Good morning. My name is Tony, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Goodyear Tire & Rubber Company First Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the program over to Greg Fritz, Goodyear's Vice President of Investor Relations.

Thank you, Tony, and good morning, everyone. Welcome to Goodyear's first quarter conference call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. On today's call, Rich and Darren will provide perspective on our results and outlook for the remainder of the year. Before we get started, there are few items I need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com. A replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning. If I could now draw your attention to the Safe Harbor statement on Slide 2. Today's 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. The financial results presented are on a GAAP basis, and in some cases, a non-GAAP basis. The non-GAAP financial measures discussed in the call are reconciled to the U.S. GAAP equivalent as part of the Appendix to the slide presentation. With that, I will now turn the call over to Rich.

Great. Thanks, Greg, and good morning, everyone. This morning, I'd like to review a few of the highlights of our solid performance in the first quarter, touch on some of the actions we have taken to respond to continued challenges in Europe and provide an outlook for our business and the global tire industry for the remainder of the year. I'm very pleased with our overall earnings results, our strong momentum in North America and the execution of our strategy roadmap, which, as you know, serves as our business playbook. Despite a tough industry environment, particularly in North America and Europe, we continued to achieve earnings improvement. Overall, our segment operating income for the first quarter was $302 million, up 3% from a year ago, and earnings were up in 3 of our 4 business units. This performance reflects favorable product and brand mix, improved operational efficiency, a disciplined focus on targeted market segments and the benefits of our investments in both innovative products and in upgrading our manufacturing footprint to build those products. North America earned a first quarter record of $127 million, a 59% improvement over last year's quarter. This exceptional performance was accomplished in a continuing weak volume environment in which unit sales decreased 6%. However, consistent with our key how-to of targeting profitable market segments, we sold a richer mix of branded products, and we continued to manage our costs in line with the weak volume environment we are experiencing. Now in addition, the North America team's disciplined approach to working capital is helping us improve our cash generation. This marks the 15th straight quarter of year-over-year earnings improvement in North America. Two years ago, returning North America to profitability was our top priority. We've accomplished this. Now with the business model changes we've made, North…

Thanks, Rich. As Rich indicated, our performance in Q1 reflected a continuation of many of the trends we've seen over the last several quarters. While these trends have included very soft volume and challenging performance in the EMEA, they've also include -- they also included continued delivery by our Asia Pacific team, stabilization of our business in Latin America and extremely positive performance in North America. So while there remain a number of challenges, all of which are addressable over time, we are continuing to deliver earnings, cost efficiency and cash flow improvement, generating strong returns on the capital we've invested, both in restructuring actions and in growth CapEx. In addition to the actions that have delivered strong operating performance, we've also taken proactive steps to address the unfunded pension situation that has been a significant drag on shareholder value. As we benefit from the reduction in pension risk from the actions we've taken and still potentially benefit from future increases in discount rates, there's opportunity for significant value creation. Keep in mind our operating leaders delivered Q1 results while reducing production and keeping our inventories in line with lower demand levels. While this results in higher unabsorbed overhead near term, it positions us to better manage cash flow and to benefit from reduced unabsorbed overhead as volumes recover later this year and beyond. Overall, we feel well positioned, both to manage weaker markets now and to grow earnings and cash flow going forward. Turning to the income statement on Slide 9. Our first quarter revenue decreased 12% to $4.9 billion. The decline was primarily related to an 8% reduction in unit volume and a 2% reduction due to foreign currency translation. The remainder of the decline is attributable to our chemical business as both volumes and commodity spot prices…

[Operator Instructions] First, we'll move to Rod Lache with Deutsche Bank.

A couple of things. First, how should we be thinking about raw materials going forward if spot prices were to stay at these levels? Last quarter, I think, you'd said that it would be about an $800 million tailwind, and obviously, raws have fallen since then. And related to that, how should we be thinking about pricing in the context of that large decline? What's the magnitude of what you're contractually obligated to pass along? And could we -- can you provide any kind of color on the relationship between the 2?

Yes. So, Rod, I think the outlook right now is very similar to the way that we had commented on it 6 or 8 weeks ago in the February call. So at today's prices, raw materials will be down about 10% for this year. Yes, the dollar impact is similar to what you've mentioned. The outlook we provided balances price/mix and volume, so we've chosen to give it to you that way on Slide 15. And I think that's our expectation. And that takes into account the impact of the raw material index contracts that we have with fleets, with OEs and with some of our OTR customers. So I think that's -- that's the way we've done it, so we've collected it and provided it to you, both for the second quarter and the full year.

Okay. I'll have to go back and check out your comments on the second quarter.

So that's -- on our second quarter, we've got price/mix versus raws expected at a positive $50 million to $75 million.

Okay. And can you give us some color on the outlook for the other tire-related business?

Yes. We took a hit on the other tire-related business in the first quarter. We've got -- we're still expecting that other tire-related business for the year would be a benefit anywhere from $0 million to $25 million. It's a bit better than the neutral outlook that we had had previously, and that's despite the negative that we saw in the first quarter.

Okay. And last question, last quarter, you had a couple of questions about the market share performance for you guys relative -- I mean, your performance relative to the market, both Europe and North America. And it sounded like at the time, you were thinking that over the course of this year, that's going to start to normalize and that we would see Goodyear performance much more in line with the industry. Any commentary on when we should start to see evidence of that starting to occur?

Rod, I would tell you, as we think about that question, obviously we're paying attention to it. But we still have to go back -- anchor the comments back to the fact that we're not going to pursue a strategy of simply volume for volume's sake. And frankly, we're still pleased with pursuing our disciplined strategy around volume and around balancing off price/mix and raw materials against it as well. And that's different than what we've done as a company in the past. So in terms of how we look at things, I will say, and I think Darren and I both mentioned this in our earlier remarks, in the second half of last year, we had a value proposition that frankly wasn't as fully competitive in the marketplace as we wanted it to be, and I think our volume showed it. And we're addressing that through targeted actions, obviously, that we look at things like price, but our value proposition goes well beyond that to our brand, to our innovation, to our technology, to our service levels. And those are the things that I think we look at over the long-term to continue to keep the business on the path that's in line with our strategy and our destination.

That's a commentary regarding Europe, the value proposition comment?

I think, Rod, I think it's really meant to be an overall comment, not just in Europe, but certainly, it has applicability in Europe as well. And in terms of our philosophy overall, driving to our strategy roadmap and our destination, obviously that's for the total company.

Next, we'll move to Itay Michaeli with Citigroup.

Just a question on the Q2 volume outlook, flat year-over-year. I think it would imply a far better sequential volume trend than you had in the last couple of years. Can you talk a little bit more about that outlook for the second quarter? Are you seeing positive signs here early in the quarter that gives you confidence that they can run flat year-over-year?

I think, Itay, you have to look market by market. As we look around the world, our North America business, certainly we haven't seen the industry sort of snapback the way we believe the pent-up demand will ultimately take us there. So really, I wouldn't say there's a trend line change with how we're looking at things. And Europe remains difficult. We particularly called out the numbers in Germany, to what we're seeing there is sort of a bit of a change there and seeing the rest of the weakness in Europe sort of permeate into Germany at this point. And our view is we're going to continue to plan for a tough environment and be ready for the upside that may be there.

Yes. Yes, the only point I would add to that, and this is specific to Europe, Itay, and that is that while we had some weather-related delays in people switching back to their summer tires in Europe, we have seen a lot more traffic in April. So market environment looks a lot better in April. So I think that, that bodes well, at least early in the second quarter, for the European summer tire business.

So that's good to hear. And then on the price/mix side, you did mention the mix was positive. Can you help us out, just remind us how the OEM pass-through contracts work, what the lag tends to be? And is most of the negative price in the quarter tied to those OEM contracts or was there some in the Replacement business as well?

Yes. So Itay, there are different -- there are different lags for different customers, so there's no universal answer to how a raw material index contract works. But increasingly, we've moved to contracts with more frequent adjustments and even quarterly adjustments. So there may be a slight delay but it's not that much. So as we see raw material prices come down, there is recovery from the OE's perspective in the cost of the tires. So there clearly is an impact there. We have some similar arrangements with commercial truck fleet customers and with some OTR customers, where it helps us when raw material prices rise. Obviously it's something that provides an adjustment for them on the way down. I think either way, we're looking to balance the price/mix versus raw material equation, so we feel like that's something that works pretty well for us. We aren't quantifying specifically how much of the impact relates to those contracts, but it's embedded in the price/mix versus raw as guidance that we've given.

That's very helpful. And just lastly, on the $75 million to $100 million of productivity savings in Europe over the next 3 years, have all of those -- or the majority have been identified already? How should we think about modeling those? Are they pretty much even, divided by 3 in the next 3 years? Or is there sort of a weighting towards the back end or earlier part of the period?

Yes, so I guess, Itay, the -- I mean, it's got to come from a combination of actions. And I think you're right not to think of it all as coming right away. It's something that we expect to identify over time. It's going to come to some degree through getting better efficiency in our factories, so eliminating some of the unnecessary losses or inefficiencies that we've got. That's something that we will work on and can work on every year. And we've got some programs that we've started there this year that should start to provide some benefits as early as next year, but the benefits will build over time. We've set back all this consolidation as another area. That tends to be the kind of project that takes a bit of time, so that certainly will take some time to implement. And then the work that we do to increase our share in targeted segments and to increase growth in our business and our distribution in emerging markets, that will add some volume back to our factories and increase the utilization. That's something else you can think of as happening over time.

Next, we'll move to Aditya Oberoi with Goldman Sachs.

I had a question on the China startup costs, which you say that will be a $20 million to $30 million tailwind. And now is Pulandian kind of ramping up faster than what you initially thought? Or is it kind of going in line with what you were thinking at the beginning of the year?

Yes. So I think, Aditya, as a broad matter we've been very happy with the ramp-up process in our factory in China, and both last year and this year has gotten some favorable news versus expectations on the cost of that ramp-up. So I think you can read this as we're feeling good about the ramp-up process. We've been able to reduce the cost of that ramp-up. Right now we are -- this year we will be up and essentially running at full capacity in the Consumer business. Commercial truck business will still be ramping up. But a lot of the biggest startup costs should be behind us by the end of this year and should be some upside for us beyond 2013.

Okay, that's helpful. And another question on Europe. Can you just talk a little bit about the overall pricing environment? Some of your competitors have become extra cautious on how much pricing is deteriorating in that region. And within that context, what would be the plans for Goodyear, whether you guys will participate to hold the line on market share or you're focused on keeping yourself more profitable rather than getting into those kind of price competitions?

I think it's an encompassing question. But as we take a step back, I think I'll go back to what I said a moment ago. We had some value propositions that weren't as fully competitive as we liked last year, and we're focused as always on having that right value proposition for our products to be competitive in the marketplace. That's first and foremost. It has to be what we do to sell our product in what is a competitive industry, notwithstanding the even more difficult environment that we're seeing in the European markets right now. And as we look at that, we've taken targeted actions already around the -- again around the value proposition we have in the marketplace. And I think in Europe, one of the bright spots that we have as we think about the product offering that we have around price, around service, around technology, around innovation, we have now the by far best label products going into the summer selling season this year. So as we think about that, again, it reinforces our view that our products have to sell on value into the marketplace and give our customers and our consumers a reason to carry them. Over the long term, as we look at this, we're pursuing a very disciplined strategy, and we'll continue to manage the trade-off between price/mix and raw material and do that in the context of the segment operating income targets that we're targeting.

Next, we'll move to John Healy with Northcoast Research.

I wanted to ask about the sales versus sell-out to customers. I was hoping you could give us some color about how dealers and distributors are feeling and what really they need to see from the consumer before they feel safer restocking. And I was hoping you could also maybe provide some maybe behind-the-scene thought process regarding, is there anything in the dealer's business model or in the distributor's business model that's maybe changed whether it's another way they finance their business or shipping and things like that? Anything operationally that's maybe changed the way they operate the business today, that's maybe cause for these inventory levels to maybe be even more structurally leaner over the long run?

Well, I think -- maybe I'll start with the second half -- second part of your question first. I think fundamentally what has changed is the continued complexity in number of SKUs or the SKU proliferation that's happening for vehicles out in the marketplace, and consequently, tires out in the marketplace. So if you're a dealer, your inventory management is obviously a lot different today than it would have been, put a timeline on it, 10 years ago, 20 years ago, whatever you'd want to put to it. So as they think about their businesses, they're looking and getting smarter at inventory management, which means for us distribution and supply chain and what we call operational excellence is really a benefit that we can deliver to the marketplace. It's why we talk about the whole value proposition that we can bring to the dealers. In short, the service and getting the right tire at the right time to the right place is much more important for our customers today than it was in the past. And that's exactly how we're building our business model, and you can track that back to the strategy roadmap that we have. And John, in terms of what else is happening in the industry, I guess the way we still think about it is that globally, well, particularly in mature markets in North America and Europe, we have a weak industry out there. And particularly, we'll highlight North America, the dealer inventory -- frankly, the channel inventories are in really good shape. So we've managed our inventory in our factories very well in this weak economy, and that's a big positive for us as we think about how we have to navigate through it today. And more importantly, it gives us a lot of optimism when volumes come back as to what that means for the leverage in our North American business. If you're a dealer and, again, I think everyone is a little bit different, I think they see the same economic signals that anyone else does, and they're not in the mode of restocking at the moment right now. And we understand that, which is, again, why we will continue to pursue a disciplined strategy, not pursue volume for volume's sake, and operate our business today in this environment, but really understand that, that pent-up demand is going to come back. And that's what we are going to manage our business for.

Okay, great. And I wanted to ask, maybe along the same lines, another question on share. I think you've been incredibly true to your strategy to get value for the Goodyear brand and the Goodyear technology, but unfortunately, the investment community always focuses on a reported metric versus an industry metric. I'm sure there's further data that you see. If you look at the segments of the tire market that you really want to compete in, whether it's the higher fitment or the more performance side of things, do you feel like you're maintaining share in those key segments? Or do you feel like you're growing with the market or maybe even gaining share?

So I would tell you the answer to that question is looking at our targeted market segments all around the world. In other words, think about how we're competing in China, think about how we're competing in Latin America, in certain segments in North America. And I would say as a broad statement, we're very pleased in the progress that we're making in our targeted market segments. And that's not just with how we're dealing in the marketplace on sell-out to customers, but also how that plays back to what we're doing in our factories and leveraging the investments that we've made as part of our capital investment strategy. As we look at that over the course of starting this strategy, I would tell you we've definitely improved our share in those targeted market segments over the inception. Looking at it from -- on a quarter-to-quarter basis, there's a lot of different targeted market segments region-by-region, channel-by-channel, so it's very difficult to answer that question with a specific. But I would say absolutely overall, we're very pleased with how the strategy is working relative to those segments where we think we can bring value not only to Goodyear but to our customers and to consumers.

And next, we'll move to John Murphy with Bank of America.

I just wanted to follow up on the questions on price/mix. I mean, you guys have commented that mix was positive in the quarter, OE pricing was negative because of the raw mat pass-through. I'm just curious if you can answer sort of in the last bucket, in the aftermarket, how pricing is going for you, but also more broadly for the industry. Because it does sound like there's some signs of weakening in the pricing environment given sort of this continued unexplained weakness in the Replacement market. I'm just trying to understand that you guys are doing in pricing in the aftermarket and what you're seeing more broadly for the industry.

John, I think the comments I've made earlier -- I'm not sure I want to reiterate them again -- about how we're looking at the value proposition that we're putting out and taking targeted actions around a variety of things to deal with the environment we're in. What I would point to, though, is if you look back at our strategy, we have a track record of successfully balancing off price/mix versus raw materials. And in this environment, where we're seeing a lot of the items that you just spoke of, that's exactly the same philosophy that we're putting to it, and I'm confident we're going to be able to work our way through it just as we have in the past.

Okay. And then the second question is on the pension contributions, the slightly more than $900 million that you've made year-to-date is kind of what you've talked about. Darren, are you planning on doing more contributions than that? Or is that kind of it for the year at this point?

Yes. John, the strategy we discussed in February was to pre-fund and de-risk plans once they've been frozen, and the transaction that we completed in Q1 fully funded the plans that we'd previously frozen. So our next steps are to focus on freezing remaining plans and shifting remaining associates to 401(k)s. And until that occurs, we're not in a position to consider further funding actions.

Okay. So the $454 million that you did last year is not something that repeated. This $900 million takes the place of that. And if we get these incremental agreements, then there might be more to come?

Yes, that's the way to understand it.

And next, we'll move to Ravi Shanker with Morgan Stanley.

You guys put up a very strong cost savings number in the quarter. Was that consistent with your expectations? And is that something we need to keep in mind in terms of timing on a quarter-to-quarter basis? Do you think it's going to be fairly steady going forward?

Yes. So Ravi, I mean, our goal is to offset inflation over time. And we did have a strong first quarter, but it was against what I would say is a fairly easy comp a year ago. So our cost saving actions last year increasingly focused on our ability to reduce the cost of materials that were going into the tire either through substitution or through weight reduction. And the success that we had with regards to those material savings ramped up during 2012. So the comps get tougher for the rest of the year, which is why we've said the net benefit we get, cost savings versus inflation, is going to be less in Q2 than it was in Q1. And the second half of the year, we're looking for cost savings to offset inflation.

Okay. But still the relationship should still be positive throughout or neutral? It won't be negative?

Yes. Yes, I was going to say that. Positive in Q2, and neutral in the back half of the year. But they'll continue -- for the year, certainly looking for it to be positive.

Got it. And in Europe -- I mean, restructuring in Europe is obviously not easy. So when you look at that $70 million to $100 million, you highlighted some of the areas where that's coming from, in response to a previous question. But do you think that's like low hanging enough that it's not subject to execution risk and that's pretty much kind of in the bag for the next 3 years?

Yes. So Ravi, I think that we're very confident that with the plans that we are putting in place that we can achieve that incremental productivity improvement of $75 million to $100 million over 3 years. You can tell from my comments earlier, I do think it's going to take that time. It's not something that can be achieved overnight. The 3-year timeframe is what we felt like is practical to achieve that. But remember that $75 million to $100 million of productivity is in addition to the $75 million of savings that we would achieve once the factory in Amiens, France closes.

Got it. And just finally, the chemical headwind that you expect to recover going forward, is that just a timing thing based on contracts? Or what gives you confidence you can get that back?

Yes, that's the right way to think about it. That's just -- it is timing thing with contracts and how the movement this year compares to last year.

And the last question will come from Brett Hoselton with KeyBanc.

First, starting on price/mix versus raws, it looks like going through the third or through the second quarter, you're kind of looking for a positive of $200 million to $234 million, kind of in that range. I guess what I'm wondering is, can you maybe put a little bit more definition around the word "positive" for price/mix versus raws for the full year? What's the back half look like?

Yes. So Brett, I think that we've probably gone as far as we're going to go in commenting on price/mix versus raws. So obviously, there are different variables that go into what an expectation is, including what happens to raw materials. And we're expecting that volume environment is going to get better in the second half. And when volumes get better, that tends to bring back raw material prices. So I think we've got to stay flexible and be able to deal with whatever environment comes. But I think generally, the expectation is that over time, raw materials are going to start to come back.

As I think about your operating income guidance, so you obviously have some puts and takes here, a little bit weaker volume, but obviously some -- a little benefit here in terms of other in China and so forth. Some of your competitors have -- relative to earlier expectations, some of your competitors are thinking that the price/mix versus raws spread has deteriorated versus their prior outlook, let's say, a few months ago, as a result of particularly weak pricing environment particularly in Europe. And I guess my question is, is your price/mix versus raws expectations, are they still the same? Or have they deteriorated? Or have they improved for some reason?

Yes. So Brett, I think, yes, generally you'd be able to tell from the fact that our segment operating income expectations for the year have not changed, and we're doing it in a lower volume environment, that -- our expectations on what we're able to do managing price/mix versus raw materials can't have changed a whole lot.

Okay. Everybody, thanks for your attention today. We appreciate it, that we're off to a good start in 2013, and we look forward to speaking with you next quarter.

This does conclude today's conference. You may disconnect at any time, and have a great day.