Earnings Call Transcript - GT Q4 2025

Operator, Operator

Good morning, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Fourth Quarter 2025 Earnings Conference Call. Please note, this call will be recorded. It is now my pleasure to turn the conference over to Mr. Ryan Reed, Vice President, Investor Relations. Please go ahead, sir.

Ryan Reed, Vice President, Investor Relations

Thank you, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our SEC filings. Our earnings materials, including a replay of this call, can be found at investor.goodyear.com. With that, I'll hand the call over to Mark.

Mark Stewart, CEO and President

Thank you, Ryan, and good morning, everyone. We appreciate you joining our call. I will begin today with a brief overview of the financial results, then go through what we are observing across each of our business segments. After that, I will hand it over to Christina, who will provide insights into our fourth quarter financial results as well as the outlook for the fourth quarter. Let's start with the fourth quarter. We achieved fourth quarter revenue of $4.9 billion, and segment operating income of $416 million, which represents year-on-year organic growth of 18% and continued sequential growth in earnings and margin across all our regions. As I mentioned in the press release we issued yesterday, our fourth quarter results reflect the highest segment operating income and margin the company has seen in over 7 years, and our free cash flow was among the strongest on record. These results cap off a year of significant progress for Goodyear on various fronts. We executed diligently on Goodyear Forward, with our profit and loss commitments consistently ahead of schedule. To date, we have achieved $1.5 billion in run rate benefits under the program. We renewed our focus on high-value market segments and invigorated our product portfolio by launching 30% more new products than we've done in most of our company history. We also raised prices in the U.S. and Canada in response to tariffs, gained substantial market share in consumer original equipment in both the U.S. and Europe, refreshed our brand advertising and customer programs in key markets, and completed three major asset sales, returning the balance sheet to a healthier state reflective of our company's leadership in the industry. Controlling what we can control has been a recurring theme this year, as the industry environment has been and remains quite challenging. While I am encouraged by our strong fourth quarter results, it's clear that progress is not always linear in today’s environment. I will quickly share what we are seeing in the businesses and how that translates into the first quarter. Starting with the Americas, the consumer replacement market remained unpredictable in the fourth quarter. U.S. consumer sellout fell despite positive vehicle miles traveled. On the other hand, we observed increased sell-in discounting and promotional activity as we wrapped up the year, which amplified high levels of channel inventories. As we’ve stated, our emphasis has been on price mix and higher-margin tires, which means we will not compromise margins for short-term volume. The price mix in our fourth quarter results demonstrates that strategy and execution. In January, we experienced an industry sellout significantly weaker than Q4, down about 5% across the industry. Some of this can be attributed to the impact of the January storms and frigid temperatures nationwide, but it is also true that consumers are extending the life of their tires. Consequently, high channel inventories are leading dealers and distributors to take steps to reduce inventories in the first quarter. Similarly, trends in Americas commercial trucks remained very tough during the quarter. Heavy truck production in the U.S. dropped 17% in the fourth quarter as original equipment manufacturers continue to reduce their stock levels. In commercial replacement, the industry sell-in stabilized after being artificially elevated earlier in the year due to pre-tariff front-loading of imports. Despite the turbulent environment, we are committed to building our pipeline and maintaining discipline for sustained growth. This involves making the necessary adjustments in our product lineup and collaborating with customers to create a more resilient product portfolio than we’ve had previously. We are tightening our approach by clearly aligning products with market gaps and high-margin opportunities, overseeing our cross-functional operations, including product planning, technology, manufacturing, and marketing. This strategy ensures we deliver the right products to market at the right time, enabling us to grow where we can maximize returns. I am also focused on our manufacturing costs. We are instilling rigor within our teams to increase throughput, yields, and efficiencies on a factory-by-factory basis, optimizing how we manage costs for the best future outcomes. Moreover, we are expanding our team. Over the past several quarters, I have updated you on key hires that are helping to innovate Goodyear and reshape our business approach. Being our largest region, the Americas are crucial to Goodyear's performance. Moving forward, we are refining our leadership approach to enhance ownership, accelerate decision-making, and ensure more consistent execution. In January, Dave Cichocki joined our team and will lead the Americas and our consumer organization with a strong emphasis on sales execution, profitable growth, and alignment with our global strategy. Dave brings over 30 years of senior sales leadership experience from well-regarded industrial and consumer companies, with a proven record of building high-performance teams, modernizing go-to-market models, and driving sustainable, margin-focused growth, all of which align closely with the transformation taking place at Goodyear. I am confident that this leadership change positions the Americas organization for long-term value creation. Turning to EMEA, we saw softening sell-in trends within consumer replacement as companies anticipated EU duties on Chinese tires. Although the European Commission recently initiated an anti-subsidy investigation into Chinese passenger tires, the timeline for decisions on antidumping tariffs has been postponed until midyear. Our consumer original equipment volumes in EMEA continue to gain market share, increasing by approximately 3 percentage points. Fourth quarter marked the eighth consecutive quarter of market share gains in the region. Profitability in EMEA also increased sequentially during the fourth quarter. Analyzing the underlying operations, we are making steady progress with EMEA's fourth quarter segment operating income margin at its highest level in over 3 years. Additionally, we settled an important insurance claim during the quarter, which contributed to strong free cash flow by year-end. From a broader perspective, with two major factory restructuring actions in the region completed in 2025 and another underway in 2026, we are improving our cost structure. As the industry navigates elevated channel inventories from pre-buy activity, we expect high utilization of our consumer capacity in the region. In Asia Pacific, we achieved stronger performance with significant growth in segment operating income margin, benefiting from strategic decisions focused on margin performance. After a year of careful SKU rationalization, our consumer replacement volumes in the region have returned to growth. Consumer original equipment volume posed a challenge for Asia Pacific in 2025 as government incentives in China targeted lower-priced vehicles. We are dedicated to managing our costs to maximize margins and ensure strong returns in the region. Now, let's discuss Goodyear Forward. Our fourth quarter results showcase the broader transformation occurring across the company as we have intensified our focus on execution, made deliberate portfolio decisions, and prioritized sustainable margin performance. Over the past two years, we've significantly improved our execution, and I take pride in the discipline that has underpinned the Goodyear Forward plan, making this progress possible. Despite the market disruptions caused by tariffs and trade, which have led us to finish 2025 short of our targets, the successes achieved in the fourth quarter reinforce my belief in our ability to meet our commitments. As noted during our second quarter 2025 call, these objectives remain achievable, and we continue to pursue them with discipline and a strong commitment. There are two key drivers that can help us attain these goals: market improvement allowing us to recover profitable volumes and continued self-help. We are not waiting for the market. We are actively developing the next phase of our plan to drive further cost efficiencies while increasing the company’s focus on the most attractive segments of the tire market. As market disruptions subside and visibility improves, we anticipate sharing more details on our strategy, initiatives, and medium-term financial framework. Overall, while our Goodyear Forward plan has now completed its two-year run, we will continue to build a strengthened foundation. We are integrating the efficiencies, discipline, and precision from Goodyear Forward to foster a more sustainable earnings profile. With that, I will hand the call over to Christina.

Christina Zamarro, Executive Vice President and CFO

Thank you, Mark, and good morning, everyone. Our fourth quarter results reflect the execution of targeted actions to strengthen our business over the past 2 years. Goodyear Forward has provided significant benefits and debt reduction has situated us well compared to when we began the transformation just 2 short years ago. Turning to the fourth quarter results on Slide 8. Q4 sales were $4.9 billion, down 0.6% from last year, given lower volume and the sale of the OTR and chemicals businesses. Additionally, revenue per tire increased 4% in the quarter, driven by an 8% increase in consumer replacement. Unit volume declined 3%, driven by consumer replacement. In addition, Americas commercial volume declined 14%, reflecting ongoing market weakness. Consumer OE volume increased 2%, driven by share gains in EMEA. Gross margin increased 1 full point during the fourth quarter, driven by strong execution and price/mix and Goodyear Forward. Segment operating income was $416 million, which was up about 9% versus last year and up 18% adjusting for divestitures. SOI margin was 8.5% in the quarter and up 1 point, excluding asset sales. Our segment operating income in the quarter includes $56 million related to the settlement of a business interruption insurance claim, which we have excluded from adjusted earnings per share. After adjusting for this and other significant items, our non-GAAP earnings per share was $0.39. I'll note that we also received insurance proceeds of $52 million in the fourth quarter of 2024. Turning to the segment operating income walk on Slide 9. Our 2024 earnings base was lower by $30 million due to the sales of OTR and Chemicals. After this change in scope, our 2024 segment operating income was $352 million. Lower tire unit volume and factory utilization were a headwind of $92 million. Price/mix was a benefit of $206 million, with each of our regions contributing to the strong performance versus our prior outlook. Higher revenue per tire was driven by both price and mix up, where we grew greater than 18-inch tire volume in the U.S., EU and China. Raw material costs were a slight headwind of $9 million in Q4. Inflation, tariffs and other costs were a headwind of $227 million and other SOI was a headwind of $13 million. Goodyear Forward contributed $192 million of benefit during the quarter and ahead of the outlook we shared with you on our last call. On a full year basis, benefits from Goodyear Forward were $772 million. In total, we exceeded our initial P&L targets for 2024 and 2025 by over $150 million. Turning to Slide 10. With a strong focus on our balance sheet, we generated over $1.3 billion in free cash flow during the quarter. Combined with proceeds from divestitures, our net debt declined $1.6 billion versus a year ago, which reflects the benefits of net proceeds from asset sales, partly offset by cash restructuring and currency translation on debt. Moving to the SBU results on Slide 12. Americas unit volume decreased 4%, driven by lower U.S. consumer replacement volume. Commercial volume was significantly lower than last year and sequentially, particularly in replacement. U.S. consumer replacement industry sell-in was down about 0.5 point during the fourth quarter. As part of that, U.S. TMA member shipments were essentially flat year-over-year, while low-end nonmember imports declined 3% during the quarter. Industry sell-out at retail declined 2.5% in the fourth quarter. U.S. consumer OE volume declined 3% and was driven by supply chain challenges within our OE customers. We achieved significant market share gains for the full year in consumer OE. U.S. commercial OE industry volume declined 26% as OEM production remained very depressed amid continued weakness in freight and ongoing regulatory uncertainty. Similarly, U.S. commercial replacement industry volume was lower by 5% during the quarter. Americas segment operating income was $233 million or just over 8% of sales. Turning to Slide 13. EMEA's fourth quarter unit volume decreased 2%. Consumer industry sell-in declined as imports fell 7% in anticipation of potential tariffs in 2026. With the extension of the timeline for a preliminary decision on antidumping tariffs in the EU, we're cautious on near-term conditions as the delay provides further opportunity for another round of low-end imports to make their way into the region. Consumer OE was a continued area of strength where EMEA registered its eighth consecutive quarter of market share gains. Segment operating income in EMEA was $114 million or 7.5% of sales. The increase of $76 million was driven by the insurance recovery we mentioned earlier. That said, excluding the insurance, SOI increased by $20 million and margin expanded 120 basis points versus last year. Turning to Asia Pacific on Slide 14. Fourth quarter unit volume decreased 2%, driven by lower OE volume. Consumer replacement volume returned to growth following SKU rationalization actions that meaningfully contributed to volume reductions throughout 2025. Segment operating income was $69 million or 13.1% of sales. Excluding the sale of the OTR business, Asia Pacific segment operating income increased $16 million and margin expanded 330 basis points. Turning to our first quarter outlook on Slide 16. Business trends moving into 2026 still reflect many of the same headwinds we faced in 2025. Even though the overall tariff environment has broadly stabilized in the U.S. Overall weak industry conditions continue to affect our global operations in terms of top line and cost. While our fourth quarter results demonstrate meaningful progress, we anticipate continued volatility as we move into 2026. First quarter results will be particularly impacted as heavy fourth quarter promotional activity across the U.S. consumer replacement industry further inflated channel inventory. At the same time, consumer industry sell-out during the month of January was down significantly, shaped by extreme winter temperatures and weak consumer sentiment more broadly. And in Europe, the delay of the ruling on a potential tariff on consumer imports has added to this uncertainty. As a result, our first quarter SOI will be significantly affected, driven by the convergence of lower consumer replacement volume, fixed cost carryover from 2025 and a continuation of unusually weak commercial truck trends. These are temporary factors, and we're confident that we'll regain earnings and margin momentum once this turbulence subsides. We expect first quarter volume to be down approximately 10%, driven by U.S. consumer replacement. Unabsorbed overhead will be a headwind of $60 million. As we shared on our last call, we lowered production by 4 million units in Q4 to manage inventory levels. With weak volume trends in the fourth quarter and in Q1, we will see a similar impact in the second and third quarters as we align production with demand. Price/mix is expected to be a benefit of approximately $25 million given Q1 volume and as we anniversary 2025 price actions and begin to see the impact of RMI indexed agreements. Raw materials should be a benefit of approximately $85 million in Q1. Full year raw material costs are a benefit of $300 million at current spot rates. Goodyear Forward will drive benefits of approximately $100 million in the first quarter and about $300 million for the full year. Inflation will be similar to what we saw in Q4. Tariffs and other costs will be a headwind of approximately $130 million, with tariffs at approximately $65 million and other costs reflecting increases in warehousing and freight, factory inefficiencies and transitory manufacturing costs associated with previously announced facility closures. For the full year, tariffs will be a headwind of $175 million and other costs will be $120 million, both weighted to the first half. Finally, the sales of Dunlop & Chemical lowers the base of earnings by $37 million in Q1 and $185 million on a full year basis. In addition, we will amortize $55 million of deferred revenue in 2026 related to supply agreements from the 3 asset sales. This is an increase of roughly $15 million versus 2025. Other financial assumptions are shown on Slide 17. For modeling, on a year-over-year basis, we've decreased both our CapEx and interest expense. With that, we'll open the line for your questions.

Operator, Operator

We'll go first this morning to James Picariello of BNP Paribas.

James Picariello, Analyst

I guess I first need to ask about volumes, how you're thinking about volumes for the remainder of the year. Obviously, we have the first quarter look and you just gave the overhead absorption headwind through the third quarter. I was just thinking if volumes start to stabilize in Q2 and improve from there, is it possible that the overhead under absorption might not be by the third quarter similar to the first quarter? And then, yes, my question is just your high-level thoughts on OE versus replacement the rest of the year.

Mark Stewart, CEO and President

As we mentioned earlier, we anticipate that conditions will improve after the first quarter. Weather has been a significant challenge, along with some destocking and inventory issues that have tightened distribution as we entered the year. These factors are impacting the first quarter. Additionally, we reduced production in the fourth quarter to avoid overloading our channels and to maintain a better product mix. This will create some challenges in the first quarter, but we expect improvements as we move into the second quarter. The inventory drawdown in the first quarter should ultimately benefit the industry and Goodyear. Looking at the sell-out from the fourth quarter, we saw a 2.5-point decline, coupled with heavy promotions affecting sell-in from competitors. As we navigate through this, we are focused on enhancing our U.S. product lineup, especially with larger rim sizes and premium offerings. We've introduced 30% more new products into the market than ever before, particularly in the premium segment, and we plan to continue expanding our new product assortment through 2026. Our governance and operational controls are crucial, and we are committed to maintaining them. We’re working closely with our leadership team globally to drive cost efficiencies. With 30% of new products making their way into the market, and an additional 1,700 new products planned for 2026, all focused on premium margins, we are optimistic about positioning the business for future earnings growth beyond the first quarter.

Christina Zamarro, Executive Vice President and CFO

Thanks, Mark. I'll jump in on the question regarding unabsorbed overhead. There's an assumption that Q2 sell-in will start to align with sell-out. Mark mentioned a recovery in demand for Q2, but I still think it's a cautious expectation. It's possible that there’s some pent-up demand, which might result in a lower impact from unabsorbed overhead. We'll see how that develops. Regarding OE and replacement, it's best to break it down by region. In the Americas, I would still say that consumer replacement in the second quarter remains lower year-over-year, though it has improved significantly compared to the first quarter, with expectations for slight year-over-year growth in the second half. Consumer OE should begin to grow starting in Q2, dependent on our mix of fitments. Looking at EMEA, we are anticipating a softer first half for consumer replacement due to tariff delays, but consumer segments should continue to perform well given our share gains over the past few years. In EMEA, commercial OEM replacement volumes are projected to increase, although by low single digits, which we see as stable. Conversely, in the U.S., we expect commercial replacement to have declined in Q1, to remain stable or slightly down in Q2, and then to rise a bit in the second half.

James Picariello, Analyst

Okay. That's really helpful. And then one quick clarification is for the divested Dunlop units, is that still about 6.5 million units? And that's excluded from any volume assumptions that you're sharing, right?

Christina Zamarro, Executive Vice President and CFO

Yes. So the Dunlop sales in 2025 were closer to 5 million units, James. And the supply agreements that we have with SRI are a minimum of 4.5 million units.

Operator, Operator

We'll go next now to Itay Michaeli at TD Cowen.

Justin Barell, Analyst

This is Justin on for Itay. So a quick question on the Q1 volume setup and industry assumptions kind of baked into that. I know you briefly hit on it for a bunch of the regions, but just kind of how you're thinking about it against Q4 to Q1 and the industry sell-in and industry sell-out trends that you may be modeling for Q1. Where would you expect, I guess, total channel inventory to kind of look like at the end of Q1? Just trying to get a sense of that more cleanly.

Christina Zamarro, Executive Vice President and CFO

If I look at how the year ended, we believe that U.S. channel inventories increased about 10% compared to last year, largely due to prebuying of imports throughout the year and heightened promotional activity at year-end. Our assumptions indicate that most of this inventory will decline in Q1, with some carryover into Q2. Earlier, I mentioned that we expect Q2 volume in the Americas consumer replacement segment to begin improving, although it will still be below sellout levels, as we anticipate some inventory clearing in Q2.

Justin Barell, Analyst

Perfect. Super helpful. And then I guess maybe on the information you provided before on the volume by regions and kind of understanding the nuance and cadence throughout the year. How should we think about maybe where the 2026 full year SOI and free cash flow land maybe based on those volume assumptions as well as maybe anything else that might not be explicitly guided for within the deck? Just trying to get like a rough bridge here.

Christina Zamarro, Executive Vice President and CFO

Yes. No, no problem. So I'll walk through the assumptions, and I did try and lay out quite a bit in the presentation, but I'll just take you through add some context on some of the different drivers. If you start with our 2025 SOI ex insurance, that's about $1 billion. And then we take out the impact of the divestitures, which would leave us at about $815 million for base. as we begin the year. Lost revenue on the divestitures, we noted in the presentation, is about $915 million. So Goodyear Forward, $300 million. We've increased that steadily over the past couple of quarters. We'll continue to look to add to that over the course of the year. Mark was referencing that earlier. Tariffs are a headwind of $175 million, and that's really concentrated in the first half just given the timing of tariff implementation last year. Now other costs should be about $120 million, and that includes the ramp down of a couple of our factories last year. So we'll lap a lot of those costs in the first half. raw materials are a benefit of $300 million at current spots. And I'd say 2/3 of that is going to pull through in the first half of the year. And then price/mix, we haven't spent time talking about that yet, but price/mix should continue to be positive as we move through the year, lower in Q1, obviously, on volume and some of the seasonality, but a significant step-up in Q2 and Q3 until we get to a very high comp in Q4. And so then it all comes down to what we want to assume on volume when we lay out those drivers. I think you should be able to model year-on-year organic growth on that base SOI of $815 million in the range of 10% or so. And I mentioned this earlier when we were talking to James, but we're assuming that Q2 sell-in in the U.S. begins to normalize in line with a normal level of sell-out. We're also assuming U.S. imports are stable to down slightly in 2026. And we're assuming European imports are up slightly. And so that's all embedded within our assumptions. I think that free cash flow then, as you look at all the drivers and you create a bridge we should have a significant improvement in restructuring on a year-on-year basis. We're going to drive working capital inflows this year, reductions in interest expense. So all of that takes us to a base case where we're delivering slightly positive free cash flow. Of course, we're going to look to improve on that as we move through the rest of the year.

Operator, Operator

We go next now to James Mulholland of Deutsche Bank.

James Mulholland, Analyst

So on the commercial vehicle side, there's been some significant improvement in expected orders for Class 8 in North America since your last update. So 2 questions there, given how important it is from a margin standpoint. First, does your guidance anticipate any further improvement in the overall CV market in the U.S.? And second, do you see this improvement spreading to other geographies as well in the near term? And then I have a quick follow-up.

Christina Zamarro, Executive Vice President and CFO

So in the Americas, our commercial business for OE is expected to be up, I'd say, high teens, low 20% in the second half. Of course, that's off of a very, very low base. We should see the beginnings of some volume price/mix improvements in Americas commercial in the back half. But I wouldn't say that our assumptions there are robust. In EMEA, commercial OEM replacement, we do have growth, but I'd say it's low to mid-single digits. And it's not really a relevant business for us in Asia Pac. I think on average, we should be running between 12 million and 13 million units in commercial to generate a historical level of margins for that business. In 2025, our unit sales only totaled $11 million. So there's a lot of leverage as we see this business improve.

James Mulholland, Analyst

Got it. Okay. That's helpful. And then I guess with Goodyear Forward's completion now and in line of sight, it sounds like there could be maybe a little bit more upside on the cost savings there. I think last year, it feels like a while ago now, but the original exit SOI margin was around 10%. That was the target anyway prior to tariffs and other issues. Do you think that's a level that you can approach over the longer term? Or are there other significant steps that you can take to get to that point? Or I guess, where do you think you could end this year and then start to leap off into '27?

Mark Stewart, CEO and President

No, we have not stepped back from our Goodyear Forward targets. As we mentioned in previous calls, reaching the overarching 10% Shareholder Operating Income has been slightly delayed. The results for the year indicate that two of our three units, especially the consumer segment, are already at that level. The commercial business has faced challenges, which has affected our ability to reach the overall 10%. However, as we continue to implement our Goodyear Forward strategy, which is integral to our operations, we are focused on filling our project pipeline and executing them for cost efficiency. We are also committed to enhancing our product mix globally, launching 1,500 to 1,700 new products on the consumer side, both refreshed and completely new, while ensuring top-tier service in the commercial sector. We are confident that we will reach our targets moving forward.

Operator, Operator

We'll go next now to John Healy of Northcoast Research.

John Healy, Analyst

I just pounded in a minute late, so I apologize if you maybe mentioned this a little bit. Could you talk a little bit about the down 10% volume number for Q1 and kind of the puts and takes that goes into that number? My thought process had been that maybe there was a restocking opportunity on the horizon here. So is it a function of customer or moving away from any specific parts of the market, maybe how that down 10 might look directionally by region? And do you persist that kind of down volume kind of taking place throughout the year? And kind of what's your view of just the global market probably opportunity this year, whether it's for Goodyear or for just the industry as a whole?

Christina Zamarro, Executive Vice President and CFO

John, I think you're correct. The U.S. market has the potential to improve significantly in February and March. However, our expectations include a notable one-time destocking in the first quarter, based on current activity. The decline in U.S. consumer replacements is largely influenced by the discounting and promotional strategies we've observed, which began in Q4 and have continued into January. We are strategically concentrating on revenue per tire and product mix, which performed well in the fourth quarter, as we believe this disruption will ease and we want to safeguard returns during this period. A minor portion of the 10% decline can be attributed to disruptions within our customer base, particularly following our exit from the relationship with ATD in the second quarter of last year. This impact will begin to stabilize in Q3. Additionally, regarding EMEA, we've mentioned the delay in the planned EU tariff implementation, which has been postponed from January to the summer months. Consequently, we're anticipating softer consumer replacement volumes in EMEA during the first half as well.

Mark Stewart, CEO and President

And maybe we can tack on, right? The strength in Q4 in EMEA, we were really pleased with our new winter premium products. They performed super well. They won the ADAC test. They were a very strong first winter pool on the OE fitments that we got in the market in '24 and '25. And that really helped drive that 2-point share gain in the premium 18-plus in EMEA. So super strong demand for that product.

John Healy, Analyst

Got it. And then just on the cash flow benefits that you talked about, I think you called out working capital as an inflow this year. Is that first half? Is that second half? And is there anything kind of unique that's happening there? And as you look at kind of the business, I know you guys have tackled a lot of things operationally. But from a financial standpoint, in terms of managing working capital, are there any sort of big projects you could do there to maybe kind of thaw some of the cash flow aspects of the business a bit?

Christina Zamarro, Executive Vice President and CFO

So John, I would say Mark was referencing a little bit earlier, shifts in the way we operate and improvements in governance. I would say working capital performance this year should be smoother and less peaks, less valleys as we're managing the business for cash, that was embedded within my prepared remarks when I talked about unabsorbed overhead impacts. And so just trying to manage cash flow very closely quarter-to-quarter. Last year, it's very clear that the factory ramps down very quickly at the end of Q3 and Q4 just on all of the tariff import prebuy, which makes it harder to flex costs. And so it has 2 benefits, right? One is the better cost management within our factories allows our teams to flex better, but the second is in working capital. And so I think we'll see a smoother profile this year than normal, even though we do have a lot of embedded seasonality. As far as projects, I mean, we do continue to evaluate all alternatives in and around working capital because it is a big source of cash or use of cash and source of cash as we think about funding the business. In 2025, we increased, for example, supply chain financing, bringing on more and more suppliers into our top-tier banks credit facilities. And it's projects and programs like those that we'll continue to look to, to help fund some initiatives and potentially push the working capital inflows that we're expecting in 2026 even beyond what we've laid out here.

Mark Stewart, CEO and President

I would add to it just a bit, John, as well. When you look at the CapEx on the base CapEx and you see a lower number there as well. It doesn't mean we're doing less. What it means is we're doing a heck of a lot more with what we've got. And that goes to big process changes that we've had within our global engineering and manufacturing groups that was really kind of an outcome of some of the activities we had on Goodyear Forward, but together with procurement, just on the buy, right, whether it was bundling, whether it was clean sheeting, but also looking to our equipment standards, the location of sourcing, the way we project manage, we've completely changed that process in the last 2 years, and we're seeing a big efficiency gain in our CapEx that's helping that working capital as well.

Operator, Operator

We'll go next now to Emmanuel Rosner of Wolfe Research.

Emmanuel Rosner, Analyst

Just a couple of follow-ups on the earlier questions. So I appreciate all the color on the SOI puts and takes for 2026. Just 2 quick clarifications. The other costs of $120 million, was that a tailwind or a headwind this year? And then as you said, it ultimately comes down to volume. In order to hit sort of like that potential base case scenario of double-digit SOI growth versus the organic piece of last year. What kind of all-in global volume essentially is assumed?

Christina Zamarro, Executive Vice President and CFO

Sure, Emmanuel. Other costs are a challenge in the first half, mainly due to factory inefficiencies and ramp-downs at several facilities. We previously discussed the situation at our factory in Germany, and we also closed our commercial truck production in Danville, Virginia last year, which we will manage as we progress through that initiative. Regarding volume, I see a significant improvement in price and mix in the second and third quarters, and then in the fourth quarter, we'll be comparing against strong results from Q4 2025. Balancing this against our top-line volume assumptions, I would estimate that volume might be slightly down compared to last year, while price and mix would show a substantial positive trend due to our efforts in maintaining revenue per tire and our margins throughout the year.

Emmanuel Rosner, Analyst

Great. Yes, I appreciate the color. And then my second follow-up is on the Goodyear Forward. So you've obviously spoken about the potential for additional actions. Just curious how we should think about it? Are these going to be sort of like more incremental in nature? Or are you looking at a potential reloading of significant actions that might potentially be like more expensive from a restructuring point of view, but that could yield some larger benefits? And where would be the areas that you would be looking at for that?

Mark Stewart, CEO and President

Yes. Thanks, Emmanuel. We are continuing to use the philosophy, the cadence of governance and the drive for execution of Goodyear Forward to keep the pipeline filled with cost efficiency projects. And whether it's manufacturing efficiency, whether it's procurement efficiency, engineering development of, again, doing 30% more with the same number of engineers around the world. And so those are the activities we're doing. So we're not rolling out a big restructuring 2.0 at this point. It really is about execution right now.

Operator, Operator

We go next now to Ross MacDonald at Citi.

Ross MacDonald, Analyst

It's Ross at Citi. I have 3 quick questions. The first one was on the inventory situation in the U.S. Could you maybe give a little bit more color if that inventory situation is full across all of the rim sizes? Or does it skew more to, let's say, sub 18-inch, more budget type content? And Mark, on your point around the SKU offensive you're rolling out, could you maybe help us model where you see the Goodyear North America 18-inch and above share finishing this year? I think you were at about 43% in Q3.

Christina Zamarro, Executive Vice President and CFO

So yes. So a couple of comments. I think inventory situation is broad-based. And that was probably just as we headed into year-end driven by promotional activity that did not seem to favor Tier 1, Tier 2 or Tier 3. It was really something that occurred more across the board. When I look at the mix of greater than 18-inch in the fourth quarter, our U.S. business was about 50% greater than 18-inch in consumer replacement. Of course, OE is almost all greater than 18-inch already. And as you Julie noted, in comparison during the same quarter earlier or same fourth quarter 2024, we were only at 42%. And since the larger rim sizes are the area of the market that has good growth, we're naturally now at a place where the portfolio is leveraged or geared towards growth. So that's good.

Ross MacDonald, Analyst

That's helpful. My next question is on that promotional activity. Is there any merit from your perspective here in engaging in some of that promotional activity or discounting to try and encourage consumers to move up a tier or Mark called out that consumers were sort of delaying replacement decisions. Is there anything you can do here maybe to manage price down slightly, but with a view to actually getting higher volume market share on the back of that? It seems like the consumer is quite reluctant to move up tiers at this time in the cycle.

Mark Stewart, CEO and President

Yes, there has been a lot of promotional activity in the distribution channel, as well as some promotional efforts aimed at sell-out. I noted that the first quarter faced challenges due to weather conditions, particularly in the U.S. However, we are being very disciplined with our promotional activities. We believe our pricing strategies are well-positioned now in comparison to the competition. The new products we've launched, including MaxLife 2, WeatherReady 2, and the Eagle F1, are performing exceptionally well, and we want to ensure they hold a strong place in the market. We are continuously monitoring these elements to ensure we are delivering the value associated with the Goodyear brand and our family of brands.

Ross MacDonald, Analyst

And then final question, just a quick one on the truck business or commercial activities in the U.S. I'm not sure if you've disclosed in the past factory utilization rates in the U.S., but obviously, it has been a perfect storm, some prior callers asking rightly about the order inflection that we're seeing. But could you maybe frame where we are in terms of commercial activity utilization rates in the U.S.? Is this in your opinion, trough levels versus, let's say, the last 20 years?

Mark Stewart, CEO and President

Yes, we haven't shared that information historically. In our commercial business, our goal is to be the leader in tires and services for both consumer and commercial markets. We have a robust fleet business catering to premium fleets and a healthy local book business as well. This positions us well to navigate the current challenges in the commercial sector, including changes in emission regulations and a significant number of idle tractors, with many fleets opting against early purchases of new emission vehicles from original equipment manufacturers. We are focused on maintaining our service levels, which is a differentiator for us, particularly through our truck service centers nationwide. However, we do not disclose specifics about factory output for commercial operations. As Christina noted, we underwent a restructuring last year with our Gangle operations to concentrate on its aviation business.

Operator, Operator

We'll go next now to Ryan Brinkman of JPMorgan.

Ryan Brinkman, Analyst

I wanted to ask first on the $300 million of Goodyear Forward savings expected for the full year. On my math, I think you should have about $260 million of full year year-over-year tailwind simply on the anniversarying of savings that were already achieved by the end of 2025, which I realize you overachieved on, but it maybe implies only about $40 million or so incremental savings sequentially from the end of 4Q '25. Firstly, is that roughly correct? And then secondly, do you maybe have any internal ambitions for more cost cutting? Has the organization roughly achieved the level of leanness that you target? Or how should we think about the level of margin improvement that might remain from cost-cutting potential?

Christina Zamarro, Executive Vice President and CFO

Sure, Ryan. I mean the assumption that you're making on the run rate flow-through is, yes, correct. It's about a little more than $250 million flow through. The rest is all new actions in 2026. I think we'll obviously look to build on that. And Mark was mentioning earlier, the pipeline fill, not just for 2026, but even beyond and that being a part of our rigor and our DNA inside the company. When we took another question a little bit earlier around restructuring cash costs, is there more to do? I think our mode of operation this year is to run the assets that we have. And we look at the playing field as if we have an unusually weak period in demand right now. So not necessarily looking to add any major restructuring to generate some cost out, but there's a lot we can do still yet in SAG in manufacturing efficiencies. And so we'll continue to build on that. And our intention is to come back and lay out not just what we're doing this year, but sort of that 3-year multiyear view for you a little later this year once some of this turbulence subsides and we just have the right backdrop to talk about the company story.

Mark Stewart, CEO and President

Okay. Regarding the potential higher tariffs in Europe, what implications might arise from the delay in implementation from earlier this year to the middle of the year? I remember that the postponement of expected tariffs in the U.S. for '25 significantly impacted prebuy activity, U.S. PMA share, and volume. This scenario seems less concerning in Europe, considering the possible retroactive nature of tariffs. I would like to hear your thoughts on this. Additionally, when these tariffs are eventually implemented, I thought your comments on price mix were promising, especially with the increases in the second and third quarters. I know you typically do not factor in tariffs that haven't been officially set, which is understandable, but I am curious if there is any early insight within the industry regarding the potential range of tariff magnitude and the possible impacts on volume, share, and price mix once they are in effect. Yes. I'll start by discussing two key elements regarding the tire tariffs in the EU. First, there is the antidumping investigation specifically focused on consumer tires from China. Initially expected in January, this is now projected to conclude in July of '26. The expected range for those duties is between 41% and 104%. We will have to wait until then to determine the exact range, but it is certainly a significant amount of duties that will affect the competitiveness of the local market. The second element is the anti-subsidy investigation. In November, the EU initiated this investigation concerning grants, loans, tax exemptions, and other benefits related to land or electricity usage for Chinese consumer tires. This investigation is expected to wrap up by the end of this year. Therefore, as you pointed out, there is potential for retroactive duties, and we will need to see how that develops.

Operator, Operator

And it appears we have no further questions this morning. Mr. Stewart, I'd like to turn things back to you, sir, for any closing comments.

Mark Stewart, CEO and President

Okay. Thank you. So thank you all for joining us today for the earnings call. Our fourth quarter performance really reinforces the progress we've made to strengthen Goodyear's balance sheet and the financial performance for the company. The near-term environment, as we shared, definitely remains dynamic, but we are absolutely focused on continuing to execute with greater discipline, controlling the controllables and positioning the business to capture the attractive opportunities to continue to mix up as the market conditions normalize going forward. The work that we've done over the past 2 years has definitely created a more resilient, a stronger foundation. And as the visibility improves, we are very confident in our ability to translate that foundation into sustained margin expansion, stronger free cash flow generation and long-term value creation for our shareholders. So thank you all for joining us today. I appreciate the time.

Operator, Operator

Thank you, Mr. Stewart, and thank you, Ms. Zamarro. Again, ladies and gentlemen, that will conclude today's Goodyear Fourth Quarter 2025 Earnings Conference Call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.