The Goodyear Tire & Rubber Company

Please stand by, your program is about to begin. If you should need any audio assistance in your call today, please press star zero. Good morning, my name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's second quarter 2022 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. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. I will now hand the program over to Christian Gadzinski, Senior Director, Investor Relations.

Thank you, Ashley. Good morning, and welcome to our second quarter 2022 earnings call. On the call with me today are Rich Kramer, our CEO, Darren Wells, our CFO, and Christina Zamaro, our VP Finance and Treasurer. We'll begin with a few words and 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 see slide two of the supporting presentation for today's call and our file links with the SEC, which 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 in today's call to the comparable GAAP measures is included in the appendix of that presentation. And with that, I'll turn the call over to Rich. Great.

Thank you, Christian, and good morning, everyone. Thank you for joining the call today. During the quarter, our business continued to perform at a high level. Our second quarter sales and earning performance were the result of solid execution by our teams around the globe, who helped grow unit volume while driving pricing actions that covered not only raw material cost increases, but most other inflationary headwinds as well. This is the third consecutive quarter where we have done so amidst 40-year high inflation levels. Revenue of the combined company grew more than 30%, including 15% in our legacy business. The result was the highest second quarter revenue level in more than a decade. our consumer tire volume globally grew 6% and commercial grew nearly 2%, excluding Cooper. And we achieved this volume growth while increasing revenue per tire by 14% compared to last year. Cooper also contributed meaningfully to our results in the quarter, as it has since we closed on the transaction now just one year ago, a noteworthy milestone. I was truly proud of the results our team delivered during the quarter and through the first half, and they did so in an environment of broad-based supply chain disruptions and staffing challenges in our factories, challenges that have carried on longer and more deeply than anyone expected. In the end, our teams rose to the occasion and drove another excellent quarter. I'm likewise pleased with what our teams have been able to accomplish over the last year to combine Goodyear and Cooper. While work is ongoing, we're making continued progress on achieving the full value of the combined companies. Our continued work is focused on furthering our integrated brand and product portfolio and driving increased efficiency in our operations. Looking forward, we see the headwinds and uncertainty that we've been facing for the last several quarters persisting for the remainder of the year. I'll make two observations here. First, while first have volume and share trends were favorable, we continue to closely watch the balance between channel inventories and sellout as a means of assessing any emerging trends in the market. Our extensive point of sale information and distributor and dealer market intelligence position us well to see and sense any changes. And second, our teams are prepared, just as they were coming into the year, for a range of possible outcomes. Uncertainty and volatility have defined our landscape since the onset of COVID and continued through a war in Ukraine, supply chain issues, and significant inflation. Our teams have executed well in that environment and are poised to do so again over the remainder of the year as it develops. As we look to the future, we know that our industry will evolve with the changes in the macroeconomic environment. We also know that our business is stronger operationally, financially, and strategically. From the additions of the Cooper product portfolio in the mid-value segments to our award-winning Goodyear premium products, we are well positioned and excited for what's coming next. And with the addition of our mobility solutions initiatives around the intelligent tire, integrated fleet services, and a tire made of sustainable materials, we see even further possibilities. This vitality is evident in each of our strategic business units as well, and I'll begin with our Americas segment. Americas continues to execute in an environment that has been normalizing after a sharp recovery from the pandemic last year. Quarterly revenue in the region was up 39%, including 14% in our legacy business. Our ability to price for the value of our brands in the replacement market has allowed us to grow our top line. It has also enabled us to stay ahead of both higher raw material costs and other inflationary cost pressures, continuing a trend since we began to feel the effects of inflation toward the end of last year. This is the third quarter in a row where we have seen elevated inflation and the third quarter in a row where price and mix more than offset the increase. A strong product portfolio, made stronger because of our combination with Cooper, also remains a growth catalyst. In the first half of the year, we've introduced a slate of new products to the market throughout the Americas that highlight our capabilities to increase tire sustainability, take advantage of EV trends, and meet evolving customer needs. In the U.S., reported volumes for the consumer placement industry were down year over year in the second quarter, reflecting the rebuild of inventory a year ago. While this impacted our reported volume in the quarter, strengthening sell-out trends have resulted in inventories in our distribution network falling during the first half and being below pre-pandemic levels. This gives us confidence in second-half volumes, assuming recent trends continue. At the same time, other indicators point to a healthy underlying transportation economy in the United States, which is supportive of ongoing tire demand. U.S. miles driven is up nearly 4% year-to-date, on par with pre-pandemic 2019 levels. Freight tonnage is also up close to 3% year-to-date, supporting continued commercial tire sellout. In Latin America, the replacement markets have been a continued bright spot for us, and our teams continue to deliver. With our refreshed product portfolio in both consumer and commercial, and both OE and replacement, we continue to deliver volume and share growth, as well as price and mix. I remain pleased with our team's execution in this volatile region. In the America's OE business, consumer and commercial volume each have grown double digit percentages versus 2021, reflecting beginnings of a recovery in production. With the consumer OE tire industry volumes still well below 2019 levels, we anticipate the effects of the OE recovery to persist. Now in this environment, our OE win rate continues to be strong with a focus on the higher value EV segments as we've previously discussed. Before moving on to our overseas businesses, you will likely have seen that we reached a tentative agreement on a new labor contract with the United Steelworkers covering our legacy U.S. Goodyear plants after the most recent agreement expired on July 29. As per our normal practice, we will not discuss the details until after it is ratified by the USW membership in the coming weeks. In EMEA, the replacement tire industry grew steadily in the quarter, eclipsing pre-pandemic 2019 levels by about 4%. And Goodyear outperformed the industry for the sixth consecutive quarter. I continue to remain very positive about our positioning within the industry in this otherwise complex environment. Thanks to our consistently competitive product offerings, actions over the last several years to strengthen distribution, and our ability to supply with our Western European footprint, our consumer replacement business grew volume 27%, and our commercial replacement tire volume was up 5% compared to last year. Consumer replacement tire growth was broad-based, covering summer, all-season, and winter tires across the value spectrum. And this growth took place while we were successfully implementing several price increases. Through our aligned distribution initiative, we are winning with consumers and capturing the value of our brands in the marketplace. Our consumer OE volume was up about 8% versus last year, but well below pre-pandemic levels. While we expect carmaker supply chain challenges to last into 2023, we remain well positioned to reap the rewards of a recovering industry. Looking forward, the effects of war in Ukraine, energy security risks, and persistent inflation are all current reminders that we need to continue to be attentive and agile. I'm confident in our team's agility to execute as we move ahead. Turning to our Asia-Pacific region, last quarter you heard me speak about near-term hurdles in China following stay-at-home orders that disrupted our markets and our factories. While the impact of this disruption was in line with expectations, we're also pleased with the pace of recovery in our business, including our plants being back up to capacity and signs consumer confidence is beginning to turn a corner. These trends are encouraging, as is the resiliency of our team on the ground. This region's revenue increased about 11% in our legacy Goodyear business, driven by share gains in India and industry strength in markets outside of China. In our Oli business, while COVID impacted OE industry volume in China, the effect was more than offset by the ramp-up of new fitments, as well as continuing growth in India and other parts of Asia. Our past investments in product technology will continue to deliver results as the market recovers. As the world of mobility continues to rapidly evolve, a trend we read about every day and certainly see transpiring at all of our customers, rest assured Goodyear is not standing still. This is evident in our initiatives in a number of areas, such as the increasing digitization of our industry-leading commercial fleet services, our new business models such as our direct-to-consumer mobile van installation and ANGO, our predictive vehicle servicing platform, and our numerous other venture funding partnerships. With all our progress, this commitment is no more evident to me than in our work around the intelligent tire. We fundamentally believe that the contact patch between the road and the tire will take an added significance as EVs and AVs evolve. Our deep experience around tire and vehicle performance paired with proprietary predictive algorithms has grown my confidence in the role our products and services will play as mobility evolves from static human-driven combustion engine vehicles to electrified connected and potentially autonomous vehicles. Tire intelligence and the knowledge of what is happening at the connection with the road through the tire contact patch is a job we uniquely do, as evidenced by the growing portfolio of partnerships we now have with OEs and ADAS system developers. More to come on this technology, but know that our focus and investment will not be deterred as we navigate a tumultuous economy. The future remains brighter than ever, and Goodyear will be leading it. The second half of the year suggests uncertainties in our environment similar to what we've been experiencing. However, I'm confident in our plans and our teams to deliver against our objectives just as we did through the first six months of the year. Our focus is on execution, and our sights are set on the mid- and long-term opportunities the changes in mobility will present our industry, including the goal of Goodyear solidifying its industry leadership position. Now, with that, I'll turn the call over to Darren and join you again in a few minutes to answer your questions. Darren?