Good morning, my name is Tony, and I'll be your conference operator today. At this time, I'd like to welcome everyone to The Goodyear Tire & Rubber Company Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the program over to Tom Kaczynski, Goodyear's Vice President, Treasurer and Investor Relations.

Thank you, Tony, and thank you, all, for joining us for Goodyear's second quarter 2014 earnings call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; Laura Thompson, Executive Vice President and Chief Financial Officer. Before we get started, a few items we need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com, and a replay of the call will be available later today. Replay instructions were included in our earnings release issued earlier this morning. I'd like to remind participants on today's call that our presentation includes some forward-looking statements about Goodyear's future performance, and 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. Our financial results are presented on a GAAP basis and, in some cases, a non-GAAP basis. The non-GAAP financial measures discussed on the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation. And with that, I'll turn the call over to Rich.

Great. Thanks, Tom, and good morning, everyone. I'm very happy to report that we delivered record results in the second quarter. These results were driven by strong consumer replacement volumes in all of our regions, as the Goodyear brand and Goodyear's value proposition continues to be a competitive advantage in the marketplace. Our performance reinforces the confidence that we have in our strategy. In a quarter where we saw continued economic volatility, particularly in the emerging markets, we posted segment operating income of $460 million, a second-quarter record. We now generated $833 million in segment operating income for the first half of the year, a 14% increase over the same period in 2013. Achieving these results, even amidst global economic challenges, is perhaps the best reflection of the strength of our strategy and the changes we've made to Goodyear's business. This further renews our confidence in hitting our target of 10% to 15% annual segment operating income growth through 2016. The quarter included volume increases in consumer replacement across all of our 4 global regions. Global volume is clearly a topic you've been focused on, and with good reason. However, I'll reiterate one of the core tenets of our strategy, and that is that we're not pursuing volume for volume's sake. We're pursuing profitable volume growth in our targeted market segments. But the consumer replacement performance only begins to tell the story, so I'd like to acknowledge several highlights from the past 3 months. First, let's look at our growing markets. In China, June was a record month for our consumer tire sales, and for the quarter, we continued to grow faster than the industry. Overall, our performance in China is especially rewarding, as it followed a challenging first quarter, and in response to the more challenging China economy. Consistent…

Thank you, Rich, and good morning, everyone. My remarks this morning will start with a review of the second quarter and our first half results. I'll then finish with an update on certain items included in our outlook for 2014's earnings and cash flow. We'll then open the call for your questions. Let's turn to Slide 9 and review a few key items on the income statement. We are very pleased with our solid second quarter performance. Segment operating income for the quarter increased to a record $460 million. For the first half of the year, SOI has increased 14% over last year. This is firmly aligned with our expectation of 10% to 15% SOI growth for the year. Similar to the first quarter, strong performance in North America and Europe was able to more than offset weakness in emerging markets. Sales volume in the quarter increased 3%, driven by strong replacement volume growth of 6%, partially offset by a 4% decline in OE volume. For the quarter, net sales were down $238 million. Our sales reflect the benefit of $106 million of higher volume, but that benefit was more than offset by lower non-tire revenue of $148 million. The lower non-tire revenue is driven primarily by lower third-party chemical sales in North America. We expect the impact to significantly lessen going forward. In addition, price/mix reduced sales by $146 million, primarily due to 2 factors: first, the effect of lower raw material costs on pricing, including normal raw material indexed agreements; and second, a significant decline in our Off-The-Road tire volumes, which resulted in lower mix. Lastly, foreign currency exchange was unfavorable by $52 million. We generated gross margin of 24.1%, an improvement of 270 basis points versus the prior year. SAG increased slightly, reflecting higher investments in marketing…

[Operator Instructions] We'll take our first question from Patrick Archambault with Goldman Sachs.

Look, just on -- my first question is on the pricing. Is it possible to segment out the impact of OTR? More specifically, what I'm trying to get at is just a little bit more color as to how the pricing environment is for passenger and light truck and how you would assess the overall competitive environment. Has there been any pressure in that segment as well, maybe stoking fears that capacity coming back is causing a little bit of that good discipline to erode? Or would you really isolate the pricing pressure, really, on the OTR side?

Yes -- no, Patrick, good question. And I would tell you, if I look at it -- so maybe I'll address it both ways, year-over-year and then sequentially. But year-over-year, it's essentially -- it's primarily all due to OTR, as we highlighted in the remarks and, frankly, as you just said. With that said, I can tell you that I'm really -- I'm satisfied with our price/mix versus raw material equation for the core consumer and commercial businesses. We see that in revenue per [ph] tire, in addition to the strong volumes that we've had and the strong gross margin that you saw in the quarter as well. And maybe a simple way to think about this to sort of give you how we see it and how we think about it, we've given guidance in the past or we've given a formula in the past that sort of 85% of our top line relates to our core tire business, if you will, our tire business, and excludes chemical and some of the other things. If you were to do that, take 85% of that number and calculate a revenue per tire -- 85% of our sales number, what you'd see is, sequentially, from Q2 to -- excuse me, Q1 to Q2, you'd see our revenue per tire basically flat at about $97. Actually, the math would say Q2 actually went up slightly from Q1. And if you take that all the way back to Q2 in 2013, you'll see that number was higher, it was about $107. But when you look at that year-over-year change of the $107, let's say, down to the $97, the bulk of that is driven by FX, not by price decrease. Some of it is price decrease, but I can tell you that price…

It does. I mean, just to build on that, so it sounds like the reason there's no real sequential change in per unit price is that -- should I interpret it that OTR is really kind of stable at very low levels and it's a year-on-year headwind, but it's not getting sequentially worse?

Yes. That's a fair way to look at it.

Yes.

Okay, and then just lastly. I mean -- and I know this is kind of what's sort of implied in what you just said, but is it then correct to interpret this as there really isn't any fundamental change in sort of the level of aggressiveness on the passenger and light truck side, in your view?

No, I think what you see flowing through is the lower raw materials that we've seen come through year-over-year. And Patrick, that said, I mean -- I think I'll be the first to tell you, it was competitive last year, it's competitive this year. So it's no easy walk out there for sure, but nothing beyond that, that I'd tell you.

Okay. That's helpful. And then, I guess, my other question was just on Latin America. You guys actually had pretty good margin protection despite the environment there, actually. I was kind of happy to see that. But is there any -- I guess, for instance, in Europe, you've done a lot to sort of address what has been kind of a slower volume environment over the years, right, and we're seeing the fruits of that. Is there any -- I think you used the word maybe structural issues, I think, when you were talking about the regions, so I was just wondering, is there any kind of work to be done to take additional cost out of Latin America that could be sort of a kind of a tailwind ahead of us?

Patrick, I would say, what's going on in Latin America and really driven in Brazil, but it's true in the other countries as well, is -- I used the term sort of redoubling. I mean, we have really revamped our product line there, we've brought more sizes and types to the forefront, we're putting a lot more aggressive ad campaigns and marketing campaigns forward to help our dealers grow their business. They see that happening, they see the investments that we're making in our factory down there in Americana, they've heard about the Americas factory that we talked about to supply Latin America and North America. And frankly, we've got a lot of momentum down there. So I would say, we've taken costs out of there in the past, we'll continue to be very judicious on it. But at the end of the day, we're really working on our value proposition to help our dealers grow. And Laura said 13% total consumer replacement, the consumer business was actually higher than that, our Brazil business was actually higher -- even higher than that. We had strong volumes in Mexico, we had strong volumes in some of the other countries. So I would say, this is a -- really, an effort we're making to grow our business profitably with our dealers down there, and that's more of the focus than structural cost which, of course, we know we still need to work on in places like Europe.

Next, we'll move to Rod Lache with Deutsche Bank.

Just, I wanted to -- just to follow up on, first, on the price/mix versus raw materials. So it was minus $27 million in the first half, and I think you said neutral for the second half and similar in Q3. So negative $44 million-ish in Q3, which would imply positive $44 million or so in Q4. If that's right, what is sort of in your kind of high-level view that drives the positives as you get towards the end of the year? And can you maybe elaborate on how you see Q3 and Q4 raw materials playing into that?

Yes, sure. So first of all, following what you said, everything was exactly right. What you implied, it is $27 million net as we look at it through the first half of the year and that is all driven by OTR. And really, what happens as we move into the fourth quarter, is the negative effect year-over-year of OTR really stops happening. That's what starts to put us back on a path we're more used to in price/mix versus raws.

Okay. Does the ITC investigation, in your view, matter at all in terms of the North America or the Asia pricing environment?

Rod, maybe I'll jump in. The first thing I guess I'd have to say about that is that as we look at potential of the ITC, we continue to be in favor of free and fair trade around the globe. That was our position last time, it's our position this time. So as you know, that's not the part of the market that we actually play in. So it's not exactly in our sweet spot in terms of what happens. But we know that if those tires don't come here, they may go to other places around the globe, tires move around. So we don't know exactly what the implications of that are going to be yet as we move forward. I will tell you, the decision from the ITC is out into the future, we don't know where it is. But we already actually saw some, let's call it, irregular order patterns of maybe people anticipating something happening, early stages of that. So I don't know exactly what we think is -- what is going to happen if this thing moves forward. I can tell you, we're going to stick to our strategy of driving tires in our targeted market segments. And that's worked for us, as shown by our results, as shown by what we did over the past few years when the 421 Act was in place. So we'll sit back and see what is going to happen at this point.

Yes. And no doubt, Rich, the last time we had the tariff, we did see it impact, right, in the lowest tiers of the market. But I'll remind you, that was in the environment of significantly lower raw material costs. They were dropping like a rock, right? So we'll see, right? We saw an effect last time in the lowest tier, we'll see what happens this time.

And Rod, the thing I'd add to Laura's comment is that, the thing that we're paying attention to are just the distortions that will happen to the industry. Because we see people buying ahead and then, as tariffs came off, we saw people stop buying. And then once the tariffs came off, they started buying again. And this all happens at the low end. So you get these -- as you know, you get these big distortions in the marketplace that really aren't indicative of normal sell-in to the market, let alone normal sellout to the market. So I think that's as much on our minds as anything else.

Okay. And just 2 other quick things, hopefully. Can you just give any color on your outlook for the Asia Pacific region in the second half. And on corporate overhead, it's been running like $50 million to $66 million per quarter as I go back for several quarters, and this quarter was about $35 million. Can you just maybe give us any color on what drove that and whether we should extrapolate from that going forward?

So from an Asia perspective, Rod, I would tell you, as I mentioned in my remarks, China was quite difficult, as we saw in the first quarter. We saw that improve in the second quarter and we see a little bit of momentum going into the third and fourth quarter at the back half of the year. As I mentioned, we performed very well in that market, particularly in the second quarter. So I'm pleased with that. And we certainly see a path to continue that going into the second half of this year. But obviously, we always say China is not going to growing in a straight line, so we've got to be ready for everything. From a region perspective, India continues to perform well. And we don't talk about it much, but our business there is performing very well. In the ASEAN countries, we see pretty good performance in places like Thailand, where we have some political uncertainty, but the market is okay there. Malaysia, very similar. The headwinds will continue to come from Australia and, as you know, we have a very big business there. And that's really the hangover of the slower mining industry that sort of makes its way back into the general consumer in Australia, and that impacts us given our retail footprint there. The positive thing is the OTR business will tend to get better as we start lapping the downturn of that business, and you'll start seeing that I think in Q4, we'll get a little bit of a benefit from that. So we remain bullish on Asia but, again, not in a straight line and not without headwinds. But long term, we continue to believe that it's a very good market. And in terms of corporate overhead, I don't think there's anything else that I would say. A lot of that in that corporate overhead is some of the incentive comp that moves the stock price and the like. What I can tell you is that our focus is going to continue to be on driving cost out of the business. And we know that that's something that we need to do both in better times and not-as-good times and we're going to continue to put programs in place to do that.

Okay, sure. And then no doubt, Rich, the other -- I think that corporate other did benefit in the second quarter versus the second quarter of last year. We had a little bit lower incentive comp. Last year, we had the big change in the stock price which, it certainly does continue, but not as great a degree as we had last year. So that is one of the drivers as well.

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

Just a couple of questions, just one more on the price/mix over raws. Just given the improvement you expect in the fourth quarter as the year-over-year comps become less difficult, could the OTR piece become a bit of a tailwind in 2015?

Itay, I think it's too early to comment on that. I mean, what we see happening now, you've heard this before, but the actual -- the mining industry, iron ore and the like, in Australia is actually up year-over-year. The industry is up around about 5% and the like. The issue that we see is not -- the mining service companies and the mining companies and the like continue to go through their inventory and are continuing to use that as they move forward. So I think I'm not going to make any classifications on where it goes. I think we're prepared for the industry to get a little bit better, but how and when that happens, I think we're going to remain cautious and manage the business accordingly.

Great. And then just a couple of housekeeping. The pension savings guidance was raised by $10 million. Is there any pull-forward in '14 from some of the savings that you outlined previously for 2015? And then -- that's one. And then secondly, on that, I know that, that gets bucketed into the other in the SOI walk, and that looks like both pension and I think depreciation year-over-year should be tailwinds for you in the second half of the year. So should we expect that other bucket to be a net positive in H2 versus last year?

So first of all, no -- to answer your first question, no. All right? We don't see anything as we go -- picking up as we go into 2015. Certainly, as we look at the other bucket, we expect depreciation to be up as we go into 2015.

I'm sorry, I was talking more about the second half. I think the full year depreciation guidance actually implies a bit of a reduction year-on-year in the second half of '14 versus '13, and the pension savings, perhaps, accelerating as well. So if I take those 2, should I expect the other bucket in the second half of '14 to be year-over-year higher versus last year?

Well, first of all, D&A, we did increase the guidance from $700 million to $725 million as a full year estimate, right? It's just our -- improving our forecast as we go throughout the year, right? And then as we look at other for the second half of the year, we do expect that to be really about what we saw in the -- I don't know, about the first half of the year. Fairly neutral.

Itay, I think the way I'd think about it, there will be some movements in there but nothing significant that would drive it. I think that's the right way to think about it.

Great. That's helpful. Just lastly, the North America OE volume, down 4%. Production, obviously, was up in the quarter. Just maybe help us reconcile what was going on there in the quarter?

Itay, I would say there's really nothing more in there other than continuing to drive our selectivity strategy. We saw some decisions that we wanted to take relative to fitments that we were on. That's what we've done, that's what we've been doing. I think you also got to look at it in the context of the consumer replacement increase that we had. Our consumer replacement business was up by about 6%. So these are really a matter of choices more than anything else. I wouldn't read -- I would tell you not to read into it beyond that. We've got some great fitments with the OEMs, we continue to build on that business, we've got a lot of those OEM fitments that are going to start to come back into the replacement market in the next couple of years. So I think it's nothing more than selectivity and, really, no other strategic change other than that.

Thank you, and at this time, we are out of time for questions. I'll turn the call back over to management for closing remarks.

Well, good. I just want to thank everyone for joining. We had a great quarter, and we're going to continue on with the same strategy as we head into the second half of the year. So thanks for the attention.

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