The Goodyear Tire & Rubber Company

items, including new rationalizations and discrete tax items in the quarter, non-GAAP earnings per share was a loss of 39 cents. Turning to the segment operating income walk on slide 7, our 2025 earnings base was lowered by $37 million due to last year's divestitures. After this change in scope, our 2025 SOI was $158 million. Lower tire unit volume and factory utilization were a headwind of $159 million. Price makes versus raw materials was a benefit of $103 million. Goodyear Forward contributed $107 million of benefits during the quarter, and inflation, tariffs, and other costs were a headwind of $117 million, which includes a $46 million IEPA tariff adjustment. Foreign currency and other were a tailwind of $3 million. Turning to slide eight, free cash flow was a use of $893 million in the quarter, consistent with our seasonality and largely in line with last year's levels after excluding operating cash received in the first quarter 2025 from the sale of OTR. Net debt declined almost $900 million versus a year ago, reflecting debt repayment at the end of last year. Moving to the SBU results on slide 10, America's unit volume decreased 17%, driven by lower U.S. consumer replacement volume. Commercial volume was also significantly lower than last year, following trends in recent quarters. U.S. consumer replacement volume reflected a couple of different factors. First, the external environment. We saw destocking at our retailers and distributors, given weak industry sell-out trends, as well as market share losses following aggressive competition for shelf space, particularly in the less than 18-inch rim-sized segments. The second factor was our own planned exits of low-margin product lines, which amplified our volume decline in light of the difficult industry environment. We will lap the majority of our product exits by the end of the second quarter, and it's important to note that our premium products continue to perform well as we look at our market share at retail sellout. Having said that, competitive market share losses in structurally vulnerable lower tier segments requires that we accelerate actions to reduce footprint costs. Turning to the commercial truck business, replacement volume declined 22% and OE volume was down 5.5%, but relatively stable compared with the fourth quarter. America's segment operating income was $37 million, reflecting the impact of lower volume, partly offset by price mix versus raw material benefits and Goodyear Forward savings ahead of cost inflation, net of the IEPA tariff adjustment. Turning to slide 11, EMEA's first quarter unit volume decreased 8.5%. Consumer replacement volume declined, reflecting a weak sell-in market, low-end portfolio rationalizations, and increased competition, partly offset by the relaunch of the Cooper brand in the region. Consumer OE was a continued area of strength, and commercial volume improved, driven by replacement. Segment operating income in EMEA was $1 million in the quarter, reflecting an increase of $13 million adjusted for the sale of the Dunlop brand. I'll also note that in March, we announced a rationalization plan to streamline our sales and distribution model and our business processes that should deliver $50 million in annual savings. The plan should be complete by 2028. Finally, as Mark noted, our direct volume exposure to customers located in the Middle East is relatively immaterial. In addition, before the beginning of the conflict, we had fixed about 75% of our energy rate exposure in EMEA for the current year. And finally, EMEA should see much less of an impact from rationalized product lines in Q2. Turning to Asia Pacific on slide 12, segment operating income increased 27% to $57 million, or 12.5% to sales, expanding three full points compared to the prior year. Growth in earnings was driven by strong execution in price mix versus raw materials, with our premium product lines up nearly 30% year over year. Asia's first quarter unit volume decreased 3.8%, driven by lower OE volume, particularly in China, given lower EV incentives versus last year. Turning to our 2026 outlook, the direct impacts of the conflict in Iran on the tire industry and our earnings largely depends on its duration, related impacts to customer and consumer demand, and tire commodity costs, all which make the outlook for the balance of the year unclear. At current spot prices, raw materials will be a headwind of $200 million in the second half, which represents a headwind of about $300 million from our prior forecast. We have a consistent track record of offsetting raw material inflation with price mix, and we are fully committed to new and meaningful operating and structural cost reduction. While there is very clear pressure on our near-term earnings, I am confident in our team's ability to manage through various scenarios that might unfold over the coming quarters with both price mix and cost actions over time. As we look at the second quarter on slide 14, We would expect lower year on year volumes, but improving from the first quarter all else equal. This expectation is rooted in new assortment wins with key customers, actions we implemented during the first quarter, and a more natural alignment of sell in relative to sell out. Having said that, it's not clear what demand volatility we may see due to the Middle East conflict. Our second quarter industry assumption for consumer replacement is down about 3% in North America and China and down about 2% in EMEA. For commercial, we expect the industry in North America to be down 12% and down 3% to 4% in EMEA. Given production cuts in the first and second quarters, including actions to manage our cash flow during this period of uncertainty, unabsorbed overhead will be a headwind of approximately $90 million and negative again in the third quarter. Price mix should continue to be positive and step up meaningfully from the first quarter, given stronger volume and our mix of new fitments, all else equal. Raw materials should be a benefit of roughly $100 million, and Goodyear Forward will drive benefits of approximately $90 million in the quarter. Inflation, tariffs, and other costs will be a headwind of approximately $200 million. On a full-year basis, these will be about $420 million higher. which is a reduction of about 80 million from our February call, driven by the IEPA tariff adjustment of 60 million, 46 of which we recorded during the first quarter. Finally, the sales of Dunlop and Chemical lowers the base of earnings by 43 million in the second quarter. Other financial assumptions are shown on slide 15. Given the uncertain environment, we have reduced planned capital expenditures to $725 million. Our global tax rate will continue to be unusually high and sensitive to changes in country mix. And finally, while our working capital for the year could be shaped by both timing and levels of volume and commodity rates, we will continue to target a working capital inflow at year end. With that, we'll open the line for your questions.

Thank you. If you would like to ask a question, please press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star and 1 to ask a question. And we will take our first question from James Mulholland with Deutsche Bank. Please go ahead. Your line is open.

Good morning, and thank you for taking my questions. I just wanted to dig in a little bit on the raw materials headwind in the back half of the year. Given the volatility, I was wondering if you could share some thoughts on the sensitivity of SOI based on oil prices. I mean, we've seen a pretty material move yesterday and then again this morning. So it would be helpful if we could ballpark the impacts on the guide or I guess put another way, I'm not sure what the oil price of the current guide incorporates is, but if oil were to change $5 or $10, could you give us some sense of what that sort of benefit might look like?