Good morning. My name is Shelby, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Third 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. 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, Shelby. Good morning, and welcome to our third 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 third quarter earnings call. Before we dive into the numbers this morning, I want to take a moment to acknowledge the momentum the Goodyear team has collectively created over the past four quarters. Goodyear Forward is delivering significant and tangible results, both in the bottom line earnings and in being a key driver and enabler in our structural change in the way in which we work and govern the company. In fact, 2024 will mark the first year Goodyear has expanded margins since 2016, excluding the recovery immediately following COVID. As we've discussed with you in the past, since becoming CEO, I have spent time getting to know and listen to our people, learning the technical and operational aspects of our operations and product development. I visited our factories, our retail stores, and have directly engaged with our international operations. I've also been meeting with key customers and partners here in the Americas and around the world to hear directly what we're doing well and what we can do better to meet and exceed consumer and customer needs. Developing a deep understanding of where we can leverage our strengths and address our shortcomings as an organization has given me even greater confidence in our ability to transform and position ourselves for long-term profitable growth, particularly in the premium segments of the market. Let's turn to the Quarter 3 results. The third quarter was strong for us in terms of margin expansion. We delivered segment operating income of $347 million, our SOI margin was 7.2%, both higher than last year. To put this in perspective, we have successfully put together four consecutive quarters of margin growth under the Goodyear Forward plan and the actions and the governance we have put in place this year with our robust cadence of manufacturing, engineering, and commercial accountability. This morning, we're building on that momentum by increasing our transformation plan savings targets. We've raised our guidance for 2024 Goodyear Forward benefits to $450 million, up $100 million since the start of the year. Additionally, by the end of next year, we expect to deliver a total of $1.5 billion in run rate benefits. That's up from our original target of $1.3 billion, and we will not stop there. We will continue to look for opportunities to deliver beyond our updated targets as well, as we create a more efficient, stronger company. Like any plan, we know that while the path may change, the goal remains the same: deliver increased value to our customers and our shareholders. We still have much work to do in the face of industry headwinds. Our consumer replacement volume continues to underperform the industry with Tier 4 tires flowing into the majority of our key markets. At the same time, OEM production continues to reset to a lower base. In that environment, I assure you we are absolutely not letting up. I continue to have confidence we will reach our 10% SOI margin target by the end of next year. This takes into consideration both the volume headwinds and what we see today as far as increases in our raw material costs in 2025. Looking at Goodyear Forward. On our last conference call, we discussed in some detail the cost savings and the efficiency contributions of Goodyear Forward. Today, I'll share an update on the work we're doing on the customer and consumer-facing aspects of the business. One of our major priorities as part of Goodyear Forward is elevating Goodyear and our family brands. Our brands have to resonate with consumers, and we must be thought of as a premier tire technology leader in the industry. This is the surest path for us to capture value at the high end of the market and create pull across all other segments. One way we are engaging consumers is through our partnerships with some of the most recognizable brands in the world. In September, we partnered with Ferrari on unveiling their new 12Cilindri. If you haven't seen it, this car is truly awesome. It's an awesome machine. It looks like a GT, drives like a super sports car. This is Goodyear's first fitment on a Ferrari in 30 years. It highlights our renewed commitment to our brand and our premium technology-driven strategy. This is a space where we will need to be positioned, and we continue to partner on the right halo fitment with pure-play technology leaders to showcase our brand and our cutting-edge products. We continue to be positioned well and showing technical and marketing strength in our EV fitments around the world as well. Another big part of this renewed engagement with our consumers is increasing our offering of premium SKUs. As an example, in the US, during the quarter, we successfully launched the Assurance WeatherReady 2, a top-tier power line targeting first and second replacement customers. In this line, we will introduce 60% more SKUs than the predecessor line had. This is very important as it will make the product line competitive with best-in-class Tier 1 premium offerings. Similarly, in early 2025, we will launch an all-new Eagle F1 Asymmetric 6 and Eagle F1 SuperSport, combining an offering of 150 unique SKUs almost entirely in the 18-inch and above rim sizes. These tire lines have no predecessor in our US market and demonstrate our commitment and our actions to expanding in the premium sector of the marketplace. Additionally, the Eagle F1 all-season product line will launch in late 2025, with about 70% more coverage than the predecessor line. We know our customers need to see us as a reliable supplier covering all SKUs in the premium product line offerings. We simply can't just supply a portion of the premier line, that relegates us to a choice number two or even number three in the minds of our dealers. A broader offering that picks up the tail SKUs is crucial to our success. Of course, tail SKUs are highly profitable in their own right, but they're also an important component of our overall value proposition. When we provide the total portfolio, all SKUs will benefit from the consistency we will offer in customer service. Coverage at the premium end of the market is an enormous opportunity for us, and we are committed to making it happen. This is a market segment where, quite frankly, we have not done a good job of maximizing our opportunity across the value chain. This includes designing and producing what our customers want and differentiating our products in the marketplace in that segment. We are actively changing that. This is part of the operational and cultural shift we are making as part of our transformation. Going forward, we will continuously assess market opportunities utilizing the datasets and the analytics and leverage our global assets for our customers and consumers with one goal in mind: to profitably win. Before I move on to our market-facing strategies, I'd also like to highlight that we have continued to demonstrate remarkable growth in our US retail business. We have just delivered our best performance in more than 15 years with earnings growth driven by a focus on our value proposition to customers and an increasing customer base in well-known last-mile fleets. This includes converting nearly 50 stores to dual operations, supporting retail customers by day, fleet customers at night. I see a lot of runway ahead of us as we execute on these objectives we've set out and look forward to leveraging and growing our retail operations on a forward basis. While Goodyear Forward continues through the end of next year, you're hearing my emphasis on the actions we're taking to elevate our performance over the long term. We're rebuilding our brand strategy, product strategy, and operations, setting a solid course for the future with a direction that will drive significant opportunities for our business over the long term. Now I'll turn it over to Christina to take you through the financials, and we'll move on to the Q&A. Thank you.

Thank you, Mark. We're on track to exceed our original target for 2024 Goodyear Forward benefits by $100 million. And as we look ahead to next year, we expect to achieve another $750 million in year-over-year growth benefits from the program. We'll provide more detailed 2025 guidance in February, but these commitments are a testament to our ongoing commitment to transforming the way we work, improving operational efficiency, and managing our costs. I'll begin with the income statement on Slide 9. Q3 sales were $4.8 billion, down 6% from last year, driven by lower volume and the negative impact of translation resulting from the stronger US dollar. Unit volume was 6% lower than last year, with gains in OE partially offsetting declines in replacements. Volume was lower than what we expected given the continuation of increased low-end imports in the US and Europe. Segment operating income for the quarter was $347 million and SOI margin increased by 70 basis points. Goodyear net income includes charges related to planned rationalization programs under Goodyear Forward and a noncash impairment charge related to a reduction in the balance sheet carrying value of lower-tier brands, including MasterCraft and Roadmaster, stemming from increased competition and opening price points in the US market. After adjusting for significant items, our earnings per share were $0.37. Turning to our segment operating income walk on Slide 10. Lower tire unit volume and factory utilization were a headwind of $94 million in the quarter. Net price/mix versus raw material cost was favorable $7 million. Sequential pricing from the second quarter was stable. Goodyear Forward initiatives contributed $123 million with benefits driven across all of our work streams, including purchasing, supply chain, R&D, and SAG. Inflation and other costs were a headwind of $59 million. Insurance proceeds, net of current year expenses, primarily related to last year's storm damage at our Tupelo factory, were a benefit of $17 million. Other SOI was favorable $25 million, driven by higher earnings in our Chemicals business and better miscellaneous cost performance. Turning to Slide 11. Net debt was $8.1 billion at the end of the third quarter and was up about $450 million compared to last year, reflecting increases in working capital. Higher working capital was driven by declines in our accounts payable balances, while inventories remained high on a relative basis, reflecting reductions in our full-year volume outlook. In the fourth quarter, given our normal seasonality, we expect significant cash inflows in working capital as we reduce finished goods inventories and increase collections. With respect to our leverage, we expect to close on the sale of the OTR business in early 2025, and we continue to make progress on our two other strategic reviews. While there's not a lot we can say while we're in process, we will keep you updated as we have more information to share. One final note on our capital structure. We have $500 million outstanding on our 9.5% coupon notes due May 2025. This maturity is supported by a backup credit facility that would replace it through mid-2026 if needed. Having said that, we expect to use proceeds from asset sales to repay this maturity next year, which would reduce our interest expense by almost $50 million on an annualized basis. Moving to our SBU results and starting on Slide 13. Americas third quarter unit volume decreased 1.9 million units, driven by consumer replacement. Low-end imports in the US remained elevated during the quarter, reflecting a 17% increase year-over-year. The increase in imports was less than what we saw in the first half. Including imports, the consumer replacement industry sell-in in the US declined 1.5% and collectively, industry members declined more than four times that amount. On the other hand, despite weak industry trends in OE, our US OE volume grew 6% reflecting share gains of 2.5 points in strong growth in light truck fitments. We also gained share in Latin America. Americas segment operating income was $251 million or 8.8% of sales. Americas earnings benefited from the execution of Goodyear Forward initiatives, including retail sales growth of $20 million in the quarter. This growth reflects the increasing scale of our fleet customer base. These benefits were offset by the impact of lower volume and inflation. Moving to Slide 14. EMEA's third quarter unit volume decreased 3% or 300,000 units. Our volume reflects lower OE production and continuing pressure from low-end imports. Non-member imports grew about 15% in the quarter. Recently, two of EMEA's premium tires were awarded the top spot by Europe's largest auto association, ADAC, in their annual all-season and winter testing, which we expect to support our winter value proposition to consumers. Segment operating income was $24 million and stable from a year ago. Goodyear Forward actions and favorable price/mix versus raw materials offset inflation and unfavorable fixed overhead absorption. Turning to Asia Pacific on Slide 15. Third quarter unit volume decreased 5%, driven by declines in several of our key countries. Industry volume in China was down 6% in OE and 4% in replacement, driven by overall weak consumer sentiment. Segment operating income was $72 million and nearly 12% of sales, an increase of $16 million compared to last year. Asia's earnings benefited from Goodyear Forward initiatives, including the redesign of our go-to-market model in Australia. We expect this initiative to continue to contribute benefits in 2025. Now turning to our fourth quarter outlook on Slide 17. We expect global unit volumes to decline approximately 4%, reflecting elevated wholesale channel inventories and weak sellout trends in the US. Like we saw in the third quarter, we expect growth in our OE volume, reflecting share gains and a weak US comparable related to the UAW strike in 2023. We expect volume to be up about 1 million units on a sequential basis, driven by stronger OE volume. In addition, we expect higher unabsorbed fixed costs of $40 million driven by 1.1 million units of lower production during the third quarter. Additionally, we expect our fourth-quarter production to be about 1.5 million units lower than last year as we reduce finished goods inventory in line with our needs. This reduction will negatively impact our costs in the first quarter of 2025. Price/mix is expected to be a net headwind of approximately $15 million, driven by higher OE volume. Raw materials will increase approximately $100 million, driven by natural rubber and carbon black. At current spot rates, we would expect to see raw material cost increases of about $300 million in the first half of 2025. Goodyear Forward will drive benefits of $165 million, reflecting the progress we are seeing across all work streams. Inflation and other costs are expected to be a headwind of about $35 million, and Other is expected to be a benefit of about $40 million reflecting higher earnings in our other tire-related businesses, the recovery from the fire in our Debica, Poland factory last year and better miscellaneous cost performance. Other financial assumptions on Slide 18 have been updated to reflect our most recent expectations. In total, there is not a significant change to our free cash flow drivers from our last call. I'll speak to two of the more significant changes with the first being that we've reduced our restructuring costs as we've seen lower cash outlays than expected in specific programs given higher levels of voluntary attrition. Second. We've updated our working capital guidance from either a source or use to a use of approximately $150 million to $200 million. This increase is partly driven by the timing of production cuts and partly by plans to increase finished goods inventory in advance of actions we expect to take in early 2025 to reduce our structural costs. We expect to recover this outflow next year. With that, we'll open the line for your questions.

We'll take our first question from John Healy with Northcoast Research. Your line is open.

Hi, thanks for taking my question. Mark, I just wanted to ask kind of a high-level question on the margin targets that you guys have put out, especially as you look to next year. I mean, you kind of called out the $300 million headwind on raw materials and the volume side has probably been a bit more challenging. I'd love to get more color on what's incrementally better. And I imagine you're going to answer it with Goodyear Forward to get to those margin targets. But I was hoping you could kind of like give us kind of a look underneath the kind of surface a little bit of where within the plan or where within other areas of the business you're finding those incremental benefits? Thanks.

Thanks, John. And yeah, just to cover what we're going through with it. As you mentioned, a key part of it is Goodyear Forward. But one of the things we've been doing throughout the course of this year is we continue to refill the pipeline of projects in Goodyear Forward. And Goodyear Forward is a two-year point in time, right, this year and next year. But what we're doing is integrating that into our annual operating plan as well as our long-term strategies, John. And of course, we've got all the pricing dynamics associated with raw materials. So with the OEMs and the natural flex up and down with indexation. But when we look at it, it's far more than just a Goodyear Forward and what is helping with those margins, right? We are fundamentally changing the way we're doing our businesses. As we shared earlier this year, we've really broken manufacturing, and we're in the final stages of bringing on our Chief Manufacturing Officer for all three regions around the world. And what we're doing there is really focusing on our plant efficiencies. We're reducing our scrap. We're driving our plant OEE, operating equipment effectiveness, on a week-by-week basis by process. And so that's a whole lot of the nuts and bolts of manufacturing 101. And then as I mentioned as well, we are strongly driving with dedicated teams that have been pulled out to make sure we are tackling the 18-inch and above rim size into the premium parts of the market. And as I shared in the opener, one of the things when we take a look at it, it's something that we've not done the best job overall globally to really tackle that situation. And so what we've done is we pulled the folks out, we've established the teams, we are driving it from engineering, we have dedicated resources in the plant, and a dedicated machinery to bring those products to market. We're leveraging our global footprint as well to move tires around the world in a very cost-effective way. In the meantime, even as we speak, we've got 90-plus SKUs on the water on the way to the Americas market from EMEA to address the Tier 1 high-end, what we would call, the tail SKUs, but the premium side of the greater than 18-inch and above. And so we have a very clear roadmap over the next 24 months of bringing those in as well as the coverage and the fitments we have across those. So we are making sure that we have got the right replacements coming into the market in the Americas. EMEA has been doing a really nice job of that of filling their gaps. And then on the AP side, we continue to have very strong wins with the right customers in the EV space. So really focusing all three of those. So it's top line fitment wins, it's top line premium segment wins, and it's really just good old-fashioned manufacturing and purchasing 101s, and the teams are doing a really nice job to make the progress.

Great. Thank you. And then just one question. There's been some media reports out there about you guys and ATD and some of the things they're going through right now. I was just wondering if you could give us a little color on kind of the exposure there and I imagine it's with the Cooper brand? But secondly, I mean, as you see that kind of update in the market regarding what's going on with them, how does it make you feel about kind of your distribution strategy and how you might see the ripple effect of this news maybe playing out on the industry in the replacement market for '25? Thanks.

I'll begin and then hand it over to Christina for additional details, John. Regarding your comment about TireHub, a second bankruptcy with ATD can certainly be disruptive. However, we see this situation as strong confirmation of the decisions made by the team and Goodyear when establishing TireHub years ago, as well as our efforts to strengthen our distribution network. Recently, we have restructured our sales and go-to-market organization in the Americas to better connect with our wholesale distribution customers. We will continue to focus on delivering products to consumers effectively, ensuring they arrive at the right place, at the right time, and at the right cost. As for ATD, I'll have Christina discuss the receivables, but we are continuously assessing any strategic options in light of the current events. Christina?

Sure. So, John, let me provide some background for those on the line who may not be familiar with our previous dealings with ATD. As you likely know, ATD, one of our major wholesale distributors, has filed for Chapter 11 bankruptcy for the second time since 2018. At that time, Goodyear was not working with ATD as we had moved away from them due to their increasing emphasis on lower-tier brands. However, after acquiring Cooper, we reinstated our ongoing relationship with ATD, which we've continued. Our current receivables from ATD are approximately $135 million. As is usual in these circumstances, the court has issued an interim order allowing ATD to pay pre-petition claims to certain vendors. We have reached an agreement with ATD regarding the payment of nearly all our pre-petition claims, so we do not anticipate any significant impact from this situation. For context, most of the tires we are currently selling to ATD are private label brands, with a small portion being Mastercraft, Mickey Thompson, and Cooper.

Great. Thank you so much.

Thank you. We'll take our next question from James Picariello with BNP Paribas. Your line is open.

Hey everybody. So I want to first ask about the demand environment. If we look at the last nine quarters in North America, your replacement volumes are down an average of 9%. I'm just curious if you could assess your market share over this period, right, comparing now to the middle part of 2022? Just at a high level because I'm just curious, like, is this a generational-type market share shift that we're seeing which can be temporary, but like in terms of the magnitude and persistence of the weakness. And I know there's an element of actively exiting certain business as part of your Forward plan. So if you could contextualize that as well relative to these declines, that would be great. Thanks.

Yeah. Sure, James. Maybe I'll start and then let Christina add some additional, too. When we look at that period, as you said, as we mentioned, there's been a continued influx in the Tier 4 market space with the Asian tires. And specifically, when we look at the inventories of those at the moment, I believe it could be a pre-buy of people being concerned about tariffs that may or may not happen coming into the new year. But one of the things as we look, we have, as you mentioned, we definitely have had a very clear plan to exit low-margin, low-value business, and we've executed upon that. We've done repricing in those areas as well. And the others I mentioned with the question with John as well is really us focusing on that greater than 18 to increase the number of SKUs we've got in that marketplace. So we will very meaningfully participate and grow our share in the upper part of the Tier 1s on it, James.

Yeah, James, I'll just jump in here to say that as part of Goodyear Forward, you may remember on the walk as part of our November announcement last year, we talked about a reduction in revenue, primarily in the US of about $200 million, which equates to about 2 million to 3 million units of intentional volume loss, and that's fixing the unprofitable volume that was in our footprint as part of Goodyear Forward. I think broadly, your question around just the generational shift, I'd say, the sell-in is way outperforming what we're seeing on sellout. I mean we're seeing VMT kind of up about 1% over the last year and sell-in up 3 to 4 points globally. And so that's a whole lot of pre-buy going on with the low-end products. I think that says a lot about distributor behavior because what we tend to see is distributors overstocking in and around inflationary environments, of course, which we've been in, but also there's potential speculation related to elections here today. And so we'll continue to watch the regulatory environment and the macro environment over the coming quarters.

That's very helpful. My next question is about price/mix versus raw materials. For the fourth quarter, the guidance indicates a net $115 million headwind, which is notable since we haven't experienced a negative figure like this since the second quarter of 2019. What is causing this change for the fourth quarter, and how should we consider this for next year, particularly in the first half, where we anticipate a $300 million raw materials headwind? How could price/mix factor into this situation for the first half? Thank you.

Yeah. As we look to the first of it as we said earlier, right, I mean, it's more than just the raw material going into the pricing equation, right? We've got many factors going in. It is our product position in the marketplace. It is making sure through our public web scrapes and constantly viewing the market and also the tech needed going into development in terms of what it's costing to bring things to market. As I mentioned with John, James, we have really been attacking that underlying cost structure of what it costs to bring products to market as well as the actual cost to convert on those. So when you add all of those things together, we continue to take it on a SKU by SKU competitive level of where we will take pricing and where we won't take pricing with that. So just as the normal course of business with that and that flows into our regular governance process for that, right? But we want to make sure that we've got the products competitively priced for our end consumers.

Yeah, James, please continue.

No, no. Please.

I was just going to jump in to say that as a reminder, about 30% of our business covered through OE RMI contracts. So that can help you think about how to play that through without any new price increases announcements we don't articulate what we're thinking about for pricing in advance. And I'd say the other comment on raw materials still is just given the sell-in and the sell-out dynamics we talked about earlier was sell-in being so much higher than sell-out, I think that's influencing raw material prices as well. And I would expect commodity pricing to normalize as pre-buy of lower import stabilizes as well. But go ahead and ask your follow-up.

Appreciate it. Yeah, so just on CapEx. So I thought the prior view might have been for 2025 CapEx to trend similarly to this year at that $1.25 billion range. You did confirm or indicated in the deck that next year's CapEx should trend below $1 billion. So maybe that's a $300 million-type cut to your CapEx. So what's driving that? And then for this year's guide, the working capital is now a use of cash of $150 million to $200 million, is that associated with the ATD receivable? And does that get made up next year? That's it for me. Thanks.

Yeah, I'll take the cash question. So, working capital, you're right, there, the guidance would have been sort of a stable level in 2025. Now we're saying something lower than D&A or less than $1 billion. I think part of that driven by the trends in volume. But I also think a part of that is driven by a lot of the Goodyear Forward work inside of the company as we've looked at how we've been allocating capital. Mark and I have concluded that we need to reassess our standards and our processes to ensure we're getting the best cost outcomes in all of our cases. I think we're challenging a lot our assumptions around capital spend. That means we go back to designing for lowest cost as opposed to a process maybe where in the past, there might have been more customization involved that wasn't necessarily adding to the return. So all is to say we're focused on generating a very strong free cash flow next year, excluding restructuring. And we're focused on moving to a more disciplined capital allocation process and I expect that to benefit our spend even as we move beyond 2025 as well.

James, I'd like to add a bit from the perspective of manufacturing, engineering, and procurement. As Christina pointed out, the Goodyear Forward teams across our five work streams are helping us explore new ways of operating. Over the past month and a half, Christina, our staff, and I have traveled through Europe, Eastern Europe, the Middle East, and Asia to meet with our equipment suppliers and purchasing teams. We've visited factories to examine our best processes. The procurement team has been excellent in identifying alternative second and third sources in collaboration with engineering and our standards team to redefine our standards and evaluate costs. We've also engaged new personnel to assist our teams in completing these processes, significantly reducing our typical annual CapEx spending. Additionally, our product engineering teams are focused on identifying bottlenecks in processes. For instance, we visited a tire mold factory two weeks ago to analyze bottleneck operations and implement improvements that could enhance our tire mold capabilities by over 20%. These efforts will meaningfully impact the amount of CapEx required to bring our products to market, James.

James, just to follow up on that working capital question. So our guidance is for a use of $150 million to $200 million this year. I'd say that's driven by two factors. One is the timing of production cuts. And the second is just a planned build in finished goods inventories ahead of actions we expect to take early next year to reduce our structural costs. And no announcements at this time, but I think all related to Goodyear Forward, and we would expect to recoup that use of working capital in 2025. So no net change and a good free cash flow generation again in 2025.

Thank you.

Thank you. We'll take our next question from Douglas Karson with Bank of America. Your line is open.

Great. Thanks, guys. I wanted to maybe talk about the Goodyear Forward program a little bit. It's an impressive program and an important strategic initiative. And maybe if we can go to just to Slide 6. The biggest line item there is footprint and plant optimization, and it looks like it could be a $500 million number annualized in 2025. Can you just give us a little thought around what that plant optimization could look like and how you're going to try to achieve that? And then I have a follow-up on inventories.

When we examine the Goodyear Forward plan, we have already completed two significant restructuring activities related to plant rationalizations. Firstly, all discussions with the government and unions are finalized, and we are now in the execution phase. Additionally, we have recently closed our Malaysia plant, which we anticipate will be fully completed by September and is currently in the land sale process. Looking ahead, we will continue to assess our global capacity needs through our modernization efforts, which have been emphasized as a critical aspect of the Goodyear Forward strategy, particularly regarding automation and equipment standards. In summary, we will keep evaluating and implementing necessary actions to maintain our competitiveness.

Great. If I could just ask one or two more. The net leverage target is a great target, 2 to 2.5 net leverage by the end of 2025. Is there a reason you're committed to such a low leverage? Your number that's pretty low relative to your historic leverage for many high-yield companies. I just want to maybe take a look at that kind of big picture.

I believe that the interest rate environment and our access to capital are significant factors in our aim to achieve a more investment-grade credit rating or balance sheet. When we examine the Tier 1 space, our main competitors also have balance sheets that are levered by less than two turns. Therefore, the competitive dynamics require us to be positioned equally as we consider fixed asset coverage and interest coverage costs. Additionally, our objective following the acquisition of Cooper was to reduce net leverage below three times. During our strategic and operational review last year, we identified three different assets for divestiture that will help us reach this lower target within a few years. All these factors combined will result in a healthy leverage position for us by the end of next year.

That's great. That's great. And just last question for me. As far as inventory in the system or in the market, do you think we're kind of heading towards normalization there? How do you feel about the inventory picture? Looks like you're doing some great changes on your mix and kind of going upscale to some more premium product. But just maybe a little color on inventories and how that could affect global unit volumes?

To begin with EMEA, last year inventory levels were significantly higher, but currently, overall channel inventory in EMEA is about 10% lower than the previous year due to destocking efforts. Winter inventories are approximately 15% lower as well. We have been actively working to build that inventory for the winter selling season, and sellout trends have been strong. In the US, as Christina noted, overall channel inventory is quite high, particularly in the low-end tiers, likely due to some pre-buy activity. However, when we assess our inventory levels, we find that we are in a good position with no significant overstock or destocking issues; things are relatively stable. Christina?

No, I agree with that. Doug, as we mentioned earlier, many distributors have purchased a lot of low-end inventory in advance, and I believe it will take a few quarters to work through that. Our inventory is generally very healthy, particularly in EMEA, where Mark noted that winter inventory levels are quite low.

Okay. Very helpful. That’s it for me. Appreciate the answers.

Thanks, Doug.

Thank you.

We'll take our next question from Ryan Brinkman with JPMorgan. Your line is open.

Great. Thanks for taking my questions. It was encouraging to see the margin expansion in the Americas despite the 8.3% volume decline in the quarter. It's clear you and other US TMA members continue to destock. But with the non-US TMA tires seemingly continuing to build there in the channel or at least certainly not destock, I'm just curious what you think that those latest changes in channel inventory and demand imply for the industry pricing and shipment backdrop next year versus what backdrop might be needed for you to achieve your 2025 end margin targets?

Thank you, Ryan. When we analyze pricing and consumer behaviors, we see that Tier 1 and upper Tier 2 products differ significantly from lower Tier 3 and Tier 4 entry-level products regarding value. As Christina highlighted and I mentioned earlier, we are focused on increasing our stock-keeping units in the higher market segments, particularly those specialized products, by leveraging our global capabilities for the best cost. For our MasterCraft brand's Tier 2 offerings, we will continue to efficiently supply SKUs for customers who seek those products while ensuring profitability.

Great. Thanks. And then with the definitive agreement for the sale of the OTR business now behind you and understanding you are, of course, limited in what you can share with regard to the two other planned dispositions, specifically, are you maybe able to update, though, regarding your approach to the process generally? So for example, would you say that the timing for the overall process is tracking roughly as expected or maybe if you might be more focused on maximizing proceeds or finding the correct fit versus completing the transaction within a set period of time? Or how should investors be thinking about the process generally?

Hi, Ryan, I'll jump in here. And I think all of those variables you just talked about are important for us. When we think about the other two asset sales in general, I'd say we are where we expected to be at this point in the process. And we continue to feel really confident about our ability to meet our objectives. We're certainly focused, first, on driving the right value for our shareholders, and we'll take the time that's required to that end.

Okay. Thanks. And then just finally, I was intrigued by the comments in the prepared remarks about the retail operations serving the retail customers by day, I guess, I should call it the company-owned stores, and the fleet customers by night. Maybe you could expand upon that? I recall at the time of the Goodyear Forward plan when it was first unveiled you'd identified a number of opportunities to improve the operations and profitability of the company-owned stores as a reason to not sell them. With the fleet services, including last mile delivery being maybe the biggest such opportunity, is there an update you can give on the profitability of your company-owned stores or their relative success? And as you continue to make progress here, hopefully, does that make the retail stores just to kind of dress them up, makes them more attractive as a disposition candidate given their greater profitability and so maybe implied greater potential proceeds or does it make them more attractive to retain given their growing benefits to the core operations?

So, Ryan, I'll address the profitability. We discussed a $20 million year-over-year increase in sales, which is primarily leverage. Much of that is reflecting in our bottom line. We don't share retail profitability details. I’ll now hand it over to Mark to discuss our opportunities to further scale and grow retail since that factor is relevant when considering optimal times to sell. We see significant potential for growth in our footprint independently. Mark?

Yeah, sure. Yeah, Ryan, we have really been focused during this year on the retail opportunities coming in a little bit from my background in my former life side of Ryan Waldron and myself together with Fred and John and the retail team and Alex have really been diving in on a week-by-week basis, making sure that we are leveraging those opportunities, right, when it comes to customer service. So let's break it into the two segments, right? The normalized kind of Goodyear Auto Service Center and then the leveraging for the fleet business, both are going very well. So really great that we've got our store managers out there performing very strongly with their teams. We have changed how we go to market with them in terms of the KPIs that we're tracking, in terms of the data and analytics that we're scraping and sharing with those teams, so they know where they stand in the market. We've increased our service on our base business, not only in just pushing tires but really improving our value-add across the network and really have those in great shape for that. Then you add on the locations that have already been doing double duty now, as I mentioned, with a quote, well-known, last mile fleet to start. And we're talking 600, 700 appointments a day as we look at that and continuing to grow that, and we see that as a great area of growth for us, a profitable growth for us. At the same time, we see our existing retail business also in very much a favorable growth mode in terms of the value-add proposition and the bottom line earnings. So absolutely, it's a key part of our long-term strategic growth, and we'll continue to reassess that as we said, right, about where is the best home for that. At the moment, that best home is absolutely with us. And my plan is for us to prepare and keep moving forward and do even more of what the team has been successful at over these last eight months or so as we've made the transitions there. So really proud of our retail team.

Great. Very helpful. Thank you.

We'll take our next question from Emmanuel Rosner with Wolfe Research. Your line is open.

Thank you very much. My first question is on free cash flow. It was a decently large use this quarter. Can you talk to us a little bit about what's going on, what the outlook is not just in the near term, but just into next year as well. I believe Christina, you mentioned positive free cash flow next year. Did I hear the strike? And then what would be the levers and drivers to improve free cash flow and leverage from here?

Hi Emmanuel. I'll begin with the quarter. In the third quarter, our free cash flow was a negative $340 million, compared to a negative $41 million last year. There are two main factors behind this change: the first is increased rationalization payments. As part of our Goodyear Forward initiative, we've announced several structural rationalizations and have seen an increased use of working capital. Rationalization payments and Goodyear Forward costs were approximately $100 million higher, and working capital was $75 million higher. The remainder is due to the timing of tax payments, interest expense payments, and other balance sheet accruals, but there are no significant changes apart from timing. We are confident in our expectations for strong free cash flow in the fourth quarter, aligning with our historical trends. Our full-year free cash flow guidance remains stable compared to what we provided during our Q2 call. Looking ahead to 2025, we expect to recover the working capital outflows in 2024 and are also reducing our capital expenditures to below $1 billion, a decrease of about $300 million year-over-year. We anticipate strong free cash flow next year. We've announced restructurings of $400 million, which will impact our free cash flow, but this could rise to $700 million, with some occurring in 2025 and possibly in 2026. We will keep you updated on our plans regarding structural costs, but we remain optimistic about our cash flow.

Okay. Just a quick follow-up on this restructuring spend. Can you just remind us how much is sort of like left to spend after 2024 is done?

So right now, we've said that we'll spend about $1 billion in restructuring over the course of the program. So it's inclusive of the guidance today for 2024. Next year, we've announced about $400 million in cash out. There could be some other structural cost announcements that could add to that next year or in 2026. And we'll just have to continue to keep you posted as to the timing of those outflows. But expect no more than $1 billion under the total program between 2024 and 2026, maybe early 2026.

Thank you. I have a follow-up regarding volume. I understand some of the reasons behind the volume weakness and the strategy you're implementing to target the more profitable segments. However, it’s challenging for us to determine when volume will no longer be a significant burden that counteracts the benefits from your substantial cost reductions. Previously, you suggested that you would likely have reached this point by now, where volume would not significantly underperform compared to the industry, yet it still is and is expected to continue doing so. How should we view this situation? When do you anticipate completing your initiatives? To what extent is the volume issue a result of Goodyear’s actions versus overall industry trends? When can we expect volume to stop being a factor that negates the positive impacts of your cost-cutting measures?

I believe you articulated it well, Emmanuel. Regarding the distinction between the industry and Goodyear's brand, let me provide a clear example with WeatherReady 2. As we noted, we're seeing an increase in SKU coverage, approximately 50% to 60% more, with new award-winning products entering the marketplace. Currently, we have 40 of those SKUs available for sale, and by year-end, that number will rise to 58. By the end of the first quarter next year, we anticipate reaching 78, up from about 50 previously. This means we're expanding our market presence significantly. Our data analytics and marketing teams, along with our consumer sales teams, are actively analyzing the market to identify gaps in fitments based on car park data and replacement cycles. In summary, WeatherReady 2 exemplifies our efforts in strategically filling those gaps. Additionally, we have over 90 SKUs coming from EMEA with high-end fitments that will be available in the market from December to February next year, continuing through to early 2026.

And so regarding timing, I appreciate this insight. Do you think that on the other side...

We currently do not have a specific process for the actions we are taking from the point of releasing product development to the refreshing and updating of our existing power line SKUs. This includes both refreshing current SKUs and introducing new ones to the market while being careful with our manufacturing capacity to avoid overwhelming our plants. We are coordinating these efforts to ensure that we do not create setbacks in production. Overall, I believe it will take us about 1.5 years to achieve our desired position.

Okay. Thank you.

Thank you. We'll take our last question from Ross MacDonald with Morgan Stanley. Your line is open.

Yes, thank you for taking the questions. It's Ross at Morgan Stanley. A quick one on SKU rationalization. Could you maybe help steer us in terms of the volume you're currently doing in 18-inch and above in the US and how much open road do you see for growth there? Just be helpful, I think, to understand where we're starting from and where you want to be in a couple of years' time? Thanks.

Hi, Ross, so I have the stats for North America and Goodyear branded products, 57% greater than 18-inch, but across the portfolio, which would include Cooper and all of our family of brands, we're at about 46% greater than 18 inch. So a lot of runway to grow here in North America going forward. That's in a pretty big contrast. If I go to the other end, like in China, for example, we're already 80% greater than 18-inch and that's just given the car part they're more heavily skewed to OE.

That's helpful. Thank you. And then final question, just on the disposals. Again, I appreciate you're slightly restricted in what you can say. But specifically on Dunlop, you'd previously guided us towards that business, which is predominantly Europe focused, I believe, doing annual sales of around $700 million. Would that still be the best estimate for 2025 given the budget share gains that we're seeing in Europe? And related, you mentioned that business we're seeing something like a mid-single-digit margin. I guess how should we think about the Dunlop margin profile next year given the budget dynamics that you laid out earlier? Thank you.

Dunlop represents approximately 5 million units for us, primarily focused in EMEA. Over the past year, we have shifted Dunlop into the Tier 2 segment of the market, leading to share growth in that area. The products are performing exceptionally well. I anticipate that revenue will increase somewhat due to the unit volume rises we have observed since our last discussion about the brand at the end of last year. Margins remain healthy, particularly on a gross margin basis when compared to the rest of our portfolio. This remains a key focus for us as we aim to enhance the strategic positioning of our brand families and continue our strategic review process for potential divestiture.

Thanks very much. Maybe a very, very quick follow-up just on the mix question. Would you consider in your EBIT bridge splitting out what is net price versus what is mix? I know some of your Tier 1 competitors do that, would just be helpful maybe to showcase what is structural to help us see the evidence of that mix coming through. Thank you.

We typically avoid making explicit comments about pricing, especially given our market share in the US and the ongoing scrutiny surrounding pricing discussions.

All right. Understood. Thanks very much.

All right. Thank you.

No, that is it guys. Thank you guys for calling. Especially I know some of you guys are out at the SEMA Show, it's quite early for you. But we want to thank everybody for joining and thanks for the great questions today. Look forward to talking to you in Quarter Four.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.