Good morning everyone and welcome to The Goodyear Tire & Rubber Company Third Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] It is now my pleasure to turn today’s program over to Christina Zamarro, Goodyear's Vice President of Investor Relations. Please go ahead.

Thank you, Tony, and thank you everyone for joining us for Goodyear's third quarter 2016 earnings call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Laura Thompson, Executive Vice President and Chief Financial Officer. Before we begin, there are few items we need to cover. The supporting slide presentation for today's call can be found on our website at investor.goodyear.com. And 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, I would like to remind participants on today's call that our 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. 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. With that, I'll now turn the call over to Rich.

Thank you, Christina, and good morning, everyone. This morning, I’ll cover updates to our industry and our 2016 plan since we last spoke at our Investor Day meeting in Boston. Then I’ll briefly discuss each of our regional businesses. As always, Laura will follow with a detailed financial report before opening the call for your questions. Our third quarter results were highlighted by continued growth in segment operating margin. All three of our global businesses achieved operating margins above 12% led by our Asia-Pacific business, which delivered 18.3% operating margin. In addition, our year-to-date core segment operating income grew to a record nine-month level. We delivered global segment operating margin of 14.5% for the quarter in a more challenging overall industry environment, particularly in our U.S. commercial truck tire business. This performance demonstrates the strength of our value proposition and our sustainability of margin growth in our business. As we discussed at our September Investor Day, our strategy is built to take advantage of the trends shaping our industry. Global demand for a high value-added large rim diameter tires is increasing and we believe that our portfolio of these products plus our connected business model position us on the path to sustained growth and competitive advantage. I’m also very pleased with the decisions we are making in our business units to drive and stay on our strategy. We continue to have opportunities to pursue short-term volume in increases that recognize that these opportunities are in unprofitable parts of the market that are not growing. In other words, any potential near-term gains would fall outside our long term strategy. The value of a strategy is in its consistent execution regardless of industry and internal conditions. At Goodyear, we are committed to consistent execution of our strategy. Now during the third quarter…

Thank you, Rich, and good morning everyone. Today, I will cover our third quarter results and provide more detail on key income drivers in the quarter. I’ll also cover updates to our 2016 outlook before we open the call up for your questions. Turning to the income statement on Slide 8 and as in prior quarters, we have provided callouts that highlight the impact of the deconsolidation of Venezuela. Our unit volume, excluding Venezuela was about flat year-over-year, as growth in Asia-Pacific was offset by declines in Americas and EMEA. The deconsolidation of Venezuela reduced net sales by $155 million. In addition, lower volume negatively impacted revenues by $73 million. Other tire related revenues were lower by $59 million, driven by the 2015 sale of the North American motorcycle business. Our gross margin increased to 28.9% and segment operating margin increased to 14.5% in the quarter. Our earnings per share on a diluted basis was $1.19, our results were influenced by certain significant items. Adjusting for these items, our earnings per share was $1.17, which represents an 18% increase versus last year. Turning to the step chart on Slide 9, which walks third quarter 2015 segment operating income to third quarter 2016, the negative impact of lower volume and production was $25 million. Lower raw material cost of $41 million more than offset reduced price mix of $38 million for a net benefit of $3 million. Cost saving actions of $93 million, driven by our operational excellence initiatives more than offset the $33 million negative impact of inflation, delivering a net benefit of $60 million. Foreign currency exchange was a slight headwind of $5 million, reflecting the continued strength of the U.S. dollar, particularly against the British pound. Other was lower by $40 million, which was driven by the following…

Thank you. [Operator Instructions] We’ll take our first question from Rod Lache with Deutsche Bank. Please go ahead, your line is open.

Good morning, Rod.

Good morning. I guess the - the most important question I want to ask you is, just in terms of the supply demand dynamic because ultimately the biggest driver of the earnings that you put up is going to be pricing versus raw materials and how that evolves, especially now with spot prices for some, raw is up a little bit off the bottom. I understand that the supply demand dynamic is going to be really good on the greater than 17-inch tire market, but you are calling out a few markets obviously that are relatively weak, could you just give us some context on your exposure to the less than 17-inch tire market and how you see that kind of playing into your strategy of offsetting raw material costs with pricing?

Yes, so Rod, it’s a good question, fair question. I guess the first thing that I would tell you sort of unequivocally, we don’t view that there is any change to the upside to the trend of 17-inch or greater that we talked about. We still believe and I know you know these numbers, but we see almost a four times increase in 17-inch and above versus the normal market. So, that situation full stop is exactly the same of what we see and the question of what does that mean, you are relating that back a little bit to the volume price mix versus raw material equation, particularly in-light of, I think you are right to call out some raw material headwinds coming in, in 2017. I would tell you Rod we have a track record even before we had sort of the tailwind of the 17-inch and above market coming in to manage volume price mix effectively and we would intend to do the same moving forward. I can tell you that I am very pleased in the quarter even with the discipline that the businesses have had. I made reference to this in my comments as well. On the lower end of the market, particularly in Europe, we stuck to our value proposition and we stuck to our strategy and we didn’t chose volume for volumes sake. We stuck to the value proposition and you might be right to assume we lost a little volume in doing that, but it is the right thing to in that part of the market that’s declining that’s crowed that’s increasing unprofitable, less profitable, I’ll say and in getting more competitive as we go. So, we stuck to our guns; that’s what we are going to do. And we married that…

Yes, it’s good to hear that you’re raising prices on the greater than 17-inch, but can you just put some brackets around what your exposure is, I know you’ve prioritized to the higher end, but what is the exposure as it stands today to the less than 17-inch market and if you were to look at current spot prices for raw materials, what’s the magnitude of raw material headwind that you’d expected at some point presumably next year?

So Rod, I think we kind of said as a total company or globally we’re about 55% of our OE business is 17-inch or greater and our goal is to increase that by about 5 percentage points as we get out to 2020. I won’t break it down by region in particular, but I’ll tell you, our exposure in North America and then in Europe are the highest in OE and in total, I would say Europe today is roundabout I think approaching around 30% of our total business is that 17-inch and above. You have to remember that the, you know the middle part of the market which includes some 17-inch or below 17-inch tires is still a lot of tires that we have. And some of that business is very profitable as well. So, we will continue to drive that business, but we’re also going to continue to reduce our exposure to that going forward. That will, some of that will actually move into 2017 as we do that, but again the right decision for us is we take the capacity out and as we continue to mix up and change over that capacity to make 17-inch and above.

And then Rod, just on your question on the raw materials, so certainly based on the current spot rates you are right to say that we will see higher raw material cost in 2017 than in 2016. Now they have increased, the raw have increased recently, we do expect some moderate reduction in those over the next couple of months as we look forward, but we do still see it up year-over-year. When you look at the first quarter of 2017 that certainly will have headwinds because raws were so low in the first quarter of 2016. Now we’ll get into exact percents and so on as we get to the February call as we always do, but I’ll just continue to point out, I think at Investor Day we showed a couple of charts where historically I think it was over the last five years there is always RMIs that come into play a particular quarter of so, but we have been able to do that whether to manage through that whether raw materials where increasing or decreasing.

Okay. And I presume the strategy is to continue that just to match on the pricing side whatever the raw material cost do?

Yes, absolutely, right. We make investments for our products. Our value proposition what we bring to the marketplace, there is absolutely nothing has changed on that mentality.

Okay.

And Rod, I just want to maybe just add a little bit more on the mix question you said, because I do think it is an important one. It is the essence of the positive market that we see. Again I’d go back and if I could elaborate a bit, remember this starts with OE, which is where we are getting these fitments, and then if I could even point you back, you don’t have to look at it now, but I think it’s on page 55 of what Steve McClellan reviewed in the Investor Meeting. He showed a diagram that showed round about a 10-year period for the OE, percentage OE of our business at 17-inch and above to sort of make its way into the replacement business, given two to three to four year change of those tires going forward. We see that trend happening very fast and that’s the upside, that’s the positive nature of what we have and that’s where the supply demand equation still sits in favor of ourselves as we move forward. That also says that as we migrate through that we still sell a lot of 17, or below 17-inch tires and some of those certainly at a profit. So, I don’t want to leave you with the view that we are not selling any of those. As you know that’s still a big size of the market in total, but we’re increasingly shifting over to the larger RIM diameter tires and I know you know this, but remember even though there are smaller volumes the margins are higher and our driving what we have in our results. The 16-inch and below, increasingly crowded, oversupply, declining, literally competing against hundreds of brands in there, particularly some of the Asian brands come into Europe as we’ve talked about in the past. So, as we address that proactively we won’t exit it immediately, but will continue to mix up and that’s where that margin profile was going to come. It is, I would say a great trend that we have in the industry as we look to the future. So hopefully that helped a little bit, Rod.

Yeah, thank you.

Thank you.

Next we will move to Ryan Brinkman with JPMorgan. Please go ahead, your line is open.

Great, thanks for taking…

Good morning, Ryan.

Good morning. Thanks for taking the question. So, it looks like the volatility around the commercial vehicle tire shipments is having a relatively large impact on SOI, can you maybe frame for us the relative contribution or variable profit of commercial vehicle tire versus a light vehicle tire?

Sure. Commercial truck on average we’d say about $60 a tire. Consumer I think, we usually is just under 20, about $18 a tire.

Okay, that’s helpful. And I remember a couple of years ago that it might have been exactly two years ago, you not realized as much raw material savings even though commodities were lower because you shipped fewer OTR tires, which is relatively more raw materials and so you didn’t have quite the savings, is something like that maybe happening to a lesser degree in 3Q this year just given that, I imagine commercial vehicle tires where they use a lot less raw materials that OTR tires?

Ryan I’ll, no that’s really not an issue. As I try to articulate in my remarks. I think if you look at our commercial business we really sort of had these three elements that impacted us in the quarter. You know one was frankly we had a weakness in consumer or in commercial OE volume new trucks, we saw trucks down I think 29% in the quarter and just to be – add a little bit of clarity and transparency on it, we tend to - when we see those we manage our inventory, we take production out. As we took that production out, what happened to us is, when we go through our unabsorbed overhead calculations as part of our accounting policy, as you take that volume out, we can trip a number, which was again very candidly unexpected where instead of that unabsorbed overhead or lower factory utilization turning up as a product cost and then being released is cost of sale when the tire is sold, it effectively gets recorded in the period that we take the production cut in this case in September. So that was an issue that hit us in the quarter. Then we had a specific customer issue, where we are again, I won’t elaborate on, but we’ll say we’re sticking to our value proposition as we go. And then we had frankly just lower volumes. This one is very hard to predict, but we had significant increases in the pre-buys ahead of the tariff and commercial truck tires. I think we had non-RMA members in the U.S. were up, I think 35% in Q1, I think 74% in Q2, and down 23% in Q3. And frankly that’s really hard to predict those pre-volume numbers as we go. And remember that’s in an industry where sort of ton miles and the way to measure freight is, let’s just say relatively flat and not up. So, dealing with that also had an impact in the quarter. Again, little bit harder to predict, but this is something we’ve seen before. Dealers have loaded up on truck tires that means there is a little shelf space, but that will work its way through. Our products are leading in the industry. Our fleet solutions model continues to be very strong. That will work its way through, it will take care of itself as we go forward and we’re working through a distortion. Unfortunately and again just to be very transparent about it; that did have an impact on us in the quarter. So that was one of the things I would say. The OTR did hit us, but that was a little bit more of the cyclicality of the mining industry, it wouldn’t be what you’re referring to which I do remember about a year or so ago.

And that Ryan, just for your - as you look at SOI walks and so on, that OTR impact pretty much hit in the mix of the bucket, okay.

Okay. That was really helpful commentary, thank you. And then just last question is, if you could talk about the drivers of the very strong shipping growth in Asia-Pacific, maybe in-light of the very strong China light vehicle production over there, perhaps you could remind us of your OE versus after market exposure, I think it is different in that market than in the U.S., and then what is your outlook for that region kind of going forward as maybe as per IHS, the China light vehicle production growth decelerates, but perhaps there is tailwind in the aftermarket, how do those net out?

So Ryan, I am actually very pleased with the way our Asia business is delivering right now, particularly in China and Christina or Laura will correct me, our percentage of OE there is about 60%, it’s higher than it is in other regions and that’s because when we went to set up our business there, it started out as essentially all an OE business and therefore that mix still tends to be weight towards OE. That will sort of rectify over time. I would say a couple of things, one the industry was still a very strong, particularly the OE industry. I'd also point out that the OE industry in China does have volatility to it as well, but it was very strong right now and what we’ve done over there is very consciously tried to create, I would say or creating a business model that’s branded, that’s focused on 17-inch and above, the larger rim diameter tires, and also focusing on getting the right vehicles to have that pull through. We've also created a network of stores of distribution points that we manage very consciously. It’s easy to open a lot of outlets and then how to close them later, frankly we've encountered that in the past, but we're very methodically managing our distribution channels over there and using digital and using other tools to reach those consumers. So, our China business from a brand, from a product, from a mix, from a customer basis is very strong and obviously we know that growth is in Asia and in China. So, we're very positive on that and I think as we said in the September investor meeting, we're planning to increasing our capacity at Pulandian factory, and I won't elaborate here. We also increased, announced capacity increases in India as well. So, area of the world is growing here, area of the world that people are continuing to drive and we're positioning ourselves well for it.

Great, thank you.

Thank you.

And next we’ll move to David Tamberrino with Goldman Sachs. Please go ahead, your line is open.

Good morning, David

Hi thanks. Good morning. I got a couple of follow-ups from earlier questions and a few of my own, just on the mix, I think you said you were 55% OE, HVA globally, but you didn't give a replacement breakdown, what does that look like globally for HVA 17-inch and above tires?

So, overall, I think it’s around about the 40% range, if I'm about correct?

Yes 35% to 40% in replacement, yes.

Okay, that's helpful. And on the commercial vehicle side, obviously understanding the supply demand disruption that impacted the quarter, wondering what you’ve seen so far in the October timeframe from a trend perspective, is this going to take another couple of months to work through the excess supply and this is a potential 2017 rebound in volumes, on the replacement side for commercial vehicle or is it going to be an issue into the first half of 2017?

Well David clearly based on the, well I maybe I shouldn't say clearly, but based on the guidance that we did put out there will be a drag in the fourth quarter of the unabsorbed overhead from lower truck production or lower commercial production as well. So that is one of the headwinds that we're facing in the fourth quarter that caused us to change the outlook. So that will continue. How long it takes, the truck product to work through the shelves and the distribution that’s a harder one to call, but we know that will happen just as it happened with the consumer side. So, it doesn't concern me. It is a question of when, not if. And then the larger question of what happens in 2017, I think that’s largely going to be what happens from an industry perspective, and I think as we look to our guidance for 2017 we’ll let you know. OE, you know new truck production as I mentioned, I think down 29%, I think it was in the quarter and 39% and 38% year-to-date. So that will change. I mean David, one thing I’ll tell you about the truck industry, having done this a while, you get to a feast or famine and right now we have the new truck production down, it will come back as we move ahead. Engine changes, whatever it is, we have pre-buys and fall off, so it will come back. I’m very confident of that, but as we look to 2017, I would say we will wait to get to the fourth quarter call and we’ll be in a position to give you I think a better guidance on that.

Understood. As I think about some of your competitor’s, one of them is a little bit larger than you are in the mining tires segment, and they are essentially calling for a rebound within the market in 2017, is that what you are seeing, is that your base case and what if anything in terms of rebound in mining tire demand is baked into your forecast for 2017 through 2020.

Right, so, you know David for our September Investor Day, we certainly did not build-in a rebound in the OTR business. Maybe a little bit of an improvement, but not a rebound. We don't see that also for 2017. As we look at it, we still think 2017 will be under tremendous pressure. Now the good news is, and I, may be famous last words, it does feel like we are at the bottom as we go, but again we’ve not baked any rebound into the 2017 through 2020 plan as we go.

Okay. And then if I think about it just getting back to the levels or maybe not the levels in the 2012, 2013 as we were peaking, but a couple of years ago in 2014 there was about a $19 million headwind in price mix for the entire year, and a large majority of that was driven by the productions in mining tires. I mean is that notwithstanding, you still had the mix up from the consumer tire business and commercial vehicles still performing well. So my question is, if we were to see a rebound in mining is that potentially $50 million, $100 million, $200 million in favorable mix coming back into your P&L?

Yes. I mean the short answer is, yes, right. You’re exactly right, back in 2014 a big part of that negative mix was there. So we are at about half of our profitability levels right now, off of our peak. So you're in the ballpark. It is big numbers when it rebounds.

Thank you, that's helpful. And then just lastly on the restructuring benefits, obviously announced something this week, was that is in addition to what was communicated from 2017 through 2020?

That's right, that's right. So, when we were - at Investor Day and I think you and I talked long about it, we certainly on Investor Day included restructuring cash. We knew we were going to continue to take actions, but couldn't make any announcements and we talked about the benefits then being upside to that. So it’s really the 30 million is incremental to the 2020 plan.

Understood. Thank you very much for tanking taking the questions.

Thank you.

You're welcome.

Thanks David.

Thank you. We’ll move to Adam Jonas with Morgan Stanley. Please go ahead, your line is open.

Good morning, Adam.

Good morning everyone. This is actually Paresh Jain in for Adam. A couple of questions, first one, I wanted to reconcile growth in the greater than 17-inch segment. We recently had one of your peers come out with their own forecast of growth in that segment where [indiscernible] seems to be in the 7% range in the high single-digit range through 2020, almost half of yours and LMC focus, so is there something I’m missing in that comparison or it’s just a difference in expectations?

Yes, I really can't speak to that. We can speak to our view, it’s very hard to speak to theirs. So maybe that’s something we could help you with off-line, but it’s hard to talk about that at this point.

Yes. And then when you look at the numbers, I mean when you kind of look back at the couple of charts we had in the deck pages 5 and 6 and you look at the growth in the 17-inch it substantiates it right.

Right, you also aligned with LMC there, so I just wanted…

These are the actuals. As we reported out on the third quarter actual, you can see the growth in every quarter it goes.

It’s just hard to comment on someone else's announcement.

Exactly.

So, we'd rather not do that.

Got it. And then a follow-up on Asia, I wanted to get your thoughts on margins there again, we are an unchartered margin territory here, since it’s still a market dominated by OE sales, curious to know what kind of feedback or if any pushback you get from OE is on the pricing front, just given where the margin levels are?

Well, I would say, our focus whether it’s OE or replacement, really is predicated on the value that we're bringing, our value proposition to all our OEMs, including the Asian OEMs and that’s around technology, it’s around innovation, it's around helping them solve their problems, and it’s around being able to do the complexities that we talked about in our investor meeting that not everyone else in the industry can do. So, our focus is really to help them solve their problems and deliver it to them, the tires they need to achieve the out outcomes that they need, and I think the value we bring has a proportional relationship back to the value that we received. So our goal is to help them solve their problems, to help them make better vehicles, and if we do that, I’m confident that our value proposition will be recognized.

Thank you.

Thank you.

Thank you. And our final question in queue comes from Emmanuel Rosner with CLSA. Please go ahead, your line is open.

Hi good morning.

Good morning, Emmanuel.

Good morning. Just, high level question, conceptually you and your investors about a month ago, very, very bullish tone and obviously you remain bullish on the long-term, but it seems like maybe the near-term headwinds are quite a bit towards then what you just saw a month ago. So, what has changed so dramatically within the last month, are some of the things you are describing really seems to have, you know accelerate to the downside over the last 30 or 40 days?

No. Emmanuel, I think it’s a certainly a fair question, I would say that really our outlook hasn't really changed. What we had to do is what we have to do to reach those 2020 targets, making sell 20 million more 17-inch and above tires. That is at the core of what we have to go do and if you say what’s on my mind? Every day and what we’re driving the team to it’s actually that. And that means mixing up and making more the right tires in North America where you know we’ve been a little bit short supply. We have to make the right tires at the right cost, no change from what we’ve been saying and no change from what we have to do. In EMEA, again trying to be very candid with you, we saw the replacement market decrease about 8% in September alone. We are out there trying to capture the value of our brand, the value of our value proposition in the marketplace. We stuck to our guns, we did not pursue volume for volume sake, as we are looking to mix up, and we've taken the action. As Laura said, we couldn't necessarily talk about it at the September meeting, to be able to address our switch from mixing up to the higher end of the market. That kind of came through a bit more in September even then we thought, frankly we didn't anticipate a market decrease in summer like that. The markets in Europe are a little difficult, you know we also said, we planned on another green winter, but we actually saw winter volumes down again in September, off of a week last year. So, Europe, a little bit, little bit even tougher then we saw, but that’s the…

Understood. And then just to make sure I fully understand some of the puts and takes on the, I guess impact on the 2020 plan, when you are saying the no change to 2020 from the declining below 17-inch market in EMEA, is that, I mean and that it was already contemplating is that basically - what are you exactly saying, that it was a headwind in the quarter and potentially in the fourth quarter, but that’s sort of like the shrinking exposure to that and that was all already part of the plan?

Exactly. And I think Emmanuel the only difference, getting out the declining 17-inch market size for us was on part of the 2020 plan and in fact that was part of our presentation in there. What we did, was as we saw that declining much faster as we moved into September looking at our forecast as well. We just accelerated the timing of it, right. And now we went ahead and made the advancement and are moving forward. It’s really in the plan, just probably where we were on September 2015, we moved it up in the plan.

Okay. And then a final one just on the, still on the outlook, obviously your implied fourth quarter SOI, so probably a little bit below what previous plan would serve like required for 2016 are there any different sectors in the fourth quarter than what you have been describing for this past quarter?

I think I mean just make sure we've got a chart in the deck, right. It talks about the impacts to 2016 that’s page 4, and then we also list all of our other key drivers to each segment operating income drivers and balance sheet drivers as part of that.

Okay then on the sequential basis?

Yes and Emmanuel just as we talked about it, don't forget that the overhead impact from truck and the industry weakness that is in the fourth quarter as well and is a little bigger impact to the income statement in the fourth quarter then even the third.

All right, understood. Thank you.

Okay, you're welcome.

Thanks, Emmanuel.

Thank you.

I think that was our last question. I just want to close by saying, we've, personally I've been doing this for now for about over 10 years in my various positions here, and I will just tell everyone again and from personal experience, look the tire business has its disruptions and it always will, whether it’s industry cyclicality, it’s tariffs, it’s OEM production adjustments, it's volume oriented competitors, whatever it might be those are certainties that are going to happen along the way. The key in our key is to have a sound strategy to have the constancy of purpose and to not be dissuaded by all these externalities to move away from that strategy. That’s what we’re doing at Goodyear. At times it can be harder than others, but that’s what we’re doing. Listen, it was a tough quarter. I’m not the happiest with it and I will say that with the appropriate humility, but our core business is sound. The market is very strong for us and our strategy is working. We got a lot to do to the 2020 plan, and I’ll just let you know that’s what we're focused on and that’s what we are committed to deliver. So, thanks everyone for your time today.

Thank you.

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