that you might explore for that.

Yes. So, maybe I can start and then Christina can kind of reiterate a few of the things and good morning to you. We've got -- as you mentioned, we feel we're in a really favorable strong position, right, having the largest U.S. footprint from that side as well, I think as we've shared with you guys on earlier quarterly calls, we've already been embarking on this journey really over the last couple of years. But in 2025 and 2026, we're going to be continuing to upgrade our U.S. facilities with about $10 million of high-value, high rim size and the bigger profit pool size tires to more competitively compete and win in that marketplace. As we shared as well, with a tremendous amount of new high rim sizes being launched in the U.S., coupled with the fact that we do have that large U.S. footprint, we're looking for those opportunities, but we also want to be -- really mitigate that factor, if you will, by just by watching this on a month-by-month basis, working with our customers and working with the distributors and the retailers on it.

Terrific. Thanks for that detail. And then just second question, hoping you could just expand a bit more on some of the assumptions in your second half volume assumption? I think you mentioned kind of flat volume year-over-year. Maybe just talk about assumptions on share macro, maybe a little bit if you could share kind of the regional view within that outlook as well? Thank you.

So, I'll go ahead and get started, Itay. I think what we've described in our prepared remarks is recovery in Asia-Pacific turning to growth in the second half. We had a really negative first quarter driven by choices we made to exit some of the lower end of the market in Asia-Pac that helped boost margins. We'll still see a drag in Asia-Pacific in the second quarter, but then I think we'll begin to get some growth. In EMEA, I think that our first quarter volume was just slightly negative. Our expectation is a strengthening volume over the course of the rest of the year. Of course, in the U.S., I think we still have a really rough sell-through dynamic in Q2 and Q3, in particular, all around this sellout of low-end pre-buy that has just filled the channels. And so I think the U.S. will still be pretty tough. I also think Latin America volume will be tough as well. And I think a lot of volatility is still around OE. And I think we all appreciate that. But the expectation is that we will continue to grow a lot of market share, just like you've seen from us here over the last couple of quarters, just given our fitment wins on the SUVs, light trucks and EVs over the last couple of few years.

Yes. And that should flow through as well, Itay, from just to call a few of those out, right, we have been winning with the winners in the marketplace with like Chevy Silverado, Dodge Ram, the Ford F-150s. And in the first quarter, we had about 0.5 point of share growth in that OE segment. And that should flow on through in the replacement cycles as well so.

Yes, absolutely. That’s all. All great to hear. Thanks for the detail. Thank you.

Thank you. We'll move next to Ryan Brinkman with JPMorgan.

Hi, great. Thanks for taking my questions. Just relative to the $300 million of annualized tariff costs on finished goods, COGS and raw mats on Slide 17, which you referenced in your prepared remarks. I realize those costs start now, right, versus the associated pricing gains might take more time just given all of the inventory that's been built up in the channel during the pre-buy before and after the election. So, some questions around how you see that situation evolving from here, including like what is your sense for how much inventory of low-cost tires might be built up in the system relative to normal? And how long do you think it will take the industry to work through those elevated inventory levels? And then whenever we do work through the oversupply, what kind of pricing gains do you expect to net against those $300 million of higher annualized costs, given your costs will increase less than the overall industries, are you expecting -- and I think it would be a very reasonable expectation. Are you expecting the pricing gains to be well in excess of $300 million or maybe you'll exploit share gain? Is there a reason to reassess the 10% SOI margin target longer term? What do you think?

It was mouthful, Ryan. We'll take it. Maybe just one question--

I'll give it a go. Go ahead Mark.

But yes, as Christina shared, we already have pricing in the market, Ryan, for $135 million of announced price increases that we've already have out there that have been digested and are being digested into the marketplace. And I'll let Christina pick up from some of the other details to the going forward for it. Christina, if you want to cover the rest of that section, and I'll chime in some more here.

Sure. So, Ryan, we talked about the $300 million and $240 million of that will flow through to replacement. So we've announced price increases, as Mark just mentioned, already in the U.S. effective May 1, and that's 4%, which -- and using our modeling assumptions, that would be worth $220 million. Similarly, we've announced price increases in commercial. We also have opportunities to increase our price/mix with our OE customers as well. We're very confident about commercial. We talked about that as well. We've increased pricing there. Of course, we'll look at every opportunity to grow our business and increase our price/mix. As you look at the guidance, we've thought about the flow-through of pre-buy carrying through until the third quarter. We have not yet seen a decrease in imports. I think that the tariffs are effective May 3rd, and so we may begin to see that after May 3rd, but have not yet seen, for example, ocean freight rates out of Southeast Asia coming down, which would be an indicator to us that some of those tires have stopped flowing into the U.S. And so it's going to take at least through the third quarter to see that play off. I think you asked about the balance between whether or not tariffs are price or a volume opportunity. I'd say the Goodyear branded products have done really well. Mark referenced the growth in the capacity that we're looking to achieve in the U.S. over the next year or two. And so our plan already includes a lot of good growth in Goodyear-branded products. The supply/demand dynamics there have been strong. And so that's an area where we're going to focus on driving higher revenue per tire through price and mix. In the mid-tier and to the extent distributors do increase the pricing of low-end products, certainly makes our Cooper offering a lot more attractive. In those instances, we do have some extra capacity. We're going to work through the economics of price/mix and volume just to maximize our earnings. And Cooper doesn't directly compete with Tier 3 and Tier 4 tires, but because it has such an attractive value proposition, certainly some opportunities for us there.

Okay. Thanks. And maybe just an update on the disposition process now that you've got two of three finished. I'm sure you're limited to what you can say with regard to chemicals, including about overall proceeds because we can do a process of elimination math. But previously, I think investors had regarded Chemicals to be maybe the easiest to get done over the shortest timeframe just because there seem to be so many more potential interested buyers, and they tend to be deep pocketed and just up and down the petrochemical space, right? And yet it's the one that remains. Historically, I think one thing you liked about it was that it would do better when oil prices were high and not as well when it was lower oil, so kind of hedge you. And now we see oil is coming down. Overall, that's good for you. But does that impact timing or proceeds at all? And having overachieved so far on the two that you have completed in terms of the proceeds, does that make you less sensitive to timing and more sensitive to proceeds? Or just what can you say about what remains here on the disposition side?

Thanks Ryan. I mentioned in the prepared remarks that our Chemical process is ongoing. And of course, we're continuing to evaluate how best to maximize the value of that business. I'd say it was three major programs that we've been working on over the last 18 months or so. This one was the last one in the market. I think you're right. I think the current environment, whether you're looking at chem prices, whether you're thinking about tariffs, this business for us is more valuable today than, say, it was six months ago. It's the only major synthetic rubber manufacturing site supplying tire manufacturers in the U.S. And so that makes it inherently more valuable. But as part of that strategic and operating review committee, that we held back in 2023, we did conclude that the chem business was noncore. And so the work in front of us is ensuring that we deliver the right strategic value for Goodyear and for our shareholders, and we'll continue to do that and update you more when we can.

Okay, very helpful. Thank you.

Our next question will come from Edison Yu with Deutsche Bank.

Morning. This is James [indiscernible] on for Edison. Two quick questions for me. On the SKU rationalization that impacted the Asia segment volumes in the quarter, should we expect something similar to that to happen in the other geographies throughout the year? Or is that going to be predominantly an Asia story and it's going to be relatively complete after the second quarter?

Yes. Thanks James. As we mentioned, on the AP side, that was predominantly outside of China on that SKU rationalization. We are actually -- we have been going through the same activity, both on the Americas side as well as in EMEA. We've -- as we've shared with you guys in the past, we've been really marching forward with our common platforming, if you will, of certain SKUs, looking as well at the retiring of some of the older SKUs as we bring the newer SKUs into the marketplace and really pleased with the results of that with the wins we're getting in terms of performance, in terms of consumer take rates and so forth. So, yes, we absolutely are continuing to do that. As part of that and as announced with David Anckaert being the Head of our Product Technology road map, it really is one of our key areas there is looking at the right number of SKUs and complexity within our manufacturing footprint to optimize efficiency, but also the right messaging that we take with our marketing teams out into the marketplace so that we've got the right product for the right folks across the market, but -- and not crowding up, but in fact, cleaning things up. So, you'll see more of that.

Great. Got it. That's very helpful. And then my second question. So, based on your math, let's just say in the U.S., about 6 million tires, give or take, are non-USMCA. Would you look to fully offset those with the 10 million units coming online from the plant optimization? Or should we view that as a source of exports or maybe market share gains? Just how should we think about that extra 10 million units?

Yes. That 10 million units is actually going more to your first question, right? It really is about us moving into the higher rim sizes and the higher value-added proposition piece to it. And then we'll utilize that as well as opportunities would come up in the marketplace of other tires coming in. But we would -- part of that $10 million is really centered primarily around our Lawton facility where we've been doing that massive modernization activity.

Got it. All right. Thanks guys.

Thank you. Our next question will come from Emmanuel Rosner with Wolfe Research.

Thanks so much. Good morning. Thanks for all the detail around the outlook. Christiana, I was hoping you can maybe just help us put a finer point on a couple of bridges, in particular, maybe sequentially, Q2 SOI doesn't look all that different from Q1, but in many ways, it's a little bit backward looking. So, what would the sequential bridge look like towards your double-digit SOI margin by the fourth quarter? And then also curious about sort of like an updated free cash flow bridge to the extent that there are a few -- there were just mainly changes in terms of working capital?

Sure, Emmanuel. Thanks. Good morning. So, when you look at the sequential earnings from the second quarter, either in the third or the fourth, I'd say two main drivers. And the growth in earnings is all going to come from higher volume and significantly better price/mix relative to raw materials. I think as you look at the third and fourth quarters, even in a flat volume environment, which we've laid out, the additional growth just coming from volume would be $200 million to $300 million. And then the growth that we would see from price/mix and raw materials will be a benefit of $100 million in Q3, $175 million in Q4, and that's all relative to a headwind in the second quarter of $45 million. So, big, big step-up in volume even in a flat environment and then significant price/mix versus raws relative to the first half. And we're just second quarter taking on a whole lot of cost in raw materials, also now with tariffs, but we'll begin to get the full realization of pricing in the third quarter, which helps us to fully offset that.

Thank you. And on the free cash flow side?

Free cash flow, what we've done is decrease the source of free cash from working capital. Our guidance at the fourth quarter call was $100 million to $150 million inflow. We reduced that to an inflow of $50 million, just given the impact of tariffs on our working capital. So, as you look at our free cash flow walk, we've said that SOI should be around the same level as last year. If you back out our Corporate/Other costs and add back D&A, you should get to an EBITDA level of about $2.1 billion. Then we talked about the working capital inflow, restructurings, about $400 million, taxes, $200 million, interest expense I have a range still, maybe it's $460 million. Interest income, $40 million positive there. CapEx of $950 million and then a little bit of financing fees should still give you a positive free cash flow for 2025.

Got it. And then just a little bit more comments around conceptually and strategically, how do you plan on taking advantage of this tariff competitive advantage? It looks like within the full year guidance, you're essentially offsetting increased costs -- direct cost to you with pricing, but it's sort of like a one-for-one offset, yet you do have a competitive advantage where your costs are going up less than most of the competition. And so directionally, you also mentioned potential for upside risk from there. So, how would you go about once you cover your costs, deciding basically where to allocate the additional opportunity?

Yes. We're taking a look at it really from multiple angles on Emmanuel. We're looking at the pricing in terms of where the products are positioned in the marketplace. we're also looking at from our engineering side as we continue to bring these new SKUs into the marketplace as well, make sure we've got the right pricing position and the value for the customer. So, we obviously will take a look and make sure that we're optimizing that pricing and that profitability in the marketplace, at the same time, making sure that we're being very cognizant of the consumer and consumer in the marketplace as well, right? So, all that is coming together for the value proposition for them. We'll take a look at it on the OEM side of the house. We'll take a look at it on the replacement side as well. So, we're really making sure that we've got quite a few war rooms, as you could imagine, that we've got things mapped out in that, but we're also watching very carefully, right, around the inventory in that marketplace because as Christina mentioned, right, there is feels to be a large amount of the pre-buy towards that low-end side of the stuff that needs to work through the system at the same time. So, that's why we're presenting as we are.

Got it. Thank you.

Thank you. [Operator Instructions] Our next question will come from Wesley Brooks with HSBC.

Hi guys. Thanks for the color around the tariffs and your guidance. I guess a couple of questions from me. One, you talked about the risk, obviously, of those Asian tires being redirected to your other markets. Could you just remind us your exposure in EMEA and Asia to sort of Tier 1 versus the mid-tier where you'd be more exposed to that in those markets? And if you have any sort of thoughts on the size of the impact that you could have there?

So, good morning, this is Christina. I'll just jump in to say, in Europe, we have some lower-tier brands, mostly our [indiscernible] and our Sava brands that are focused more in the Eastern European countries. Those would be the ones that would be most likely to compete with some of the Tier 3 and Tier 4 products going into Europe. What I'd say on the whole, if you look at our volume, and I'm talking specifically about 2024 volumes in consumer for Europe, I'd say about 35% or 40% of it is Goodyear and Cooper branded. All the remainder or 20 -- let me see, 12% would be these brands that I think are more exposed to those Tier 3 and Tier 4 imports.

Okay. Thank you. I mean, yes, it doesn't feel like the impact in these markets will be anywhere near offsetting the positives in the U.S., obviously. And then my other question was more a clarification on the guidance. I think you have a guide for Corporate/Others being $165 million in the full year. And I just wanted to understand, so you had $57 million in Q1, you've got $50 million in Q2. So that means only $30 million run rate in Q3 and Q4. And if we look at the year-over-year, that's a long way down. I just wanted to understand what's going on there and what drives the quarterly variance in that?

So, I would say -- it's a great question. I would say that, that variability in Corporate/Other tends to be very typical, and it has to do with a lot of the incentive compensation accruals that based on our performance in any given year, will be higher at the beginning of the year or at the end of the year. And this year, our Corporate/Other is more first half weighted.

Okay. Thanks. And I mean, if I had one last quick one, just the Chemical business sale, I mean the changing environment around tariffs and market, does that change your strategy there? Is that still -- does that still make sense? And do you have any updated visibility on the timing of this?

Sure. So, we chatted about this a little bit earlier. I think, yes, certainly a bit more valuable because it is the only major synthetic rubber supplier for tire manufacturing in the U.S. And just given the tariff environment, that adds some as we think about the overall enterprise value of that business. But I don't think it changes necessarily the conclusion at all that we arrived at back in 2023 that this business is non-core. And so we're continuing. I mentioned earlier that this was the last process that we put into the market. We're talking with multiple interested parties and no other updates, we'll share more when we're able.

All right. Thank you very much.

Thank you. There are no additional questions at this time. I'd like to now turn the conference back to Mark Stewart for any closing remarks.

Okay. Thank you. And thank you all for taking the time to join us today for our first quarter earnings call. We continue to build on the momentum that we have from last year and definitely continue to deliver on the Goodyear Forward initiatives towards that $1.6 billion number that we've shared. We look forward to sharing our continued progress with you guys as we proceed through the year and thank you, guys, and have a great day.

Thank you for joining Goodyear's first quarter 2025 earnings call. This concludes today's conference. You may now disconnect.