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spk00: Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's third quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After some opening remarks, there will be a question and answer session. You may register to ask questions over the phone by pressing the star and 1 on your telephone keypad. You may withdraw your question from the queue by pressing star 2. Today on the call we have Rich Kramer, Goodyear's Chairman and Chief Executive Officer, and Christina Samaro, Chief Financial Officer. During this call, Goodyear will refer to forward-looking statements and non-GAAP financial measures. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially from those forward-looking statements. For more information on the most significant factors that could affect future results, please refer to the important disclosures section of Goodyear's third quarter 2023 investor letter and their filings with the SBC, which can be found on their website at investor.goodyear.com, where a replay of this goal will also be available. A reconciliation of the non-GAAP financial measures that may be discussed on today's call to the comparable gap measures is also included in the investor letter. I will now turn the call over to Rich Grimmer, chairman and CEO. Rich Grimmer Great.
spk03: Thank you, Nikki. Good morning, everyone, and thanks for joining the call today. By now, you've seen our investor letter covering Q3 results. and also an announcement that we'll be with you again next Wednesday, November 15th, with an update on the results coming out of our strategic and operating review. Now, with that in mind, we're happy to take questions on the quarter this morning, but I'd ask that you hold any questions related to the review until next week when we'll be able to say more. So thank you for that. And, Nikki, with that, let's go ahead and take the first question.
spk00: Thank you. And as a reminder, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question at any time by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad. We'll take our first question from Rod Lachey with Wolf Research. Please go ahead. Your line is open.
spk01: Good morning. I was hoping to ask... Two questions, maybe just a higher level. I know you don't want to get into any details on the strategic and operational review, but just first of all, at a high level, maybe you could talk a little bit about the European business, which is still quite weak with a 1.5% margin. And just at a high level, the worry is that it's a very structurally challenging market that would require a lot of investment funding. Right now, your restructurings typically take $3 to $4 of restructuring cash for every dollar of savings. So could you maybe just talk to us a little bit about the changes that are being made there and whether you see some structural changes that make this more fixable? And on the strategic side, I expect that you'll give us more specifics over the next couple weeks, but at a high level, any indications of interest that you're assessing on businesses within Goodyear?
spk03: Yeah, Rod, first of all, you know, I think we would agree with you relative to the performance, you know, of EMEA. You may recall we said our near-term goal was to get back to the, you know, sort of the 50 million, pre-COVID 50 million goal. per quarter run rate. And Q3, while a little bit better than Q2, certainly is well below that run rate. And that's the issue that needs to be addressed, to your point. You know, I point out, again, as you know, the industry is still really challenged relative to 2019. You know, as you've seen in our investor letter, we included the 2019 numbers. where you see the consumer businesses down, let's call it still 15%, and the truck business 22% versus 2019. So, look, it's not back to normal. But having said that, to your point, we've been and are evaluating EMEA and looking at all options to generate value in the near term. And continuing to assess sort of the long-term solutions as well, given the macro environment of what's going on over there. And particularly, I think we've all seen sort of the recent sort of number of articles talking about the ICE, the EV conversion, the competitive challenges, high cost of, you know, doing business there and the like. And I think that's the tough environment that you've referred to. So I'd say, Rod, you know, near term, like we have, we're acting now, and I'd say more to come. What we're doing now is, as you've pointed out, we've announced already some manufacturing and some plant actions there and some SAG actions as well over the last two quarters. You've also seen some competitors do some similar things like that. And also in the near term, what we're looking to do is make sure that we stabilize those earnings in the near term and not lose the benefit of those cost savings that we've done, as we know that's happened in the past as well. So... I'm going to go back to my opening statement and say, look, we are continuing to actively assess this, including with our review committee. And I would just say more comments to come next week as we look at this. But it is certainly a challenging area. I would agree with you.
spk01: And on the IOIs, just at a very high level, are you receiving any indications of interest from other players in your businesses specifically? It's pretty well known that you're going through the strategic review, and you'll have more detail to come, but can you just offer any kind of high-level comments on that?
spk03: Yeah, Rod, again, I'd have to say we'll be back to you next Wednesday on the separate call. You know, the committee is doing an all-inclusive, including even a comprehensive review, evaluating all the options, again, with the idea of maximizing shareholder value. So we'll come back to you on Wednesday.
spk01: Okay. Then just maybe one thing that you may be able to answer is just you've had a pretty nice improvement in raw materials versus net pricing, again, this quarter. But obviously, oil prices are starting to move in an adverse direction. Any thoughts on how things are kind of shaping up into early 2024?
spk03: Yeah, I mean, Rod, maybe I'll let Christina jump in. I would just maybe add to your point, you know, we're still seeing a very stable pricing environment in Q3. You know, we continue to see that in October as well. And, you know, our business this quarter really focused on those areas where we can drive value again, which is that premium part of the market where our value proposition holds up really well. And that's a That's what we did. That's what we saw. And I would tell you, that part of the market, even as we get into 2024, and Rod, you'll remember this, is we sort of bifurcate the market. The premium part of the market still has The dynamics that are favorable to us, certainly in terms of segments, it's the most profitable profit pool, if you will, of the market. It's where we have 18 and an inch above growing fairly significantly, I think about 7% in 2023. Our products, our brand, our technology, both Goodyear and Cooper, play really well there. And again, the demand to supply dynamics still work in our favor. And I think that's what you saw in Q3. That's what you'll see in Q4 as we move ahead. And, look, maybe I'll turn it over to Christina. We'll certainly still see some inflation coming at us, and, you know, you'd be right to think that we're going to go to offset that in the marketplace with the value of our products. But, Christina, you might want to jump in on it.
spk04: Hi, Rod. So I'll just, you know, anchor us back to what we said on the second quarter call. We had given some guidance for the first half of next year, indicating that we thought our raw material tailwinds would be about $400 million over the first half. With the increase in spot rates across our base commodities, we would say that feedstocks are down about $120 million since then, so implying a benefit of about $280 million in the first half. I think we right now would still see a benefit in Q3, maybe a slight headwind in Q4, but we are continuing to assess all opportunities on non-feedstock savings as well. Some of those energy transportation costs are coming down. So we'll continue to refine the assumptions and come back to you on our fourth quarter call. But that's how we're seeing it right now.
spk01: Great. Thank you very much.
spk04: Thanks, Ron.
spk00: Thank you. And once again, it is star and one on your touchtone phone if you would like to join the queue. Star and one. We will move next with James Piccariello with BNP Paribas. Please go ahead. Your line is open.
spk02: Hey, good morning, everyone. Just for the fourth quarter guidance framework, if we want to call it that, the only missing piece, and, of course, you continue to appreciate the color on the quarterly outlook roll-up. The only missing piece would be the other line, So in the third quarter, for instance, you had your chemicals business incur a $21 million headwind, $32 million overall for other. How should we be thinking about that one line item in the 4Q guidance for SOI?
spk04: Yeah, James, so we've indicated a $15 million SOI impact from the fires that impacted our factory in Poland in the third quarter. That's a discrete item, and that is what will be shown in other. We won't have a continuing impact from chemical sales like we saw earlier in the year. We're lapping that comp in Q4.
spk02: Okay, so excluding the fire impacts, the other lines should be something close to neutral. Correct. Okay, understood. And then as we think about restructuring spend and free cash flow for next year, and just focusing on the series of actions that you guys have announced throughout this year with detail on what the intended cash spend is for those actions. Can you speak to what cash restructuring could look like for next year relative to the $100 million that you're guiding for this year?
spk04: Yeah, so we've announced programs. You know, in-flight programs so far this year, totaling $100 million in savings for 2024. And Rich mentioned earlier a couple of programs in EMEA, one that was a larger SAG restructuring program, also a reduction in our production at a Boulder factory. And then there's also been an announcement related to a change in our go-to-market model in Asia Pacific, in Australia in particular. So with those in-flight programs and what's been announced to date, restructuring cash next year would be around $300 million in 2024. Those programs also have a stub into 2025 of about $60 million. Okay.
spk02: All right. Thank you very much.
spk00: Thank you. And these thoughts conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time.
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