Earnings Call Transcript - GT Q2 2021

Operator, Operator

Good morning. My name is Keith and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Second Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I will now hand the program over to Nick Mitchell, Senior Director, Investor Relations. Please go ahead.

Nick Mitchell, Senior Director, Investor Relations

Thank you, Keith, and thank you, everyone, for joining us for Goodyear's second quarter 2021 earnings call. I'm joined here today by Rich Kramer, Chairman and Chief Executive Officer; Darren Wells, Executive Vice President and Chief Financial Officer; and Christina Zamarro, Vice President, Finance and Treasurer. The supporting slide presentation for today's call can be found on our website at investor.goodyear.com and a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning. As I can now draw your attention to the Safe Harbor statement on Slide 2, I would like to remind participants on today's call that our presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Our financial results are presented on a GAAP basis and in some cases, on a non-GAAP basis. The non-GAAP financial measures discussed on the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation. And with that, I will now turn the call over to Rich.

Rich Kramer, Chairman and CEO

Great. Thank you, Nick, and good morning, everyone. I'd like to start today by welcoming all of the Goodyear Tire associates joining us this morning. I got the opportunity to meet many of you in recent weeks, and I've been so impressed by your passion for Cooper and for our industry. From our initial interactions through our integration meetings and business reviews, it's clear that your industry knowledge and experiences will bring tremendous value to the combined organization. Sharing ideas and best practices will make us a stronger competitor and allow us to find new ways to better serve our customers and consumers. Our journey is just beginning, but I'm really excited about our future and about what we can achieve together. Let me begin my prepared remarks today by providing some comments to supplement this morning's press release. For the second quarter, we delivered $349 million of merger-adjusted segment operating income, which is over one and a half times what we earned in the second quarter of 2019. These strong results reflect continued recovery in demand, and we outperformed industry growth across many of our businesses. At the same time, we delivered the highest quarterly contribution of price mix that we've seen in our business in nine years and we continue to have good momentum. As I look at the global consumer replacement industry during the quarter, we continue to see a sustained path toward recovery. As you would expect, this general theme is largely carried by mature markets. We continue to experience pandemic-related weakness in several of our emerging market countries. More broadly, however, economic recovery remains robust, particularly in the U.S. and China. Given these markets play to our strengths, we saw global consumer replacement market share rise nearly one point. In our OE business, the global shortage of semiconductors resulted in weaker and more volatile demand than we expected. The auto industry produced approximately two million fewer vehicles than initially expected at the beginning of the quarter. Despite the weaker-than-expected backdrop, we continue to recover share globally, including the benefit of our strong position on SUVs and light trucks. We're also continuing to see the benefits of our strong cost management. On balance, our business performance is strengthening and with this as the foundation, towards the end of the second quarter, we completed our announced combination with Cooper Tire. I believe this is truly a transformational milestone for both companies. Our collective team continues to share excitement about our prospects going forward. As we do the work to bring our companies together, I know we will be better positioned than ever before to meet our customers' evolving needs. And you can see evidence of our strengthening performance and the initial benefit of the Cooper combination in each of our segments. In the Americas, our U.S. consumer business took advantage of favorable conditions in the replacement market, where we continued to see robust demand for our most premium products. Our large room diameter volume performance was particularly notable with our growth exceeding the industry by nearly 10 points. The resulting mixed benefits combined with pricing actions more than offset higher raw material costs. Our U.S. commercial business is also capitalizing on strong end-user markets. With freight demand outpacing supply, keeping existing trucks road-ready is a top priority of fleets. As a result, more customers are relying on Goodyear's fleet central to make informed decisions regarding their tire and maintenance needs. The growing popularity of our suite of fleet management tools is helping us drive market share in targeted segments. In the quarter, our commercial shipments were nearly 15% above the second quarter of 2019. Turning to Brazil, our consumer and commercial replacement businesses are recovering faster than anticipated. Shipments in both segments were well above pre-pandemic levels during the quarter, reflecting both economic recovery and share gains. Our resilient OE business, however, saw more than half of the country's auto assembly facilities taking capacity offline during the quarter, keeping our OE volume considerably below pre-pandemic levels. In EMEA, markets are also recovering, albeit with less consistency than in the Americas with industry demands softening sequentially. We sustained our relative momentum in the quarter with share gains in all of our businesses, our European consumer replacement business more than recovered from higher raw material costs supported by the impact of our distribution changes. At the same time, our market share in Europe has recovered by more than a quarter of a percent year-to-date. Our consumer OE business has also continued outperforming, but with less impact as part shortages limited recovery in auto production. Our continued improvement in the consumer OE segment is supported by our ability to meet the demands of electrification. Today, Goodyear has a presence on nearly half of the EV platforms produced in Europe. Having this leadership position is critical as electric mobility begins a period of dramatic growth and as tires on most EVs wear out faster than a comparably sized internal combustion powered vehicle, these benefits will extend well beyond the initial fitment. So what we're seeing are dynamics that should position our consumer business for long-term profitable growth. Turning to commercial, volume was more than 10% above 2019 levels despite lower freight volume. We benefited from exceptionally strong results in the on-road segment, driven by our growth portfolio fleet customers. During the quarter, for example, we added Tesco's fleet of 6,800 trucks and trailers to our customer portfolio. Tires alone are no longer enough to win over fleet customers. Today's fleets demand innovative solutions that will help them maximize uptime and reduce costs. We recently unveiled Goodyear Drive Point, the latest productivity tool in our total mobility offering. Drive Point combines valves, sensors, battery-powered receivers, and mobile apps to deliver fleets a cost-effective way to monitor tire performance. These technology solutions strengthen our position as a preferred provider of monitoring and predictive maintenance, making Goodyear more valuable to our customers and preference over other mobility solution providers. Turning to Asia Pacific, industry demand varies significantly by country. Challenging conditions persisted in India, Malaysia, and other countries with low vaccination rates affecting demand and our production in the region. In China, the story was encouraging, with demand fairly consistent with pre-COVID levels. In a stable market, we leveraged and expanded our retail network to grow our consumer replacement volume by more than 20% compared to the second quarter of 2019. Turning to our consumer OE business, we grew our volume more than 40% compared to the prior year in an expanding market. Our team did an excellent job in this environment, helping us capture nearly one point of market share. In addition to delivering solid second quarter results, we continued to advance our mobility solution strategy. In June, we launched Goodyear Sightline, the first tire intelligence solution for cargo van fleets, a timely launch considering the impact the pandemic had on e-commerce volumes. Goodyear Sightline combines sensors and cloud-based algorithms to provide fleet operators with real-time tire health information. This rollout lays further groundwork for a connected tire future. We're also taking steps to make our mobility solutions more accessible. Last month, we announced a strategic partnership to jointly offer our Goodyear connected tires with a telematics solution. By using a common telematics unit, we can simplify fleet interactions, making it easier for customers to get the tire and trailer performance data needed to optimize vehicle use and reduce fuel consumption and emissions. As I said before, Goodyear is committed to shaping the mobility revolution. Initiatives like Goodyear Sightline and partnerships, along with our focus on the intersection of new mobility, sustainability, and technology are demonstrative of new business models and solutions that will define Goodyear's position and relevance for the next 120 years. We view our job as requiring the operational excellence to deliver results today while simultaneously building the capability to lead our industry tomorrow, when the tire's relevance will not just continue but evolve to a more prominent role in enabling mobility. It remains a great time to be a technology leader in the tire industry. We're entering the second half of the year focused on the opportunities ahead. Markets are more stable than at the beginning of the year, particularly in the aftermarket. Fundamentals are robust in U.S. consumer replacement with dealer restocking and increased driving underpinning demand. In Europe, the demand picture continues to improve led by recovery in vehicle miles traveled as more employees return to the office, and the need to keep goods flowing through supply chains is driving the demand for commercial tires around the world. And while supply chain constraints continue to limit auto production, the outlook for our consumer OE business remains favorable given our ongoing share recovery, the long-term need for OEs to restock dealer inventory, and the accelerating shift to electric powertrains, which favors Goodyear's strengths in product design and materials. Against this backdrop, we're focused on sustaining our momentum while working to integrate Cooper. The trajectory of our markets makes us feel good about the timing of the combination. We look forward to achieving our full potential in the years ahead.

Darren Wells, CFO

Thanks, Rich. Our results in the second quarter were again a reflection of strong performance by our team and their focus on continuing our recovery market share, improving our manufacturing costs, and managing for cash while pursuing all of these actions, delivering strong price mix to address rising raw material costs and inflation across many categories. These results also illustrate the momentum built up over the last year across our consumer replacement, OE, and commercial truck businesses and as of June 7, we had the momentum that the Cooper team has developed added to the overall equation, creating even more opportunity going forward. We're excited to have completed the combination so quickly, giving our teams a chance to work more closely together and accelerating the opportunity to deliver the full benefits of the transaction. While our team is delivering, we have to acknowledge the added volatility we've experienced in our end markets during the second quarter. We saw lower OE production than we anticipated, a problem that seems likely to persist longer than originally thought, as well as increased disruptions in our emerging markets businesses. Some of which are COVID-related, particularly in Asian markets, and some were a result of social unrest significantly impacting our South African and Colombian manufacturing facilities, while others reflect the difficulty of shipping products to markets like the Middle East where we don't have a manufacturing presence. Overall, this slowed down the global volume recovery temporarily, but the pent-up demand in these markets will be a source of further growth over the coming months. Operationally, our team has done a great job keeping our factories fully supplied. So while we continue to see escalation in raw material prices, we have seen no impact of material supply on our production. Consistent production has been critical in serving markets, including Latin America, Europe, and China, and particularly the U.S. where replacement tire demand remains very strong. As we enter the second half of the year, we're feeling very good about the industry outlook and our ability to outperform the industry while continuing to see our profitability trend toward target levels. Before I begin reviewing the financial results for the quarter, I want to highlight a couple of items that are going to seem a little bit different given we're incorporating for the first time some Cooper results. First of all, our results reflect the impact of Cooper sales from June 7th through June 30th. This means there's a little over three weeks' worth of Cooper sales and volume reflected in our company results as well as in each of our business units. We'll provide disclosures that clarify the impact of these added sales, which overall were just over $250 million for the quarter. Secondly, results reflect a number of items related to the transaction itself. This includes costs directly related to the transaction, as well as accounting treatments that are required in such combinations. In order to provide a view of results without these items, we are providing a calculation of our earnings that excludes them. We've typically shown adjusted net income and EPS, but this quarter we have merger-adjusted SOI as well. The most significant item from the Cooper transaction impacting SOI is the markup of Cooper's June 7th inventory to market value, which means much higher cost of goods sold on those units as they're sold out in Q2 and Q3. This makes up $40 million other than the $50 million of Cooper-related items hitting our segment operating income in the quarter. With that preamble, let's turn to our income statement on Slide 8. Our second quarter sales were $4 billion. This is now above pre-pandemic levels from 2019, even without the incremental sales from Cooper. Unit volume increased 84% from last year's second quarter reflecting continuing industry recovery, market share gains, and the addition of Cooper units. The second-quarter segment operating income of $299 million was well ahead of last year and also well above 2019. The second-quarter merger-adjusted segment operating income of $349 million exceeded our results from 2018 as well. This included merger-adjusted Cooper tire income of $34 million. Our second quarter results were also adversely affected by the carryover impact of a winter storm in the U.S. in the first quarter, which reduced our Americas segment operating income by approximately $24 million. After adjusting for the impact of this storm and other significant items detailed in our press release, including the impact of inventory step-up adjustments, our earnings per share on a diluted basis were $0.32, up from a loss of $1.87 a year ago. The step chart on Slide 9 summarizes the change in segment operating income versus last year. Similar to last quarter, we also included an analysis versus 2019 on slide 10 to help you better track our recovery. Compared to the COVID-impacted year ago period, the total impact from higher volume was $531 million reflecting the benefits of higher unit sales and increased production. Price mix improved by $159 million compared to a year ago, more than offsetting a $30 million increase in raw material costs. While this is a significant net benefit in Q2, the increase in raw materials will be much higher beginning of Q3. Cost savings of $86 million included $25 million associated with the closure of Gadsden as well as the benefit of an indirect tax ruling in Brazil. Aside from these benefits, savings were limited as many of the one-time savings implemented during COVID did not recur this year. Inflation of $41 million was higher than the first quarter as we began to reflect increased cost pressure across multiple categories. The $37 million improvement in the other category reflects a $94 million increase in the earnings generated by our other tire-related businesses, as well as the $17 million benefit from the improved profitability at Tire Hub, which recorded its first profitable quarter. These factors were partially offset by higher advertising and R&D expenses as we restored investments in these areas after severe cutbacks during last year's COVID shutdown. You'll notice we added two columns to this step chart to clearly illustrate the impact of the Cooper Tire transaction on our results. The first bar captures Cooper's operating income between the June 7th closing and quarter end. The second bar reflects the impact of costs triggered by the business combination, including the effects of fair market value step up on Cooper's inventory and certain other assets. These costs total $50 million in the quarter, more than offsetting the $34 million of merger-adjusted operating income Cooper contributed during the 3.5 week period. While Cooper standalone results are no longer reported publicly, Cooper also performed very well during the second quarter. Operating profits and margins were stronger than their comparable 2020 and 2019 periods, with increased volume and improvements in price mix driving their results. Turning to the balance sheet on Slide 11, net debt totaled $6.9 billion, increasing less than $1 billion from the quarter of 2020, despite cash consideration of over $2 billion paid to close the Cooper transaction. The impact of the merger consideration was partially offset by free cash flow generated during the last 12 months and Cooper balance sheet cash at closing. Completion of the Cooper tire merger impacts the comparability of our working capital to prior periods. Controlling for this impact, we made some progress in rebuilding our inventories in Q2. However, we have a way to go before reaching levels that are aligned with demand, especially in North America. Slide 12 summarizes our cash flows for the quarter and for the trailing 12 months that have helped us deliver our stronger than expected balance sheet position. Turning to our segment results beginning on Slide 13, unit volume in the Americas increased 125% from a year ago. Our replacement business, which was up 8.6 million units, continued to benefit from higher unit sales through Walmart's auto care centers. You'll recall that the closure of these locations greatly impacted our relative performance last year. Our OE volume increased 1.9 million units reflecting the pandemic's impact on auto production last year. While semiconductor shortages continue to affect our customer's production schedules, our OE business is positioned to capitalize on the stronger demand that we expect, given our high fitment win rate in recent years. America's segment operating income totaled $233 million, up $520 million from a year ago. Excluding the impact of the Cooper transaction, segment operating income for the Americas would have been $247 million. Americas' results include $31 million of merger-adjusted operating income from Cooper and $45 million of costs triggered by the merger, including a $35 million impact of the Cooper tire inventory step-up. America's earnings benefited from higher volume, improvements in price mix, and continued recovery in our other tire businesses. These factors were partially offset by payroll and advertising expenses returning to more normal levels after last year's COVID-19 response actions, as well as by higher raw material costs. Turning to Slide 14; Europe, Middle East and Africa's unit sales totaled $12 million, a 63% increase from last year. Replacement volume increased $3.2 million reflecting stronger demand for both consumer and commercial tires. Market share gains in both segments also contributed to the growth. Our OE business was up 1.5 million units, reflecting a partial recovery in the industry demand and the benefits of recent fitment wins, including some significant electric vehicle platforms. EMEA segment operating income of $43 million was up $153 million versus last year on higher volume, improved factory utilization, and improvements in price mix. As expected, EMEA's earnings moderated compared with Q1 reflecting typical demand seasonality and the absence of some unique factors that positively impacted the first quarter. Turning to slide 15, Asia Pacific's tire units totaled 6.5 million, a 43% increase over the prior year. OE volume increased 800,000 reflecting a partial recovery in industry demand. Total replacement volume increased 1.1 million during the second quarter. We maintained strong growth in the Chinese aftermarket as our actions to strengthen distribution continued to deliver both volume and price mix. Excluding the impact of the Cooper transaction, our consumer replacement volume in China during the quarter was up more than 20% from the second quarter of 2019. Segment operating income was $23 million, up $57 million from the prior year's quarter, reflecting higher volume and improvements in price mix. Turning to our outlook guidance on Slide 16, we expect continued volume recovery in Q3 and should see our volume move closer to pre-pandemic 2019 levels than we saw in Q2. For reference, Cooper's volume in Q3 2019 totaled approximately 10 million units. We expect production to remain at or near pre-pandemic levels given our need to replenish inventory. Similar to Q2, the cost benefit related to higher production will impact us immediately, given the accelerated cost recognition related to low production in Q3 2020. We expect price mix will continue to more than offset raw material costs, reflecting the benefit from recent pricing actions and an improved mix. Net cost savings will reflect the impact of the nonrecurrence of last year's COVID-related temporary fixed cost reductions, as well as incremental transportation and labor costs. One other note, given that Q3 will include a full three months of Cooper results, if you're using Cooper's Q3 2020 to help you model your expectations for this year, remember that Cooper recorded a $49 million favorable adjustment to its product liability reserves in the third quarter of 2020. Slide 17 summarizes several of our full year financial assumptions. Based on current spot prices, we now expect raw material costs to increase $425 million to $475 million net of cost savings. Slightly less than half of the cost increase is expected in Q3. This $100 million increase from the outlook we provided on April 30th only represents the impact on legacy Goodyear operations. As we intend to report Cooper's contribution to our segment operating income as a standalone item, at least through the middle of the year, we provided updated figures for several other financial assumptions. In nearly all instances, the change compared to the previous estimate reflects the impact of the merger. However, we've refined our forecast for rationalization payments to reflect our latest thinking on the cash recorded this year to finish executing our German modernization plans. Lastly, our reported results will continue to be impacted by non-cash costs triggered by the merger, including amortization of the Cooper tire inventory step-up and incremental amortization of Cooper tire intangible assets. On a pre-tax basis, our provisional estimate is for these costs to be about $85 million in Q3 and approximately $15 million to $20 million for Q4.

Ryan Brinkman, Analyst

Hi, thanks for taking my questions. I wanted to ask how you're feeling about your relative pricing power and ability to therefore offset commodity cost headwinds. Maybe in the context of a few factors that I thought might be important, but of course, any other factors you think might be important, maybe starting with where we are at regarding consumers' average tread depth on their tires. I think that you likely have some good insight into that, given the large number of retail stores that you operate. So what are you seeing there as miles driven recover? And then, if maybe replacing tires is something that Americans deferred earlier during the pandemic, but maybe now I need to catch up on making those purchases somewhat less discretionary. Another factor I thought to ask on, if it's important, is all of the monthly child tax credit and other transfer payments that many Americans are now receiving, whether that could help. And then lastly the increased equity that consumers have in their used vehicles, right? So the Manheim index is up a little bit today, but if used cars are worth 35% more than before the pandemic, does that help rationalize purchasing a new set of tires and maybe paying a little bit more for those tires, if the vehicle itself is so much more valuable? How do you think these or other factors will play into your ability to implement and to stick the price increases that are required to offset raw material inflation?

Rich Kramer, Chairman and CEO

Ryan, there's a lot to consider, but everything you mentioned seems to be aligning positively in the market now. Demand, especially in the U.S., is strong, and we expect this trend to continue. When looking at tread depth, we haven't noticed anything unusual regarding worn-out tires; the situation has remained stable. The last significant drop in tire condition occurred during the Great Recession, and since then, it has stayed fairly consistent. So, I wouldn't say this factor is driving changes. However, your point about government programs like the child credit putting money in people's hands is important. We typically observe a link between tax returns or refunds and spending in our channels, particularly in mass market retailers we work with. From the perspective of used vehicles and their increasing value, it's evident that as people hold onto their cars longer, they prioritize having safe tires. This trend is apparent across all our channels, including our retail stores and franchises, as well as large regional retailers and mass market outlets. We're witnessing the benefits of used vehicles remaining on the road longer and increasing in value, especially since it's difficult to find new cars. Now, regarding pricing, in the second quarter, we recorded a net recovery in pricing relative to raw materials, continuing a favorable trend for several quarters. Analyzing the U.S. consumer market, we've observed that replacement tire pricing has increased, with key competitors raising prices multiple times since November, typically by 5% to 8%. Recently, Goodyear announced up to an 8% price increase for our consumer replacement business, effective September 1st, marking our fourth increase in recent months. Earlier increases included up to 5% on December 1st, and up to 8% on April 1st and June 1st. Cooper also implemented similar price increases throughout the year. In the commercial tire market, we've seen comparable price rises of 5% to 8%. For Goodyear, we've executed price increases up to 6% and 12% on several occasions. These adjustments reflect market conditions concerning input costs and the balance of demand and supply. In Europe, we’re also experiencing price hikes as tire companies prepare for the winter season, following a trend similar to the summer and all-season market earlier this year. Goodyear has recently implemented a price increase of 4% to 5% for winter tires and an additional 2% to 3% for summer and all-season tires. Overall, these pricing strategies position us well to manage the anticipated rise in raw material costs in the second half, creating a constructive outlook for our business.

Ryan Brinkman, Analyst

That's helpful. Thank you. And then my last question is, I'd always been fairly impressed by Cooper Tire's ability to fund the research and development of tires, including more expensive, high-value-add tires in order to effectively compete with other tire manufacturers that were really multiple times larger and more global than they were and yet still generate the margins and returns that they did. Do you think that Cooper's culture had an element of thriftiness to it or sort of doing more with less? And if so, how do you ensure that the combined organization can learn or benefit from different aspects of the Cooper culture going forward?

Rich Kramer, Chairman and CEO

So, Ryan, Darren and I'll tag team a little bit here, but I would say you've sort of summarized some of the positives that Cooper has and why they were so attractive for us to do the deal that we did with them. Clearly they have very, as I mentioned in the beginning of my remarks, very talented people, very effective, great product lines, and a great go-to-market strategy through the channels that they deal with. I would say what we thought we were probably seeing, we're even more impressed with what the people, the teams can do there. It's great to have them on board; it's great to have them be part of the team. As we said from day one, clearly I think that we bring some things to the party, but equally they can teach us some things in some of that effectiveness, some of the way they do their developments; we're all ears, and we're going to learn together from them. So our job as part of integration, and maybe this is where I'll turn it over to Darren, is to make sure that we don't, we not only don't lose that element, but that we actually create an environment where we can benefit from it going forward. That's the plan.

Darren Wells, CFO

I think everything we've seen over the first eight weeks after closing has reinforced our excitement about the combination and has increased our confidence in the value we can create. We announced with the transaction that we expect to achieve at least $165 million in run rate cost synergies within two years, and we anticipate meeting or exceeding that along with additional cash and tax benefits. There are various synergies that will arise, and part of the reason we are being methodical is to ensure we take the best practices from both organizations. This means not just applying Goodyear approaches to Cooper's business but carefully evaluating each group and function to select the most effective methods. One key insight we expect to gain from the Cooper team is how to operate with lower costs and fewer resources. We are currently engaged in a three-month process with the integration leaders from both sides to develop detailed plans. After this, we will be able to provide more specific insights and identify opportunities. While we are not ready to share that information today, we look forward to updating you and detailing specific areas where we see opportunities in the future.

Rod Lache, Analyst

Hi, everybody. So pricing is really just a great barometer of what's happening in terms of supply and demand. But I was just wondering if we should also be considering the potential for mix to moderate a bit once light vehicle production accelerates, just since the OE has historically been a little bit less profitable versus replacement. And also relative to the weaker OEM demand right now, is that helping the industry rebuild inventories on the replacement side or are our raw inventories on our operations sides still pretty tight?

Darren Wells, CFO

Certainly. Let me address your last question first. There is some evidence that channel inventories are recovering, with industry sell-in increasing about 12% compared to 2019 levels, which is higher than the sell-out that remains in single digits. This indicates progress in restoring inventories, although we haven't made significant strides in North America. We are focusing on replenishing our own inventory to ensure adequate service levels, which necessitates maximizing our production capacity. The recovery of OE volume and its impact on our product mix is a valid concern. It appears that the recovery in OE volume might take longer than we initially anticipated due to ongoing semiconductor issues, which have proven to be more prolonged than expected. Overall, this delay could be beneficial for us. Additionally, we're encouraged by our increased share of fitments in OE. Our win rate over the past few years has improved, and we anticipated rebuilding our OE market share. As OEs resume production and replenish their dealers, they will do so at a time when we hold a greater share of the vehicles being manufactured, which may work to our advantage. Another positive aspect relates to the economics of electric vehicles. A couple of years ago, we highlighted several factors making this an opportune time to be a technology leader in the tire industry. Our win rate for electric vehicle fitments is significantly better than in the past. Two years ago, we were successful in winning about two-thirds of the electric vehicle fitments we bid on. Our recent data shows we are still winning approximately 60% of these bids, illustrating how effectively our OE teams are addressing performance and technical requirements for the increased weight and torque specifics of these vehicles. Moreover, compared to two years ago, the revenue per tire for electric vehicle fitments has more than doubled, with electric vehicle sizes increasing and a growing number of SUVs and trucks adding complexity to fitments. We've reassessed the situation post-COVID, especially with the surge in electric vehicle interest, and the outlook for our OE business appears promising. Since electric vehicles typically wear out more quickly, this will benefit us in the replacement market. While I may have expanded beyond your initial question regarding OE versus replacement, I believe the trends within the OE sector are quite positive and worthy of consideration.

Rod Lache, Analyst

Great. Thanks. And just two really quick ones, hopefully quick, a lot going on this morning. So it's possible that my quick math is wrong, but are you already converging now on that original 8% SOI margin target for Goodyear? And, and second, just if you can just give us a sense of the cadence of synergies with Cooper Tire, just what are the key actions that are being taken? How should we think that and how should we expect that to start getting rolled in?

Rich Kramer, Chairman and CEO

Sure. Regarding synergies, we anticipate some savings this year due to immediate effects from combining into one public company instead of two. Tax savings opportunities began right away, and our teams are actively engaged in a detailed planning process with hundreds of synergy ideas. It's challenging to provide specifics on the timeline, but we do not expect significant savings in the latter half of this year. Most of the synergies should start materializing in 2022, and once we complete the initial planning, we will be able to share a clearer timeline for 2022 and 2023, and how it might develop throughout 2022. In response to your first question about margin targets, I would have been disappointed if you hadn't asked. We've previously discussed our path to exceeding 8% in the near to intermediate term due to some initiatives we've implemented. Looking at our adjusted numbers, the first half is at 7.5%, and our trailing 12 months is over 7%. The trend is favorable, and we feel optimistic about exceeding 8%. We believe we'll feel we've accomplished this once we have a full 12 months above the 8% mark. We're close but not quite there yet. We also see potential in the legacy Goodyear business to improve from close to 8% towards double digits. If we consider Cooper's reported margins, they exceeded 11% EBITDA to sales this year, adding further potential for the combined company. Overall, we are optimistic about our progress, and we are seeing a strong recovery from the pricing and raw materials shortfall.

Darren Wells, CFO

Yeah. So Rod, on synergies, I think, as I mentioned earlier, we're seeing a number of key areas that can certainly contribute, and so we're going to be able to get you more specifics as we roll those out through the integration process, but certainly across all of these, it's taking the best practices and developing costs deterministically and making sure we lean into that.

John Healy, Analyst

I'd be remiss if I didn't say congrats on the quickness in terms of how you closed the deal and just the progress in the second quarter. One of the asks, though, is a little bit about Cooper's strategy going forward, its 60 days under your belt with the assets. Any initial thoughts on distribution either at retail or in the wholesale market, obviously a part of Cooper's strategy was to get bigger in the mass merchant channel. And obviously, you guys do well there. So kind of any sort of expectations we could set for how Cooper might be playing into that channel? And then secondly, with the relationship with HD, obviously, you guys moved away from that channel and that player two or three years ago. Any thoughts in terms of how Cooper might continue to operate with that going forward?

Rich Kramer, Chairman and CEO

Yeah. John, I think, good questions. At this point, it's too early for us to answer that with any specificity. I'll go back to what Darren outlined earlier: our integration process is a very thoughtful and methodical process. I will tell you, though, your thought process is absolutely the right one. We see this as beneficial for our customers and for consumers to expand the Cooper line, particularly in certain tire lines, but also in terms of the channels that they go to. We see lots of opportunities to get efficiencies in the go-to-market strategy as well. I think that exactly how that plays out is something that we are spending a great deal of time on. I would say we're no less encouraged; we’re actually more encouraged about the opportunities we see. I think you'll hear us talk more about that with the specificity you're looking for as we get through the integration process. You're thinking about it right. But we'll just hold off to lay the details out a bit later.

Darren Wells, CFO

Yes, John, you're right that we have some flexibility in substituting between natural and synthetic rubber. We've done this before to manage the price differences, but currently, the prices are quite similar, and we haven't encountered any major supply issues with either. Our teams are actively ensuring that supply remains stable. The recent winter storms in the Texas Gulf Coast did affect the supply of petrochemicals, and transportation has been more challenging for natural rubber, especially in getting containers to move the product from Asia and other rubber-producing regions to our factories. At this point, we don't foresee any long-term supply issues, which is reflected in the relatively stable natural rubber prices. We've had some tightness in supply of petroleum-based products recently, and now we are facing higher oil prices, along with environmental concerns related to their production. Our procurement and operations teams are exploring new transportation methods and expanding our supplier base to meet long-term availability needs. They've handled this well, and so far, we haven't experienced significant disruptions.

Rich Kramer, Chairman and CEO

Hey, Darren, I'm going to just jump in on two points. One just echo the comments. Our Chief Procurement Officer, Maureen Thune, and her team have just done a fantastic job making sure we don't have any supply issues by really being forward-thinking in too many people to name. But our supply chain teams all around the world have done just a great job to ensure our plants are functioning and staying open, even in business continuity mode from time to time. John, just the second point I would make: the near-term material situation is exactly like Darren described. I would also tell you though, longer term, any midterm and long term, we're also focusing from a sustainability perspective on other material replacements. You've heard us talk a lot about rice husk ash and soybean oil, and those are really great additions to make a more sustainable tire. Our goal is to make a fully sustainable tire by 2030 as we go forward, and ideally before that. We're working on a lot of things to create a different type of materials that we use, which will have an impact certainly on the traditional materials that we have as well. So nothing to speak about now, but I wouldn't put that sort of in your thinking as you think about material that goes into tires and what's happening around the world as well.

Victoria Greer, Analyst

Good morning. A couple of questions from me please. Firstly, on price mix versus raw materials, obviously very helpful to be guiding for that to be positive in Q3. Could you give us a feeling for the potential magnitude of the positivity versus the very big $130 million that you've seen in Q2? And could you also talk us through a bit how you see that net for Q4? In your guidance, how would you think about that split roughly between Q3 and Q4?

Rich Kramer, Chairman and CEO

Sure, Victoria, I’ll address your last question first. We included some notes on page 17 of our presentation regarding the impact of merger-related costs. The most significant impact will occur in Q3, particularly compared to the approximately $50 million we had in Q2. The primary factor influencing this is the mark-to-market adjustment of Cooper's inventory as of June 7th. There are also ongoing costs, such as the amortization of intangible assets, which contributes to the overall impact. Moving into the fourth quarter, we expect to incur around $15 million to $20 million in merger-related costs, which will continue into 2022. Regarding price mix versus raw materials, we are confident that we can manage this situation in the fourth quarter and will strive to keep the price mix ahead of raw material costs.

Victoria Greer, Analyst

Great. Thanks very much.

Operator, Operator

This will conclude today's Goodyear second quarter 2021 earnings call. Thank you for your participation, and you may now disconnect. Have a great weekend.