Goodyear Tire & Rubber Company (GT) reported a strong first quarter in 2024, with segment operating income of $247 million, nearly double that of the previous year. The performance was driven by recovery in the Americas and growth in Asia Pacific, despite softer overall volume due to a strategic shift away from low-margin products.
The company is enacting its Goodyear Forward plan, targeting $1.3 billion in earnings improvement and a 10% segment operating income margin by the end of next year. Goodyear's net debt also decreased by over $550 million compared to the previous year. CEO Mark Stewart remains optimistic about the company's direction and its ability to create shareholder value.
Key Takeaways
- Goodyear's Q1 segment operating income nearly doubled year-over-year to $247 million.
- The Americas and Asia Pacific regions showed recovery and growth, respectively.
- Goodyear is executing its Goodyear Forward plan, aiming for significant earnings improvement.
- The company's net debt decreased by over $550 million compared to the previous year.
- Unit volume decreased in America and EMEA, but increased in Asia Pacific by 10%.
- Goodyear expects flat global unit volume and higher unabsorbed fixed costs in Q2.
- The company anticipates positive price/mix in the second half of the year.
Company Outlook
- Goodyear expects stability in volume and pricing in the second half of the year.
- The company projects good OE growth in the Americas and restocking in EMEA.
- Asia-Pacific is expected to continue its growth trajectory.
Bearish Highlights
- The company reported softer overall volume, attributed to weaker industry sales and a strategic focus on profitability.
- There are projected cost headwinds of around $215 million for the year, mainly due to base inflation and the closure of two factories in Europe.
Bullish Highlights
- The company is confident in exceeding its restructuring savings target of at least $375 million.
- Goodyear is expanding its product portfolio with premium offerings and growing the Cooper brand.
- New premium products like WeatherReady 2 and Electric Drive 2 have been launched.
Misses
- First-quarter unit volume in America and EMEA decreased.
- The company is facing insurance headwinds and claims activity impacting costs.
Q&A Highlights
- Goodyear addressed their manufacturing efficiency and cost reduction measures.
- The company discussed improving free cash flow through working capital efficiency and CapEx discipline.
- Goodyear aims to achieve an annualized adjusted free cash flow of $600-700 million by Q4 2025.
In conclusion, Goodyear's first quarter of 2024 showcased a robust performance with significant improvements in operating income and debt reduction.
The company's strategic initiatives and product launches indicate a focus on long-term growth and market adaptation. Despite some volume decreases and cost challenges, Goodyear's leadership is confident in the company's trajectory and its ability to navigate the industry's volatility.
InvestingPro Insights
Goodyear Tire & Rubber Company (GT) has demonstrated resilience in its first quarter of 2024, with a notable reduction in net debt and a doubling of segment operating income. The company's strategic decisions and market performance can be further understood by examining key financial metrics and insights provided by InvestingPro.
InvestingPro Data indicates a market capitalization of $3.6 billion, reflecting the company's current valuation in the market. Despite a challenging period, the stock has shown a 1-week total return of 3.76%, suggesting a recent uptick in investor confidence. However, the year-to-date price total return of -13.34% highlights the volatility and challenges faced over the longer term.
The InvestingPro Tips provide additional context to the company's financial health and market position. Goodyear operates with a significant debt burden, which aligns with the company's reported efforts to reduce net debt.
Analysts predict that the company will be profitable this year, which is consistent with the optimism expressed by CEO Mark Stewart regarding Goodyear's direction and potential for shareholder value creation. The company's weak gross profit margins, at 17.47%, may be a point of concern, but the focus on premium products and cost-saving measures could help improve profitability.
For investors looking to delve deeper into Goodyear's financials and market outlook, InvestingPro offers an array of tips and metrics. Currently, there are 7 additional InvestingPro Tips available that can provide further insight into the company's performance and potential investment opportunities. These tips can be accessed through the dedicated InvestingPro page for Goodyear at https://www.investing.com/pro/GT.
To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to comprehensive financial data and expert analysis.
Full transcript - Goodyear Tire & Rubber Co (GT) Q1 2024:
Operator: 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 First Quarter 2024 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. [Operator Instructions] Please note this call may be recorded. It is now my pleasure to turn the conference over to Greg Shank, Senior Director Investor Relations. Please go ahead. Greg Shank Thank you, Nikki. Good morning and welcome to our first quarter 2024 earnings call. Today on the call we have Mark Stewart, our Chief Executive Officer and President; and Christina Zamarro, our Executive Vice President and Chief Financial Officer. During this call we 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 slide 20 of the supporting presentation for today's call and our filings with the SEC. These materials can be found on our website at investor.goodyear.com where a replay of this call will also be available. A reconciliation of non-GAAP financial measures discussed on today's call to the comparable GAAP measure is also included in the appendix of that presentation. With that, I will now turn the call over to Mark.
Mark Stewart: Thank you, Greg, and good morning, everybody. Thanks for joining us. Yesterday, after the market closed, we published our first quarter results. As you've seen, we've updated our quarterly earnings format with a goal to enhance our process, provide information to the investors, which they're most interested in. We are happy to take your feedback on our new format as we move forward. As we kick off with some reflections, I'd really like to begin today thanking the entire Goodyear team for delivering on our first quarter ahead of plan. We are fully engaged in executing the Goodyear forward and it is this level of momentum that is going to help us drive towards stronger results, stronger segment operating margins, and stronger free cash flow over the next couple of years. I do want to point out that it's not just what our associates have accomplished. It's also about how they're doing it. We are focused on a very clear set of KPIs to deliver the Goodyear forward, our operating plan, and we have the governance and accountability very clear through our chain. Through my first months here at Goodyear, it is clear our associates are committed to doing the right things and in the right way. This is why the company continues to be one of America's top trusted brands. Since I joined Goodyear just over 90-days ago, it's been inspiring to engage in discussions with our associates in our plants, at our retail centers, at our tech center and headquarter, and all of our stakeholders, as well as I've worked to dive deep into understanding the business and making sure that I'm laser-focused together with the team to execute our Goodyear Forward transformation, as well as the annual operating plan we have in front of us. We turn to Q1 results. As we look at our results for the first quarter, we delivered segment operating income of $247 million ahead of expectations and nearly doubling our earnings from last year. This reflects a marked recovery in our America's business, with SOI up $100 million from the prior year. Our Asia Pacific business also continued to see significant growth, both in volume as well as earnings. EMEA's results in the quarter were relatively stable, providing a good base for us to grow. All that said, as we see our overall volume softness in the quarter, partly driven by weaker industry members selling volumes, partly due to the very specific actions we're taking to increase profitability on low margin, low value-add products. This is a clear strategy of the Goodyear Forward plan, something that will help us to increase our margins over the next couple of years. It's a focus by product line, profitability and our product should cost analysis which I'll cover more later. And at the end it's always about our execution. Like we've seen over the past several quarters, global consumer replacement industry volumes continue to be influenced by growth in low-end imports in both the U.S., as well as Europe. This dynamic was captured as part of our first quarter outlook. As we look at what is happening at the retail level, industry sellout was up slightly in the U.S. and up about 3% in Europe. In our commercial truck business, and like we've seen over the last several quarters, a weak fleet industry condition continued to weigh on our business in the Americas, as well as the EMEA. For the Americas, while sellout conditions are stabilizing, the industry did see some pre-buy as a result of potential new tariffs on imported tires coming from Thailand. With that said, we don't see this incremental import activity as a significant headwind to our plan. As we turn to Goodyear Forward, we delivered about $70 million in segment operating income improvements during the first quarter. In addition to what we captured in the P&L this quarter, we are executing actions to drive towards our $1.3 billion planned earnings improvement as part of Goodyear Forward. In our footprint and plant optimization, we have put together very detailed plant-specific factory plans. Going to the work center level to drive factory efficiencies across our footprint, we are reviewing the details of these efficiency plans with our plant operating teams together with the leadership team on a weekly basis. In addition, I spent the last month visiting our manufacturing sites in the U.S. to support both these initiatives to get to know our teams and to get to know the folks on our production floor. The work in our factories includes implementing improvements to drive increases in our operating equipment uptime, reliability, reducing the complexity in our factories, reducing the number of configurations, preparing to run several products on common product platforms, as well as rationalizing our materials. We are also working to reduce overtime and third-party contractor spend as we move forward. In addition, we've announced changes to our distribution strategy in Australia, three planned factory closures, two in Germany, one in Malaysia. In purchasing, we're negotiating with our suppliers using clean sheet and shift cost methodologies and analytics, which are aided by tech advancements. We are implementing enhanced spend control standards and control processes to get to a deeper level of visibility, as well as very proactive management of our spend all the way down to the factory level. Given that procurement plays such an essential role in the success of Goodyear Forward, I have elevated the Chief Procurement Officer role to report directly to me on the leadership team. In our SAG areas, we previously announced a reduction of 1,200 positions in EMEA. It will deliver $100 million in savings by 2025. In addition, we've also taken actions on additional 135 positions in the U.S. and LatAm during the first quarter. While headcount reductions of any kind are always very difficult decisions that we can make as a management team, they are in fact required for us to right size our cost structure and enable our long-term competitiveness as a company. In the supply chain and research and development, we continue to optimize for best cost. As I mentioned earlier with respect to margin enhancements, we took actions in the first quarter to increase our price/mix on our lowest margin accounts. At the same time, we are also working to industrialize a number of new products to bring to market and the SKUs associated with that. In the quarters ahead, we're going to broaden our product portfolio with increased premium Goodyear fitments for the high-end market as we continue to rationalize our portfolio and SKU count where appropriate. We continue to be very focused on the Cooper brand as well and continuing to grow in that area. Our retail store network in the U.S. turned in their best first quarter in five years, driven by advancements in consumer insight and the actions we've taken to improve our price and our mix. Overall, as I reflect on the quarter, I am very encouraged with our execution. I'm excited about the improvements that we are driving for the future. And by now, I've been through the detailed makeup of the Goodyear Forward plan inside and out and can confirm that we have the line of sight to the $1.3 billion run rate improvements and 10% segment operating income margin by the end of next year. We'll keep a close eye on the industry volume and price/mix over the next quarters to ensure we're managing the external environment, while we execute our plan to drive value for our shareholders. Now I'll ask Christina to take you through the first quarter financials in greater detail and we'll move on to Q&A. Thank you. Christina?
Christina Zamarro: Thank you, Mark. I'll start by echoing Mark's excitement about the execution we're seeing from our team on Goodyear Forward. With energy carrying throughout our organization, it's clear that the combination of this plan, our team's knowledge of the business, and their ability to drive results sets us up for success. I'll begin with our financial results starting with the income statement on slide eight. Our sales totaled $4.5 billion, down 8% from last year, driven by lower tire volume and unfavorable price/mix. The unfavorable price/mix was due to the impact of two factors. First, a weak commercial truck industry on our mix and second, contractual price adjustments as feedstock prices have remained low over the last several quarters. Unit volume was down 3% from last year. Overall replacement volume declined 7%, partly offset by higher OE volume, which increased about 9%. Segment operating income for the quarter was $247 million, up $122 million from a year ago. After adjusting for significant items, our earnings per share was $0.10, up $0.39 versus last year. The year-over-year drivers of our earnings are shown on slide nine. The impact of lower tier unit volume was $28 million, reflecting a decline in shipments of 1.4 million units. Factory utilization was a slight benefit. Segment operating income benefited from favorable net price/mix versus raw material cost of $127 million. Raw materials were a benefit of $261 million and price/mix was negative for the quarter due to commercial truck mix and contractual pricing adjustments. The negative impact of price/mix was $134 million. Having said all that, sequential pricing from the fourth quarter was stable. Goodyear Forward initiatives contributed $72 million in the quarter with benefits driven by plant optimization and purchasing. Inflation in the quarter was $58 million or about 3%, which was partly offset by favorable other costs of $25 million, driven by lower transportation rates. Other SOI is primarily consist of the impacts from the fire in our Poland facility that occurred in August of last year. Turning to slide 10, net debt totaled $7.4 billion at the end of the first quarter, down just over $550 million from the same time last year. Cash flow from operating activities is typically negative in the first quarter as activity ramps up following the holiday shutdown. Cash use decreased in the first quarter versus a year ago, given lower raw material costs in our inventory and increased earnings. Moving to our SBU results and starting on slide 12, America's first quarter unit volume decreased 7% or 1.5 million units driven by replacement volume. These results are in contrast to the relatively strong U.S. industry in the first quarter, which was driven by an increase in low-end imports. Industry member volume, primarily representing large branded tire companies, was lower year-over-year. Segment operating income totaled $179 million, or nearly 7% of sales, reflecting an increase of $100 million year-over-year. America's earnings benefited from lower transportation rates, the execution of Goodyear Forward, and from net price/mix versus raw materials, which more than offset inflation and volume headwinds. Moving to slide 13, EMEA's first quarter unit volume decreased 5% or 700,000 units driven by replacement. Like in the U.S., Europe's consumer replacement industry growth in the first quarter was driven by imports. Our premium segment share remained stable versus prior year. Segment operating income was $8 million and flat from a year ago. Favorable net price/mix versus raw materials and Goodyear Forward actions were offset by volume declines and inflation. Turning to Asia Pacific on slide 14, first quarter unit volume increased 10% or 800,000 units driven by OE growth in China. Segment operating income totaled $60 million and 10% of sales with an increase of $22 million in SOI, compared to the prior year. Asia’s earnings benefited from favorable net price/mix versus raw materials, volume, and Goodyear Forward initiatives. These benefits were partially offset by higher costs. Turning now to our second quarter outlook on the left-hand side of page 16, we expect second quarter global unit volume to be about flat versus prior year. I'll note that this excludes the America's replacement unit volume recovery related to last year's tornado at our Tupelo facility, which I'll cover in SOI other in just a moment. Additionally, we expect higher unabsorbed fixed costs of about $30 million, driven by lower production volume during the first quarter. Lower raw materials will be a benefit of about $160 million, partially offset by about $70 million of lower price/mix, driven by raw material indexed agreements. We expect Goodyear Forward to deliver approximately $75 million of SOI benefits during the second quarter. Lower transportation rates will partly offset general inflation for net headwind of about $10 million in costs. SOI other items to consider include a net benefit of the recovery from the 2023 storm at our Tupelo facility and the continuing impact from the fire at our Poland facility. The combination of these events reflects a net benefit of $35 million in the second quarter. On the right-hand side of the page, our full-year assumptions are relatively unchanged from our previous call, although I'll note we have increased our full-year outlook for Goodyear Forward given our first quarter performance and reflecting our confidence as we move through the execution of our plan. With that, we'll open the line for questions.
Operator: [Operator Instructions] I will take our first question from James Picariello with BNP Paribas (OTC:BNPQY). Please go ahead.
Unidentified Analyst: Hi, everyone. This is [Jake] (ph) on for James. Congrats on a great quarter and congratulations, Mark. Could you guys just help me put a finer point on your full-year volume assumptions for Goodyear? If I work through the SOI bridge items you laid out, I guess something at roughly $1.4 billion for the full year, I just want to see if there's any update on into that.
Christina Zamarro: Yes, hi. Good morning. So our full-year outlook on volume as we laid out in the presentation is to be slightly behind the industry in consumer replacement. That's all going to be driven by our first quarter experience. And so when you look at the remainder of the year, what I would say, broadly speaking, is that we should be more in line with the industry. As we look at what's happened over the past few quarters, we've seen a lot of the de-stocking that we needed to sell through in Europe complete. And in the U.S., in the first quarter, we were cycling through a really easy comp on the import side of the house. But as we move into Q2, we've guided relatively flat volume. And in the back half of the year, yes, of course, depending on your assumptions for industry growth, but we see growth in volume just given that the consumer sellout has trended positively here in the U.S. VMT up a couple of points, and Europe also up about 3% on the sellout basis. And so hopefully that helps you with your modeling.
Unidentified Analyst: That's very helpful. Thank you. And it looks like most of the upside in the restructuring state this year from $350 million to about $375 million was captured in the first quarter? Are there any other opportunities to potentially push that number higher through the rest of the year? Thank you.
Christina Zamarro: Yes, sure. So on our fourth quarter conference call, we had said that we should benefit from Goodyear Forward actions in 2024 by about $350 million. And just given our experience here exactly right in the first quarter. You know, we've increased that to at least $375 million, which does mean that we have good reason to believe that we should be able to exceed that level, although we need to continue to execute on our workstreams, real time to be able to increase that amount publicly here. For now we've increased both purchasing and supply chain based on savings. We do have line of sight too that was over and above that initial plan. I'd say supply chain is higher on better utilization and network optimization and purchasing. You know, we have added some new workstreams since Mark came on board to deliver more value and indirect spend. This includes new MRO workstreams, gray stock, and other spend control programs in our factory. So a lot of good success is there. You know, what I would say is we'll give you an update in the next quarter. We should be pretty much locked in on knowing where we land on the savings by Q3, just given our FIFO accounting. But at least where we're comfortable right now is at that at least $375 million level.
Mark Stewart: Yes. And I would just add to it a little bit, [James] (ph), in terms of we've got really strong momentum, some great energy with each of our functional teams, with each of the forward teams. And as Christina mentioned, right, with this $72 million of total actions already in that are demonstrated results in the first quarter. But as we look through it, right, I'm personally, as well as Christina, we're meeting across the workstreams on a weekly basis with each of the functions, be it purchasing, be it manufacturing, across our retail, et cetera. And as we look across each of the five areas tying into that $375 million plus number Christina mentioned, right? It really involves, it’s our footprint and plant optimization and the work that we're doing. And we can talk a bit on it later, other questions, but we've been going, Christina and I and the staff have been going out to each of our plants in the U.S., deep diving with our plant leadership teams and our manufacturing, engineering, and purchasing groups, meeting weekly with purchasing in terms of the diligence. And really we've tightened our KPIs across the organization, both at the staff level of what we're looking at on a monthly basis and diving, but within each of our teams with dedicated purchasing and manufacturing meetings weekly to ensure execution and also to add to those workstreams. So I feel very good about that along with, as we mentioned earlier, our SAG streams of getting that SAG out of the system around the world for better cost competitiveness for the future state. And then the supply chain and logistics cost savings are flowing through quite nicely, as well as the actions that we've taken around complexity reduction, commonality of platforms, and to enhance our margins, be it through repricing, be it through choosing not to run those other products that really don't fit into our portfolio.
Unidentified Analyst: Got it. Thank you.
Operator: Our next question comes from John Healy with Northcoast Research. Please go ahead. John Healy, your line is open.
John Healy: Thank you. I wanted to ask about the volume side in North America. You talked about the lower margin product kind of going away a bit? Could you talk to what sort of volume impact that is, maybe in terms of units, I assume, on the replacement side, and maybe what areas of the market or retailers or brands like that those are disappearing with?
Christina Zamarro: Yes, John. So I'll start here, and I'll just say we've certainly seen some volatility over the last several quarters with respect to low-end imports. And if you take a broad step back, what I'd say is that the import activity was suppressed for the period immediately following COVID. And then what we've seen is this several quarters of overcompensation, if you will, over the next -- over the last several quarters. If I think about our share in 2023, I'd say broadly speaking, we're about where we expect it to be. If I look at non-member imports over 2023, that low end part of the market, it's about 20%, 21% in 2023. That's about where it was for all of the last five years. So I think what we're seeing is a whole lot of choppiness. In the first quarter in particular, though the imports were 25% of the market, and that represented a pretty significant increase. You know, non-member imports, if you will, John, were up 100%, which was about 1.5 million units than what we would normally see in a quarter. But again, really believe that is lumpiness. When we think about a question, maybe getting to, you know, the question is the consumer really trading down, at least in the U.S., what I would say is we don't have evidence of a consumer trade down, especially in branded Tier 1 tires. So this would be all of the Tier 1 tire companies, including Goodyear. That share of the market has been very consistent. Over the last five years, I'd say more recently over the last couple of quarters, we have seen some weakness in Tier 2 and Tier 3, accreting to Tier 4 and share. And I think at this point it's really not clear, John, whether that's weakness driven by consumer preference or whether that's something that's linked to distributor behavior. Because historically what we have seen is distributors going long on low-end tires in an inflationary environment. So this is one that we will continue to watch. I think what's different is what's happening with imports in Europe. And I think if you look over the last five years the import, low-end imports of the percentage of the market have grown from something like 20% to 27%. And so that -- what that means is that our distributors are more willing to stock, our consumers are more willing to bolt-on these opening price point tires. And I think that's really a reflection of the impact of the very high inflation on the consumers in Europe and also just the more recent macro events there. And so therein lies the rationale for a couple of the major restructurings we've announced in Europe. Hopefully that helps.
John Healy: No, it's super helpful. And then just a finer point I wanted to ask just about the price/mix outlook. I think you guys are saying price/mix would be positive in the second-half of the year? Just thinking through some of the moving parts globally with the de-stocking or maybe growth in the import brand, to me it seems like that has a little bit of a risk to it. Do you see that as an area with risk to the business? And how do you get confidence that price/mix will be positive in the second-half?
Christina Zamarro: Well, I think, yes -- good question, John, I’d say by the end of the second quarter, we'll have lapped the commercial truck mix drag. We've been seeing the last several quarters actually that's mostly finished in the first quarter here. In Q2, we will lap the impact of RMI Indexed agreements on price/mix. And so I think we get a clean base, if you will, for Q3 and Q4. And then the volume, I'm looking at in our back half of the year, in America, it's really strong growth in our consumer OE business. We should outperform the market on share just given our mix of fitments. Obviously, heavily geared to truck and SUV, which creates a lot of rich mix for us. And then we also expect winter inventories in Europe are down 40% year-over-year, so really low. And that sets us up for a really good sell-in season in Q3 and EMEA mix also. So I think a lot of good reasons to believe in price/mix in the back half of the year.
Mark Stewart: I would just tack on one out on it, specifically around new products, John, and that's when we look at the premium products launching around the world. We've got some great products coming into the marketplace for season. And for the Americas, we've got WeatherReady 2 launching, and the fitment's filling out the Electric Drive 2 as well, which is an all-season EV tire for us, and the Electric Drive 2. And on the AF side, we've got the Eagle F1 asymmetric. We've got six sizes coming out, showing out that fitment. And then on the AP, we've got our version of the Goodyear Electric Drive there. We're seeing some really positive success in both luxury, premium, performance markets in Asia Pacific, and the continued strengths of our wins on the EV segment. So all very positive, trending news for us.
John Healy: Great. Best of luck, guys.
Christina Zamarro: Thanks, John.
Operator: We will move next with Emmanuel Rosner with Deutsche Bank (ETR:DBKGn). Please go ahead.
Emmanuel Rosner: Thank you very much. Good morning. My first question is a follow-up on the volume question. So I think you've essentially identified two trends, right? Some of it is the lumpiness and this import dynamics in the U.S. and in Europe, and then some of it seems to be a little bit more deliberate as part of a Goodyear strategy? And you explained very, very well that lumpiness and the import dynamic and how that would move forward? I just want to focus on the second piece. I guess, how much more do you have to do in terms of amount of business or tire volume that you're not really interested in or that's not profitable and that will help your profitability from exiting? Just curious, when I'm looking at, I guess, your volume outlook for the rest of the year, will this be a meaningful factor of potential performance versus the industry, or are you mostly done with this?
Mark Stewart: Emmanuel, thanks for the question. And it's, you know, I would start with your last statement, and that's, you know, we've taken the actions through the first quarter that we needed to do with that. We're really using a should cost and a profitability in conjunction, obviously with the cost structure, by tire basis and across our customer platforms. And so we've gone through to take a look at it. And it doesn't always mean that we're walking away, right? We're just working with those customers for the right price point for that product at that performance level. And so it's not a matter of everything totally going away. In some cases, it's just a reset of the price to the market based on the performance of those individual skews or tires. So we actually feel very positive on it that we've taken the actions we needed to take with it. And as we move forward again, we've worked with some customers in terms of getting the price points reset, and that's actually been happening before my time, I think over really the last four or five months or so. But we took the final actions to that towards first quarter and expect those things to be relatively stable on that as Christina mentioned before.
Emmanuel Rosner: Okay, that's great. That's great, color. Then I have a question about the Goodyear Forward plan. So it seems in the quarter it helped America's profitability quite a bit. I'm curious when could we expect to start seeing it helping EMEA's profitability? Is this going to be still within this year? Or is it a little bit more back and over there as a result of how things work in Europe?
Mark Stewart: Yes, as we mentioned at the opening really, the SAG actions have already been well implemented and we're on track to fully execute the 1,200 roles, which were identified are coming out on plan, if you will. And if we look at year-to-year, as we said, with AMEA really being about flat in terms of the earnings, but with all of the Goodyear Forward restructuring activities done, as well as the two plans that were announced late last year in terms of Fulda and Furstenwalde going through. And that's also preceding two plants. So from that aspect of it, we are absolutely on track with the actions we've got in a man. Christina, anything else?
Christina Zamarro: Hello, Emmanuel, I just said that when we announced the plan in November, we did say that the majority of the actions would benefit our America's business. It was a split of like 70% of the $1.3 billion was going to be accretive to the Americas and the rest split between EMEA and Asia Pac. I think we should expect improving margins in EMEA over the course of the year. And then as Mark mentioned, with the factory restructuring coming more to bear next year, then again, another step up in 2025.
Emmanuel Rosner: That's super helpful. Would you think that 70% holds also for the $375 million in benefit expected for this year? Or is it more of a…
Christina Zamarro: Yes, I would use the same math.
Emmanuel Rosner: Okay. And then one final quick one, if I may. I guess, what can you tell us about the process to divest the non-core assets? And how that's actually going? Any new or updated timeline around potential future updates?
Christina Zamarro: Yes, so we -- this is regarding the strategic review on our portfolio. And, Emmanuel, I'd say that the process for each one of these assets is well underway. It's exactly where we expect it to be at this point in time. And if you remember on our fourth quarter call, we said that we should be in a position to offer a more fulsome update on one or more of these processes by mid-year. So you can think about that being our second quarter conference call. We are still working towards that timeline. So no other update other than things are progressing and progressing well.
Emmanuel Rosner: Great. Thank you.
Operator: Our next question comes from Ryan Brinkman with JP Morgan. Please go ahead.
Ryan Brinkman: Good morning. Thanks for taking my questions. Firstly, Mark, it was great to hear in your introductory remarks that you were able to come in and initial and outside dug into deeply into the Goodyear Forward plan, [Technical Difficulty] that you were able to independently confirm for yourself the line of sight into the operating improvements at the rest of the management team had identified? At the same time, I recall you on the last call saying that while it has been extremely early days, and you're listening to it, et cetera, that you were looking to also identify some quick and easy wins or low-hanging fruit in terms of how the plan which you said like good bones, how it might be augmented or accelerated in wise. I'm just curious, the last 90-days, what incremental opportunities you have found or are looking into that you think might have the most potential?
Mark Stewart: Sure. Thanks, Ryan. And as you said, many know, I sometimes have a big mouth, but I definitely listened a lot the first five weeks. One of the things though in the first five weeks, which we did execute very quickly was to pitch on pace our Chief Procurement Officer on the senior leadership team staff, reporting directly to myself. It's very important that we have real time visibility and ability to help Sean and the purchasing team to -- in terms of speed of execution. And so we absolutely have done that. We've identified some additional savings streams in that area in quite a few. They've actually increased of speed of going through some of the global bid process starting here in the Americas, but are looking as well into both from the raw material stream, but as well into our MRO, which we have identified quite a few additional opportunities, MRO, contract employees, the way our contracts are set up, we're going through things, basic manufacturing one-on-ones, if you will, such as our overtime planning, our scheduling within our manufacturing facilities with our plant leadership teams. We've brought in all of our plant leaders across the Americas, and we've had some sessions with those guys face-to-face, as well as we do weekly sessions with them. And we've really got ourselves lined up slightly differently across process streams, so that we can take our best-in-class performance benchmark and ensure that those are copied across the network in order to capture those savings, whether they were already in a plan, but maybe the timing was different. So we've been able to pull those in faster in terms of our execution within this year and next, as well as things that maybe weren't on the radar screen for a particular plant. We're also moving resources across plants, both engineering as well as our manufacturing resources, to speed those execution pieces as well, Ryan. So those are a couple -- just a couple of highlights to what we've been doing with that. The other thing we're in the process now is more of a centralized manufacturing footprint for consistency and for us to be able to take efficiencies in terms of OEE, reducing our scrap, commonality and complexity reduction, all tied in with our ship cost activity. So we've got ourselves lined up for that. We have reduced the number of KPIs that we're looking at into the important -- the top important ones for us that have the biggest lever for impact. And we're driving those on a week-by-week basis to make sure that we have clarity with the teams that we have ownership with the teams, and we have timing of when to do those things.
Ryan Brinkman: Okay, thanks. And then lastly for me [Technical Difficulty] the focus in the plan on significantly increasing [Technical Difficulty] that free cash flow will naturally follow and benefit also, of course, from the deleverage enabled by the non-operating or divestiture aspect of the plan. But I'm curious how you're thinking about other opportunities to improve free cash flow relative to EBITDA and how important that is or should be as a part of the plan. We've sometimes seen big inflections in cash flow after management have changed the way in which their employees are incentivized, thinking as LKQ (LON:0JSJ) (NASDAQ:LKQ) was one example in this industry. I know there's rightly a ton of focus on driving margin and then getting those divestitures done to pay down the debt. But how large of an opportunity might there be around working capital efficiency, CapEx discipline, CapEx reusability, anything that you can -- I think to bring from your former employment, et cetera? And how are you thinking about the cadence of operating earnings improvement versus the cash flow as we progress through the plan? Maybe that one is more for [Technical Difficulty].
Mark Stewart: Sure. Maybe let me start on and Christina will add on to it. But when we think about the again, things kind of coming from my past, right, of also highly capital-intensive businesses as well. So we've already -- we've got a very clear line of sight to the R&D that we have planned for as part of both Goodyear Forward and then in the years following as well, right? So a very disciplined approach on that. Another reason why we put purchasing to the leadership team of us working together with purchasing and engineering, looking to what is our manufacturing equipment strategy, looking at the items again on a payback analysis on that best return on capital for the modernization activities, we have a tremendous amount of modernization going on this year. As an example, in our Lawton facility, but as well as many of the other facilities to get our cost basis to a very, very competitive level, if you will, and then balancing our products across the network for looking at the best cost. So in terms of how to do that, right, all these things are tying into that working capital, as you mentioned, right? So investing in the right things at the right time, looking with purchasing in terms of how we're negotiating that, just the 1, 2, 3s of our negotiation process, how we're bundling when we know we're going through a modernization period here across our equipment. If we know, for example, we're going to go from replacing 10 machines to possibly 30, 50, et cetera, but negotiating that in upfront, so that we can get best price on that. So we're setting up our depreciation schedule and conserving cash upfront, but also making sure the cost structure is right, also where that equipment is being placed. The other thing is really working with our individual plant leadership teams around the world of looking at that cost efficiency level. And really, we're starting to talk to the plant leadership teams, not only on a cost center basis, but also on a P&L basis in their window, right? So things that they can impact, and it's things like MRO that ties up a lot of cash in a credit, if you will, around the world. So things such as shared spare part resources around the network and things like that, but again, more basic disciplined items when it comes to our spending. We have a weekly spend control as well, quite frankly, that we've installed, so that if anything triggers higher than that, it escalates, we talked through it. So it's about changing patterns and behavior, while putting the system and discipline, which we already have the systems in place, but getting the robustness of that really, really strong. Christina, do you like to hand on to that?
Christina Zamarro: No. Mark, I think you've covered a lot of it, I think, internally to describe what it feels like, Ryan, it is that behavioral change where what we're emphasizing to the teams is when we get to a target it's not that we've necessarily done the job. We're going to continue to look for what else we can do. And I think it's that never satisfied mentality. And as we've put together this plan, and as Mark has come in and added his experience and perspective to it, I think it's all about achieving that sustainability and cash flow that sustainability and earnings. And when we look out to the fourth quarter of 2025, we would see an annualized cash flow on adjusted free cash flow basis of like $600 million or $700 million. And that's on an adjusted EBITDA of, say, about 2.7. So our goal is to not, obviously, to not have a good year or two, but we're really trying to structurally change the cash flow profile of the business.
Ryan Brinkman: Very helpful. Thank you.
Operator: [Operator Instructions] We will move next with Itay Michaeli with Citi. Please go ahead.
Itay Michaeli: Great. Thank you. Good morning, everyone. Just two follow-up questions for me. First, on the inflation and other costs, can you just maybe walk through the puts and takes for second-half of the year. I think first-half is implied to just over $40 million. I think you've got over $200 million of a headwind for the full-year? And then maybe going back on my second question on the assumptions for second-half for volume and pricing, hoping you could just kind of review just the underlying assumptions for industry sellout trends, maybe your market share and then maybe the impact from some of the new products, Mark, that you alluded to before. Thank you.
Christina Zamarro: Yes. Itay, I'll start on the inflation question. And full-year cost headwinds for us of about $215 million, you rightly point out this is weighted to the second-half call base inflation every quarter, about $50 million or $55 million for us. In the first-half, we had the benefit of some lower transportation rates, particularly in the U.S. pulling through. We lapped that in the second-half of the year. And then we will put on some additional costs, because we've announced two factory closures in Europe, and we run that through our inefficiencies, if you will, as we scale those factories down and ready them for closure over the course of 2025 and 2026. We also have some insurance headwinds related to the tightness in the market, but also some of the claims activity that we've had over the last year. So that's the first-half, second-half story on cost. As I look at volume more broadly, and we talked through this a little bit earlier, I'd say we have good expectations for stability, I guess, I would say, in Q2, we've guided volume about flat. And that's good growth in OE still continuing and maybe a little bit of weakness in replacement. And then as we look to the back half of the year -- and I guess I would also say channel inventories in the U.S. and Europe are healthy. I would say the U.S. is down about 4%, compared to year-end. EMEA is down 8% on a year-over-year basis. The year-over-year comp, there is more important because we have these different seasonality’s. And all of that time, Itay, that the consumer has been resilient to sell out in Europe is up 3%, sellout in the U.S. is up -- it's been up kind of 1% or so in the last several quarters. So expecting a decent market in the back half of the year. Even coming into the year, our thoughts were that we would see stronger growth in the back half than the first-half just knowing what we needed to move through as far as channel inventory, but we think the setup is good. Specifically, if I take you through a little bit of the region, because that may be helpful, too, the Americas should have really good OE growth in the back half. That's our Goodyear specific mix of fitments. So we'll gain share. We talked about that earlier. And then in EMEA, I mentioned this earlier, to winter tire inventories down 40%, it is very low level. So should it indicate a good restocking for us in the third quarter. And Asia-Pacific has just continued to see growth. We have some tougher comps in OE in the second-half, but replacement should still be pretty positive for us. So feeling good about volume, price/mix in the second-half. And then Mark helped you through some of the new product introductions. And a lot of that is kind of two things happening, one, we're releasing new products, sort of, opening up the aperture on the SKU portfolio, the number of SKUs that we're offering at the more premium end of the market and then rationalizing SKUs at the lower end, which is all really supportive of mix as well.
Itay Michaeli: Terrific. That’s all very, very helpful. Thank you.
Christina Zamarro: You’re welcome.
Operator: Thank you. And this will 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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