Earnings Call Transcript - GT Q1 2025

Operator, Operator

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. Please note this call may be recorded. It is now my pleasure to turn the conference over to Greg Shank, Senior Director, Investor Relations.

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.

Mark Stewart, CEO

Thank you, Greg, and good morning everyone. 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. That segment, as you know, is very important for us and we outperformed industry members in the quarter. Delivering outsized growth in this profitable segment is key to our strategy, and we're making tremendous progress as we work towards fully unlocking our potential to maximize the larger rim size opportunities. To do that, we're demanding efficiency in our manufacturing operations and achieving that. We're leveraging the strength of our global business and our product offerings and partnering with aligned distributors to ensure our products are available to consumers across all market channels. We've also assigned David Anckaert to be our product strategy leader. Coming from a strong background in engineering as well as consumer sales EMEA, David is leading the charge for that with us together with our engineering leader, Chris Helsel. As we shared with you on our last call, one of the ways we're driving growth in the premium segment is through an unprecedented number of new product launches. As one example, this quarter, we extended the lineup of our industry-leading ultra-high-performance summer tire, the Goodyear Eagle F1 Asymmetric 6. We will increase this line's offering to nearly 250 SKUs this year, making it the largest ultra-high-performance summer tire offering ever in Goodyear's history. This tire comes with an entitlement to compete. Our products are perfectly positioned and continue to set the benchmark in the industry. The Asymmetric 6 was recently awarded Auto Bild's top spot in this year's summer tire test. It has also propelled Goodyear to being named the top manufacturer of the Year for the 2025 Summer Season. As you all know, we have planned for multiple product launches in the U.S. this year. As we build out our suite of power lines, we're also growing our offering of Cooper products as well. Sellout of Cooper-branded products during the first quarter at retail was strong, in fact, has been gaining momentum. We have very high expectations for this offering in the coming quarters. Turning our views on the U.S. replacement industry moving forward, we don't yet have a clear read as to whether import flows coming into the U.S. are slowing based on recently announced tariffs. Our base case assumes there's still some lag due to the long supply chains, particularly out of Southeast Asia. In any case, the timing is right to evolve and build out our product portfolio. Likewise, the timing is right, as we discussed with you last quarter, for the ramp-up of our U.S. factory modernization programs, increasing our capacity by 10 million additional premium tires this year in 2025 and next year in 2026. The timing is also right as we've made major upgrades as to how we're connecting with our consumers. You may have noticed we recently launched an awesome marketing campaign called 'STILL Goodyear,' which launched during the NFL draft a few weeks back. It's truly a powerful testament to Goodyear's legacy and our excellence in performance and innovation. In short, we're focused on each of the elements critical to driving success in our U.S. business, and we are ready to capture all opportunities for profitable volume as the year unfolds. Before I move on from replacement, I wanted to briefly comment on our Asia-Pacific business, where we saw the majority of our replacement volume decline during the quarter. Asia-Pacific's lower volume was largely driven by intentional choices we made as a team to exit less profitable, low-margin replacement business outside of China. Like our other region, AP is focused on power line introduction in new luxury and EV products, where we saw 25% growth in volume during the quarter. With this momentum, we expect to see sequential improvements in Q2 with a gearing again towards growth in the second half of the year. As we look at Asia-Pacific's performance for the quarter and after adjusting their results for the sale of the OTR business, the region delivered year-over-year earnings growth and SOI margin improvements of about 200 basis points. Looking ahead, it's nearly certain that we will continue to see some volatility in our markets related to U.S. trade policy for Goodyear, as the largest U.S. manufacturer already delivering on a turnaround through a major transformation program, it's also clear that we have a lot of opportunity in front of us. Underpinning all of the improvements we are making to the core business is the success of the Goodyear Forward program. We are now six quarters in, and we have met or exceeded each of our quarterly targets along the way. It is not only that we're delivering on our planned savings, we're also changing the expectations to a culture of high performance here at Goodyear to one of no excuses, and to one where we are always focused on winning as we've defined winning. We will continue to diligently adapt to the global trade landscape and developments in the macroeconomic environment, ensuring we take action to mitigate headwinds when required, but more importantly, ensuring that we are squarely lined up to take advantage of every opportunity the market affords going forward. 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.

Christina Zamarro, CFO

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 by $46 million, which relates to Goodyear Forward. Segment operating income for the quarter was $195 million and slightly ahead of our expectations. Goodyear's net income increased to $115 million, driven by a $260 million gain on the sale of the OTR business. Our results were impacted by other significant items, including rationalization charges of $81 million. After adjusting for these items, our loss per share was $0.04. Turning to the segment operating income walk on Slide 10. The sale of the OTR business reduced earnings by $12 million during the first quarter. After this change in scope, our segment operating income declined by $40 million versus last year. Lower tire unit volume and factory utilization were a headwind of $52 million. Price/mix was $68 million, driven by pricing actions across our key markets. This partly offset higher raw material costs of $181 million. Goodyear Forward initiatives contributed $200 million. Inflation and other costs were a headwind of $55 million, and other SOI was a headwind of $8 million. Turning to the cash flow and balance sheet on Slide 11. Our free cash flow use was relatively stable versus last year and reflects seasonal increases in working capital. Pro forma for the Dunlop transaction, our first-quarter net debt declined almost $1 billion, which reflects the proceeds from asset sales this year, net of cash used for working capital and restructuring as part of Goodyear Forward over the last 12 months. Earlier in the quarter, we used the proceeds from the sale of OTR to repay $500 million outstanding on our 9.5% notes, and the remainder was used to reduce balances on our revolving credit lines. We'll use the proceeds from the Dunlop sale to address upcoming debt maturities. Moving to the SBU results on Slide 13. Americas unit volume decreased by 600,000 units, driven by consumer replacement. The U.S. consumer replacement industry was relatively flat in the quarter, although low-end imports outperformed the industry and grew approximately 10%. In this environment, we continue to focus on the premium segment of the market, driving growth ahead of U.S. TMA members in the larger rim sizes. Commercial OEM replacement volume declined following industry weakness. Segment operating income was $155 million or 6.2% of sales, a decrease of $24 million compared to last year. On Slide 14, EMEA's first-quarter unit volume decreased by 2%. Europe's consumer replacement industry grew 5%, reflecting high single-digit growth of low-end imports. Our OE volume grew despite significant contraction in the industry as new fitment wins ramped up production during the first quarter. Segment operating income was a loss of $5 million, decreasing by $13 million versus last year, driven by higher raw material costs. Turning to Asia-Pacific on Slide 15. First-quarter unit volume decreased by 12%, driven by replacement volume, which reflects a strategic decision to exit less profitable business and channel destocking. OE volume was also lower despite overall industry growth given our customer mix. Segment operating income was $45 million and 9.5% of sales. Excluding the sale of the OTR business, Asia-Pacific's segment operating income increased slightly and SOI margin grew nearly 200 basis points. Before we turn to the outlook, I wanted to provide some context on the impact of Section 232 tariffs on the industry and on our own business based on the rates effective today. In total, the U.S. consumer tire industry includes about 300 million tires in OE and replacement, and we estimate that just over 50% of that supply is sourced from non-USMCA countries. We sell about 60 million units in the U.S. annually. As for our sourcing, about 12% of our supply for the U.S. is sourced from non-USMCA countries. Our factories in Canada and Mexico are fully compliant with USMCA. In effect, this means that Goodyear's U.S. tariff exposure equates to about one-quarter of the average for the industry. This is no doubt a significant advantage for our U.S. business going forward. In addition to tariffs on consumer tires, we will also incur tariffs on imported raw materials and to a lesser extent, commercial tires. In aggregate, we expect annualized costs of approximately $300 million based on our planned sourcing and tariff rates applicable today. As we look at our outlook for 2025, we continue to expect to deliver our Goodyear Forward targets of 10% SOI margin and net leverage of under 2.5 times in the fourth quarter of this year and earnings in line with the $1.3 billion referenced during our fourth-quarter call. With our favorable relative positioning, we could see upside to our plan from price/mix opportunities or from higher volume. We've assumed price/mix of about $150 million in the third and fourth quarters, which reflects the realization of our announced pricing to date. We've also assumed our second-half volume will be about flat as we prioritize our revenue per tire to offset higher costs. We are presenting a more balanced view for the near term, given an expectation for sell-through of pre-buy in the second and third quarters and the potential for increased competitive pressure in our international businesses, particularly as tires originally destined for the U.S. may be redirected to other locations. I'll note that we continue to anticipate that the European Commission may make a consumer tire tariff determination as to unfair competition in the coming months. Turning to the second-quarter outlook. We expect global unit volumes to decline approximately 2% given elevated wholesale channel inventories in the U.S. and lower volume in Asia-Pacific. In addition, we expect higher unabsorbed fixed costs of $20 million, driven by lower production during the first quarter. Price/mix is expected to be a benefit of about $135 million, driven by the benefit of recent pricing actions and raw material index contracts with OE and fleet customers. Raw material costs will increase approximately $180 million, driven by natural rubber price increases and currency transaction costs. At current spot and currency rates, Q3 raw materials will be a headwind of $50 million, and Q4 raw materials will flip to a benefit of about $25 million. Goodyear Forward will drive benefits of approximately $190 million, reflecting continued progress across all of our work streams. Inflation, tariff, and other costs are expected to be a headwind of approximately $120 million, reflecting higher costs given U.S. tariff impacts on finished goods and raw materials, and a global inflation rate of about 3%. In addition, this amount captures increases in transportation costs and transitory manufacturing costs associated with the announced facility closures. If current tariff rates hold, these costs will be approximately $175 million in Q3 and about the same level in the fourth quarter. Foreign exchange will be a headwind of approximately $10 million. Other will be a headwind of $15 million, driven by increases in marketing and other miscellaneous costs. Finally, the non-recurrence of insurance proceeds received last year will be $63 million, and the sale of OTR is $23 million. Looking beyond Q2, we expect significant benefits in price/mix and from Goodyear Forward, which will support solid earnings growth, positive free cash flow generation for the year, and significant margin expansion. Other financial assumptions on Slide 18 have been updated to reflect our latest estimate for working capital, which has been adjusted for the impact of tariffs on our working capital. With that, we'll open the line for your questions.

James Picariello, Analyst, 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.

Christina Zamarro, CFO

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

James Picariello, Analyst, BNP Paribas

Okay. Are you seeing your competition also adjust their prices? I assume everyone is making some pricing changes, especially with tariffs influencing the market. Could you provide some insights on the competitive pricing situation? Raw material costs are now projected to be about $100 million lower for the full year. If you could elaborate on that, I would appreciate it. Thanks.

Christina Zamarro, CFO

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 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. I think that based on our analysis of the competitive set, our competitors will be anywhere in the area of 3 to 4 times that level of exposure. And so there's a big need to go out there and offset some of this cost. There's just so much many imports coming into the U.S.

James Picariello, Analyst, BNP Paribas

Yes. Given your significant presence in the U.S., I believe there will be opportunities to gain market share. I have a clarifying question regarding tariffs. In the $120 million allocated for inflation and other expenses for the second quarter, what specific items are included as tariffs? And for the entire year, could you provide the same clarification? Thank you.

Christina Zamarro, CFO

Sure. So, I'll take you through all of the basket of inflation, tariffs and other costs. I'll start with the annual, James. Our annual inflation runs about $225 million. That's 3% on our cost base. Then the tariff, we've already said $300 million in annualized cost. If you do the math on Q2 for modeling, you should get to a number 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 costs 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 in the second half at the same time, and that's the ramp down of two factories in Germany, one in the U.S. and that temporarily creates inefficiencies in our factories, increasing 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. Sure.

Itay Michaeli, Analyst, 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.

Mark Stewart, CEO

Yes. I can begin, and then Christina can highlight a few points. Good morning to everyone. As you mentioned, we believe we are in a very strong position, especially with the largest footprint in the U.S. We have been on this journey for the past couple of years. In 2025 and 2026, we plan to continue upgrading our U.S. facilities, focusing on about 10 million high-value tires with larger rim sizes that will allow us to compete more effectively in the market. As we have discussed, there is a significant number of new high rim sizes being introduced in the U.S., and with our large presence there, we are looking for opportunities. However, we also aim to manage this carefully by monitoring it monthly and collaborating with our customers, distributors, and retailers.

Itay Michaeli, Analyst, TD Cowen

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.

Christina Zamarro, CFO

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 Q2 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. 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 years.

Mark Stewart, CEO

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, and the Ford F-150s. In the first quarter, we had about 0.5 points of share growth in that OE segment. That should flow on through in the replacement cycles as well.

Itay Michaeli, Analyst, TD Cowen

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

Ryan Brinkman, Analyst, JPMorgan

Hi, thanks for taking my questions. Regarding the $300 million of annualized tariff costs on finished goods, COGS, and raw materials mentioned in your remarks, I understand these costs are starting now, while the pricing gains may take longer to materialize due to the inventory built up during the pre-buy period before and after the election. I'm interested in your thoughts on how this situation will evolve, specifically regarding the amount of low-cost tires in the system compared to normal levels, and how long it may take for the industry to reduce those elevated inventory levels. Once we do manage to work through the oversupply, what pricing gains do you anticipate in relation to the $300 million increase in costs, considering your costs will rise less than the industry's? Are you expecting the pricing gains to exceed $300 million, or do you foresee potential share gains? Is there a reason to reconsider the long-term 10% SOI margin target? What are your thoughts?

Mark Stewart, CEO

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

Christina Zamarro, CFO

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

Mark Stewart, CEO

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. Christina, if you want to cover the rest of that section, and I'll chime in some more here.

Christina Zamarro, CFO

Sure. We discussed the $300 million, with $240 million allocated for replacement. We've announced a 4% price increase in the U.S. effective May 1, which is projected to generate $220 million based on our modeling assumptions. Additionally, we have price increases in our commercial sector and opportunities to enhance our pricing/mix with OE customers. We feel confident about our commercial prospects and have successfully increased pricing there as well. We are committed to exploring every opportunity to expand our business and improve our pricing/mix. Regarding our guidance, we expect the pre-buy flow-through to continue into the third quarter. Thus far, we haven't seen a reduction in imports. The tariffs will take effect on May 3, so we might start to observe changes post that date, but currently, we haven't seen a decline in ocean freight rates from Southeast Asia, which would suggest a slowdown in tire imports into the U.S. We anticipate needing at least until the third quarter to see these effects. You inquired about the balance between tariffs as affecting price or volume opportunities. I would say that Goodyear branded products have performed exceptionally well. Mark mentioned our plans for increased capacity in the U.S. over the next year or two, which already includes substantial growth for Goodyear-branded products. The supply/demand dynamics in that area are strong, and we intend to focus on boosting revenue per tire through pricing and mix strategies. For mid-tier products, if distributors raise prices on low-end products, it makes our Cooper offering significantly more appealing. We do have some additional capacity for those scenarios and will analyze the economics of pricing/mix and volume to optimize our earnings. While Cooper doesn't directly compete with Tier 3 and Tier 4 tires, its attractive value proposition certainly presents us with various opportunities.

Ryan Brinkman, Analyst, JPMorgan

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?

Christina Zamarro, CFO

Thanks, Ryan. I mentioned in the prepared remarks that our Chemical process is ongoing. 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. The current environment, whether you're looking at chem prices, or 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. So that makes it inherently more valuable. But as part of that strategic and operating review committee, that we held back in 2023, we concluded that the chem business was non-core. 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.

Unidentified Analyst, Analyst, Deutsche Bank

Morning. This is James 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?

Mark Stewart, CEO

Yes, thanks, James. As we mentioned, the SKU rationalization primarily affected regions outside of China. We are undergoing similar efforts in both the Americas and EMEA. As we've previously shared, we are making progress with platforming certain SKUs and considering the retirement of older ones as we introduce newer SKUs into the market. I’m pleased with the positive results and performance we’re seeing from this strategy. We are definitely continuing these efforts. With David Anckaert leading our Product Technology roadmap, we are focusing on optimizing the number of SKUs and reducing complexity in our manufacturing processes to enhance efficiency. Additionally, we aim to ensure our marketing teams convey the right messaging in the market, offering suitable products to our customers while decluttering our offerings. You will see more developments in this area.

Unidentified Analyst, Analyst, Deutsche Bank

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?

Mark Stewart, CEO

Yes. That 10 million units is actually going more to your first question. 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 come up in the marketplace of other tires coming in. Part of that $10 million is really centered primarily around our Lawton facility where we've been doing that massive modernization activity.

Emmanuel Rosner, Analyst, Wolfe Research

Thank you very much. Good morning, and I appreciate the detailed outlook. Christina, could you clarify a couple of points? Specifically, while Q2 SOI appears similar to Q1 and seems somewhat retrospective, what would we expect the sequential progress to be towards achieving your double-digit SOI margin by the fourth quarter? I'm also interested in an updated free cash flow outlook, particularly regarding any changes related to working capital.

Christina Zamarro, CFO

Sure, Emmanuel. Thanks. Good morning. When you look at the sequential earnings from the second quarter, either in the third or the fourth, I'd say two main drivers. 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. 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. In the second quarter, we're 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.

Emmanuel Rosner, Analyst, Wolfe Research

Thank you. And on the free cash flow side?

Christina Zamarro, CFO

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.

Emmanuel Rosner, Analyst, Wolfe Research

Got it. Could you provide more insights on how you plan to leverage this tariff competitive advantage? It seems that your full-year guidance reflects increased direct costs being offset by pricing, resulting in a one-for-one offset. However, since your costs are rising less than those of most competitors, you have a competitive edge. You also mentioned potential upside risk. Once your costs are covered, how will you decide to allocate the additional opportunities?

Mark Stewart, CEO

Yes. We're taking a look at it really from multiple angles, 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, making sure we've got the right pricing position and the value for the customer. We 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. 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. 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.

Emmanuel Rosner, Analyst, Wolfe Research

Got it. Thank you.

Wesley Brooks, Analyst, 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 of 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?

Christina Zamarro, CFO

Good morning, this is Christina. In Europe, we have some lower-tier brands, primarily our Sava and other brands that focus on Eastern European countries. These are likely to compete with some of the Tier 3 and Tier 4 products entering Europe. Overall, if you look at our volume, specifically for 2024 in the consumer segment within Europe, about 35% to 40% is from Goodyear and Cooper branded products, while the remaining 12% comes from these brands that are more vulnerable to Tier 3 and Tier 4 imports.

Wesley Brooks, Analyst, HSBC

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. 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?

Christina Zamarro, CFO

It's a great question. I would say that variability in Corporate/Other is very typical, and it relates to the incentive compensation accruals, which can be higher at the beginning or the end of the year based on our performance. This year, our Corporate/Other is more weighted toward the first half.

Wesley Brooks, Analyst, HSBC

Okay, thanks. I have one last quick question about the Chemical business sale. With the changing environment around tariffs and the market, does that affect your strategy? Is it still a viable option? Also, do you have any updated information on the timing of this?

Christina Zamarro, CFO

Sure. 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. 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.

Operator, Operator

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.

Mark Stewart, CEO

Okay. Thank you. 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.

Operator, Operator

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