Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Fourth Quarter 2023 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. Today on the call, we have Mark Stewart, Goodyear's Chief Executive Officer, and Christina Zamarro, Chief Financial Officer. During this call, Goodyear 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 more significant factors that could affect future results, please refer to the important disclosures section of Goodyear's Fourth Quarter 2023 Investor Letter and their filings with the SEC, which can be found on their website at investor.goodyear.com, where a replay of this call will also be available. A reconciliation of the non-GAAP financial measures that may be discussed on today's call to the comparable GAAP measures is also included in the investor letter. I will now turn the call over to Mark Stewart, CEO.

Thank you, Nikki. Good morning, everybody, and thank you for joining Christina and me this morning for what is my first conference call as the Goodyear CEO. I'm just over two weeks into my new role. I could not be more excited to have joined this iconic company. As you can imagine, I'm working diligently to gain a deep understanding of our business. I'm meeting with our people, visiting our factories, getting to know our customers, our products, our cost structures, and doing that through operational deep dives. I'm looking forward to engaging with the investment community as well over the course of the next several months to gain your perspective. As many of you have read, my most recent role was at Stellantis, where I ran the company's North America operations and was a key leader on the global executive team. I will bring a perspective from an automotive OEM and automotive supplier background and understand the need to lead through industry cyclicality with a clear focus on manufacturing, purchasing, engineering, and logistics in order for us to achieve our financial goals. This means that in addition to spending time meeting our customers, understanding our products and product placement, you can expect me to focus heavily on Goodyear's manufacturing operations and distribution, understanding it on every level, and working with the team to enhance capability and cost-effectiveness. I plan to focus on clean sheeting and shared cost activities, our SKU or product complexity, as well as our go-to-market strategies. Like all other aspects of our business, that focus will center purely around our Goodyear Forward plan in the coming months. I’m engaged in deep dives on each element of the program, the associated work streams, our amazing teams, and I am committed to delivering the outcomes of the Forward plan. I have been a part of leading transformational efforts and driving results in my past roles by bringing them to the bottom line through clear KPIs, definition, tracking, and speed of execution. For Goodyear, maximizing our strength and market position in North America, improving our cost structure, and derisking our balance sheet are crucial. Ultimately, I'm confident the Goodyear Forward plan will drive our company's next stage of profitable growth and success. I fully support the plan, as you might have seen in our investor letter from yesterday evening. Christine and I would like to get right to your questions. So, with that, Nikki, let's open the line.

We will take our first question from Rod Lache with Wolfe Research. Please go ahead.

Good morning, everybody. Good to talk to you again, Mark. I understand that you're just two weeks into working at Goodyear, but I wanted to give you a little bit more of an opportunity to talk about what you see as most important to create a durable industrial turnaround and what do you think the timeline will be for you to put your stamp on the plan?

Thanks, Rod. I think what's clear is to revert back to the very well thought-out Goodyear Forward plan, which was rolled out on November 15. My focus is on streamlining the portfolio. This means achieving sustainable operational margins of 10%, getting our net leverage to 2 to 2.5 times by the end of '25, and establishing that sustainable free cash flow which is going to increase our overall financial flexibility. Specifically, with just over two weeks in this role, I'm deeply involved in the onboarding process. I’m spending most of my time listening to our team here at Goodyear, both at headquarters, in the plants, as well as our retailers and customers. I really look forward to meeting you guys in a different light than the past. I'm deep-diving into the operations, going through the functions and financials to really understand the business right now. This involves asking lots of questions, taking ample notes, and reviewing continuously, especially in these first 30, 60, and 90 days to challenge my assumptions and gain clarity on areas we can categorize into quick wins and learnings from the past. It’s about keeping a fresh perspective while driving execution and focusing on the speed of execution to deliver the Goodyear Forward plan. I've observed incredible momentum in the Goodyear Forward plan, seeing how well thought out the step-by-step timing, ownership, and execution are. That is what I’m here to do, to assist Christina and the rest of the team by leading and guiding those initiatives across the finishing line.

Thanks for that. And just on the business, maybe, Christina, you can help us with this. Cost performance is obviously starting to look much better now, and I presume that's not really benefiting much from the Goodyear Forward plan yet. The question looking at the numbers continues to be market share. I know there are factors that affected it in every region, but even in isolation, Goodyear's year-over-year volume performance wasn't great. Can you share whether you think there’s market stability for Goodyear, or is that kind of a work in progress? In other words, do you think that even beyond Goodyear Forward, more realignment will be needed to the portfolio?

Sure, Rod. I'll take it by region. I'll start with the U.S. In the fourth quarter, our replacement market share in the U.S. for 2022 was abnormally high, approaching 28%. That was driven by the volatility in imports we observed throughout 2022 and even at the tail end of 2021. In looking at our consumer replacement share in the U.S. for the fourth quarter of 2023, it is in line with year-to-date results and reflects a more normalized level of sell-in share. Although there's a significant year-over-year change, even amid the volume decline, our sell-out share—meaning what’s being bolted onto vehicles at retail—was in line with industry metrics, indicating some stabilization. So we expect our market share in the U.S. to normalize moving forward. However, this does not mean we won’t make changes to the portfolio around the periphery as part of Goodyear Forward through SKU consolidation and our customer programs aimed at continuing to grow our margins. Nonetheless, I believe we’ve stabilized in the U.S. compared to last year. That said, the Forward outlook for our mature markets, such as the U.S. and Europe, indicates slow growth for 2024; something like an increase of 1% to 2% feels tougher in the first half than in the second. We also acknowledge recent declines in raw materials to add to our calculus. As for EMEA, the past headwind has been our sales volume performance going back to 2019. We've been impacted in OE, where industry peaks have fallen dramatically, as well as in replacement, where we stand to be more profitable. Going forward, we see minimal downside risk to OE, and our OE forecast globally for 2024 appears more steady. However, regarding the consumer replacement market share in Europe, we lost considerable market share since 2019 to imported budget brands, which have increased as a part of the industry by about 15 million units since 2019 even as the overall industry declined by 7 million units. This is why we are directing restructuring dollars as part of Goodyear Forward to the factories in EMEA, an announcement made in the fourth quarter.

So, Christina, once the restructuring is executed in Europe, you expect that business to be more defendable or more stable at that level?

Yes, I mean, we're addressing cost competitiveness with a couple of factory closures. I think we will have more work to do beyond 2025. We can get Europe to high single-digit SOI margin performance, but I don't think we'll reach that by the end of 2025. We have begun the work, laying the groundwork. We've announced two factory closures, as well as a significant SAG restructuring worth $100 million. EMEA will also benefit from our purchasing and some corporate initiatives that we are running as part of Goodyear Forward, providing us a good path to earnings growth in the future. Nonetheless, this may take longer than the two-year plan we’re discussing under Goodyear Forward.

Got you. Okay, thank you.

Thank you. Our next question comes from James Picariello with BNP Paribas. Please go ahead.

Hi. Good morning everyone, and welcome aboard Mark. Just on the restructuring actions, the Goodyear Forward savings plan—you're calling for $350 million for the full year, $50 million in the first quarter. Could you clarify how we should think about the remainder of the year in terms of cadence? More broadly, as we consider divestitures and the need for execution there to fund the heavy lift on the Goodyear Forward plan in 2025 to achieve that billion-dollar-plus exit rate, does all that need to take place this year for the timing to be maintained here?

Hi, James. Regarding the Goodyear Forward program, the $350 million on a full-year basis and the $50 million in the first quarter can be seen as a significant ramp-up in Q2, followed by a slight leveling off for the remainder of the year. Nonetheless, we also expect it to ramp through the fourth quarter as we build into a run rate through the end of 2025 with these programs. Regarding asset sales, I can confirm that processes related to the sales of the three respective assets we discussed on November 15 are underway and progressing as planned, and we will notify you upon any significant developments. I should note that the outlook items in the investor letter do not factor in an asset sale, so we will return and adjust our guidance once we close any sale. However, I want to ensure that for the 2024 plan, there's no requirement for additional funding this year from asset sales to achieve our plan.

Hypothetically, if no divestiture takes place this year, just for context, what would be the additional restructuring Goodyear Forward savings in store for next year? Just on an incremental year-to-year basis?

So when we laid out the plan in November, we indicated $350 million in year one and $750 million in year two.

Right, but if no divestitures occur this year, what would be the incremental push to next year without that funding source for additional actions? Does that make sense?

As of now, we've announced restructurings totaling about $750 million compared to the previous guidance of $1.1 billion from our November announcement. Of that, we indicated $300 million sitting in 2024, and $350 million in 2025, with the remainder anticipated in 2026.

Got it. I appreciate it. One more follow-up: Would you be surprised if Goodyear's unit volumes were down for the full year, considering the -2% for the first quarter? Can we establish a barometer for expectations, whether it will be flat, up, or down for the full year in terms of units?

I will take this opportunity to discuss a year-over-year SOI perspective, tying in how I'm thinking about volume. In 2023, we started off with SOI of $968 million. The Goodyear Forward program adds that $350 million against rate inflation of $215 million. Other costs, which include transportation and energy, should balance out to about flat for the full year. We currently see a tailwind of $75 million in the first half due to transportation rates, but expect that to flip to headwinds in the latter part of the year, driven by higher insurance premiums and some transitional manufacturing inefficiencies due to our announced footprint actions in EMEA. Separately, since Toubro is now at full production, we expect a $50 million benefit in Q2 compared to last year. For raw materials, we've noted a $375 million impact in the first half, with the first quarter showing a price mix decline of $130 million. We expect to handle a $60 million drag from the commercial truck decline of the previous year in Q2, which should improve our price mix compared to Q1. Additionally, we are working to build a few million units of inventory in the Americas as the current levels are lower than what we need for optimal service levels, which ultimately benefits the second half by about $40 million. Even with plans for working capital expected to be a neutral factor for 2024, we have Goodyear Forward work streams around procurement to help us offset that. The main question now revolves around your assumptions of volume, price, and mix for the rest of the year. For Asia-Pacific, we observe steady growth of mid-single to high-single digits in our consumer replacement business. If you model that for Q2 through Q4, it could represent another $35 million or more in volume. For mature markets, however, it's essential to weigh this slower volume growth against a declining raw material environment and forecast how that will affect price mix.

Super helpful. Thank you.

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.