The Goodyear Tire & Rubber Company (GT) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's First Quarter 2017 Earnings Call. [Operator Instructions] I would now like to hand the program over to Christina Zamarro, Goodyear's Vice President, Investor Relations. Please go ahead, ma'am.

Thank you, Keith, and thank you, everyone, for joining us for Goodyear's First Quarter 2017 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 get started, there are 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 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. And with that, I'll turn the call over to Rich.

Thank you, Christina, and good morning, everyone. Thanks for joining us today. This morning, I will review highlights from our first quarter results and provide an update on the market conditions in each of our regions. Laura will follow with a financial overview of each of our businesses and an update to our outlook before we open the call to your questions. In the first quarter, segment operating income was $385 million, which is in line with our most recent guidance and a great achievement given the headwinds in the quarter. As we said in February, we expected a decline in unit volume in the first quarter, which was driven by our planned exit of some of the smaller rim size tires in EMEA and expectations for reduced OE demand in both the U.S. and China. Since then, volumes have been weaker than expected, especially in replacement, and sellout in the U.S. during the first quarter was softer than anticipated. In addition, we believe the timing of our price increases, which came relatively early in the quarter, had a negative effect on our volume. Even amidst these headwinds, we delivered segment operating margin of 10% and adjusted earnings per share of $0.74. These were simply excellent results for our teams who stuck to our strategy in an environment of rising raw material costs. We delivered cost savings, stayed focused on price and mix and did not diminish our value proposition for short-term volume increases. Our balanced plan to create value through sustainable revenue and profit growth is the objective of our strategy road map. It provides us with a constancy of purpose and informs the execution of our strategy despite market conditions that could tempt us to do otherwise. We are committed to the strategy road map and remain confident that we will continue to execute over the long term. Regarding the first quarter, I can't recall a time when it was more critical for us to have the discipline and commitment to the execution of our strategy. And we will need to do more of the same in the second quarter. The Americas provided an example of this approach in the first quarter as our discipline and commitment to the execution of our strategy was critical. This was particularly true in the U.S. as domestic auto production declined and consumer replacement sellout trends were somewhat weaker than we expected. Americas total unit volume declined 5%, driven by our U.S. consumer OE business. The Americas consumer OE unit volume declined by 13%, driven in part by lower U.S. auto production during the quarter. In addition, our OE performance this year is related to last year's very strong comparable where we saw first quarter 2016 U.S. consumer OE shipments up 11%, while the market was up just 2%. Overall, our OE volume performance this quarter is generally consistent with what we had expected at the time of our fourth quarter call. For the rest of the year, we continue to expect softness in U.S. OE production, particularly in the second and third quarter. It's important to keep in mind that the SAR continues near last year's levels, the auto industry still has favorable macro tailwinds, and mix is shifting in a more favorable direction toward light trucks and SUVs. This mixup plays to our strengths in OE where we have fitments on popular vehicles, such as the Ford F-150, and drives pull-through in the high-margin replacement segment. We're committed to winning in OE, and we'll continue to collaborate with OEMs in ways that both deliver value for them and are consistent with our strategy. For the company overall, the important takeaways in this quarter is that despite a decline in U.S. auto production, we are delivering on our plan with positive price/mix versus raw materials performance. That's the strength and the power of the Goodyear brand. Turning now to the U.S. consumer replacement industry. Sell-in demand remained solid and was up about 1%. We saw growth in the 17-inch and larger segment of the industry at 8%, which is driving continued mixup in our business. Total industry sellout during the quarter was softer than expected. We believe the weakness in sellout is related to warmer weather trends in the Northeast and Midwest as well as a delay in tax refunds affecting the U.S. consumer. You'll also recall that our price increase announced early in the year took effect February 1, which was the first in the U.S. market this year. This timing also played a role in this quarter's volume story as our Americas consumer replacement volume declined 1%. We continue to expect moderate U.S. industry growth in replacement in 2017 as many of the key economic indicators continue to be positive. According to the most recent data, U.S. vehicle miles traveled rose 2% in February, and gasoline demand rose 1% year-over-year in March. In addition, employment levels and gasoline prices all remain favorable and provide a productive platform for growth throughout the remainder of the year. Turning now to Brazil. I'm pleased to share that its first quarter was a very strong start to 2017 on all fronts. Brazil showed high single-digit volume growth in consumer replacement, almost 8% volume growth in our commercial business, and our commercial OE showed slight but positive year-over-year growth for the first time since early 2012. I'm very pleased with these results, and I'm encouraged that the country is beginning to show tangible signs of climbing out of its 2-year recession. And while our business in Brazil is far from its historical earnings level, we're clearly headed in the right direction. Across our markets in the Americas, our value proposition has allowed us to excel through improved price/mix, operational excellence initiatives and a commitment to executing our strategy. Shifting to Europe. Our EMEA business unit delivered $98 million in segment operating income during the first quarter, up 23% versus the prior year. EMEA's volume performance in the 17-inch and greater segment of the replacement market outpaced the industry, which grew at 12%. We are executing on our plan to mix up our product portfolio in EMEA. Goodyear-branded summer tires, particularly the Goodyear EfficientGrip Performance and the Eagle F1 Asymmetric 3 claimed podium wins in several important magazine tests this year, which led Tyrepress recently naming Goodyear as the overall victor in the 2017 summer tire test season. In addition, Dunlop presented the new Sport Maxx Race 2 at Geneva International Motor Show in March. This successor to the Sport Maxx Race has been developed together with Porsche to meet the demanding requirements for its new 911 GT3. With the first-generation Sport Maxx Race tires fitted on the previous models of the GT3, Dunlop continues its commitment to provide specialty tires for Porsche vehicles. As we look ahead, we expect to continue to see declines in the smaller than 17-inch summer segment in EMEA, particularly in the second quarter. We've been strategically reducing our volume in this segment, which has been influenced by increased competition, including a significant presence of low-cost imports. This reduction includes the previously announced footprint action in Philippsburg, Germany, which will be completed by the end of this year. Simultaneously, we are realigning our go-to-market model in EMEA, similar to the approach that we successfully implemented in the U.S. Adjustments to our approach include refining our value proposition by focusing on the growing, more profitable segments of the market; reenergizing our efforts to collaborate with and support our OE partners; introducing new products from the market back; aligning our distribution; taking advantage of the value of the Goodyear brand; and adjusting our high-cost footprint. These actions are consistent with our strategy, and we are committed to their execution even in the face of inevitable hurdles along the way. Finally, in Asia Pacific, strong volume growth in our consumer replacement business offset weaknesses in consumer OE, particularly in China. Similar to the U.S., auto inventories in China were higher during the quarter, which we believe is the result of a slower pace in the first quarter auto sales following a very strong pull ahead of demand in the fourth quarter of 2016. We are expecting weaker volumes in our OE business throughout the first half as our OE customers, who are mainly the large Western JVs, adjust production to align this with near-term reduction in their demand. I think it's important to keep in mind that our first half performance in consumer OE last year was also very strong, up about 20% year-over-year, and was fueled by the tailwind from a tax incentive put in place at the end of 2015. We remain pleased with the performance of our OE business, and we continue to believe that the auto market in China is healthy. As is the case with the industry overall, the OE segment in China will not grow in a straight line but will continue to grow as the world's largest new car market for years to come. Despite the near-term weakness in OE, our China consumer replacement business remains strong. We saw robust double-digit volume growth in the quarter, driven by strong replacement pull-through as well as some prebuy in advance of our price increase there. We continue to expand our retail presence in China and see enormous growth potential in Tier 3 and Tier 4 cities. These are lesser-known cities but have populations of more than 1 million and are continuing to grow. India also had an outstanding quarter, with volume growth in both consumer OE and replacement in mid-single-digit range. And one of the final positive notes on Asia Pacific, after several years of malaise, we are beginning to see an increase in demand for OTR tires. Although off a very low base, the increased level of order activity is encouraging, and we continue to remain optimistic about the long-term value proposition of our business in Asia Pacific. So looking back at the quarter, I'm satisfied with our results. More importantly, I'm pleased with the way we continue to execute our strategy in both strong markets and challenging ones. Our teams have made the commitment to winning with consumers and helping our customers build their businesses every day while taking the long view of creating sustainable value. Our 2017 plan remains on track. We continue to have confidence in our ability to deliver our SOI target of $2 billion this year, and we remain committed to our long-term plan of $3 billion in SOI in 2020. We are confident in our ability to deliver strong results across the entire company because of our commitment to and execution of our strategy. It's what you've seen from us for several years. We will not chase volume for volume's sake. We will compete for profitable growth in market segments where the value of the Goodyear brand, our innovative quality products, our pervasive distribution and service networks and the best team in the industry provide us with a competitive advantage. We are achieving real cost reduction, driven by our operational excellence initiatives to enhance the efficiency of our supply chain to help us get the right tire to the right customer at the right cost. And we're not running our business for 1 good quarter or 1 good year but to create sustainable value for the long term. Now I'll turn the call over to Laura.

Thank you, Rich, and good morning to everyone. Turning to the income statement on Slide 7. Our unit volume was down 3.5% year-over-year, driven by declines in consumer OE. Our first quarter sales were $3.7 billion, up slightly from a year ago. Excluding currency, revenue per tire increased 2%. Our first quarter sales also reflect higher pricing in our third-party chemical business. These benefits more than offset the impact of lower tire volume. Segment operating income was $385 million for the quarter, and our SOI margin was 10.4%. Our first quarter earnings per share on a diluted basis was $0.65. Our results were influenced by certain significant items, and after adjusting for these items, our earnings per share were $0.74. The step chart on Slide 8 walks first quarter 2016 segment operating income to the first quarter of 2017. The negative impact of lower volume was $34 million. Unabsorbed overhead was $37 million in the quarter. Improved price/mix of $47 million more than offset increased raw material costs of $42 million for a net benefit of $5 million, which reflects the positive impact of our announced price increases during the quarter and improved mix. Raw material costs were up 4%, less than the 7% we expected, reflecting higher-than-planned inventory levels at the end of the quarter. Cost-saving actions of $71 million, driven by our operational excellence initiatives and efficiencies in SAG, more than offset the $32 million negative impact of inflation, delivering a net benefit of $39 million in the quarter. Foreign currency exchange and other were a combined headwind of $7 million. Turning to the balance sheet on Slide 9. Cash and cash equivalents at the end of the quarter were about $1 billion. Total debt and net debt were down slightly from last year's levels. During the quarter, we've refinanced our $700 million notes due 2022 with an annualized interest expense savings of approximately $15 million beginning in 2018. The bonds will be redeemed on May 15. The newly issued bonds will be due in 2027. Free cash flow is shown on Slide 10. For the quarter, we used $557 million in free cash flow, driven by an increase in working capital of $596 million, which is consistent with the seasonality of the business. Additionally, cash flow from operating activities was a use of $286 million in cash, $86 million less than the prior year. Turning to Slide 11. The Americas reported quarterly segment operating income of $214 million in Q1 or about 11% to sales. This reflects a $46 million decrease versus 2016. Unfavorable factory overhead resulting from 2016 production adjustments and the impact of lower consumer volume were partially offset by cost savings and price/mix. Unit sales in the first quarter were 17.2 million tires, down 4.6% versus 2016. The decrease is attributed to reductions in our U.S. and Canada consumer OE business, which was impacted by the timing of certain fitments and overall OEM production reductions. Consumer replacement volume was down about 1% versus the prior year. However, we continue to see strong growth in HVA tires with a rim diameter of 17 inch or greater, especially those for SUV and light truck applications. Our commercial OE unit volume was down 5% in the quarter, reflecting a sequential improvement from prior quarters. Commercial replacement volume was also down 5%, which we believe is primarily attributed to the relative timing of our February 1 price increase. Even still, we feel very good about the performance of commercial truck during the quarter and its potential in the second half of the year. The core business continues to be strong, and we are focused on executing on our plan to realize positive price/mix versus raw material performance in the quarters ahead while continuing to capitalize on favorable industry trends. Turning to Slide 12. Europe, Middle East and Africa generated segment operating income of $98 million in the quarter, up 23% compared to the prior year. The increase in SOI was primarily driven by improved price/mix in the consumer replacement business and continued focus on cost savings, which more than offset the impact of lower volume and currency weakness throughout the region. Unit volumes were 15.5 million in the first quarter, down 3.8% from the prior year. The volume decline was more than explained by our decision to reduce exposure at the lower end of the market in our summer consumer business, where sales of 16-inch and below rim size products decreased 12% year-over-year. Our 17-inch and greater consumer replacement volume grew 13%. EMEA's OE unit volume was down 1%, primarily in our consumer business due to choices we've made to drive our OE selectivity strategy and intensify our focus on the more profitable 17-inch and larger rim size fitments. Our commercial truck business continues to deliver consistent results, growing market share based on the strength of our premium branded products. Volume at OE grew in the mid-single-digits range, and replacement grew about 12%, reflecting pull ahead during the quarter. Our EMEA business delivered solid performance in the first quarter of 2017, and as Rich mentioned, there are many strategic actions underway in this business. We'll continue to keep you updated on our progress as we execute on our longer-term plan in EMEA. Turning to Slide 13. Asia Pacific delivered first quarter segment operating income of $73 million, a $6 million decrease versus last year. Asia Pacific's volume was 7.3 million units, flat from the same quarter last year. Demand in consumer replacement tires remained strong, with year-over-year growth of 8%. However, it was offset by a decline in OE, primarily in China as a result of decreased vehicle production versus last year. Net price/mix versus raw material costs was positive despite significantly higher raw materials. The year-over-year decline in EBIT was primarily due to increased investments in the business, a decrease in government incentives for the expansion of our factory in China and unfavorable foreign currency translation. Our segment operating margin in the region decreased to 14.5%, down from 16.2% a year ago. Despite the short-term headwinds from higher raw material costs and fluctuations in the China OE industry, we are confident about the region's growth opportunities. Turning to Slide 14. And as we described on our February call, we continue to expect first half SOI to be down about 10% compared to 2016. Growth will accelerate in the second half of the year, bringing the full year results to approximately $2 billion. Next, I'll cover the changes in our drivers on our outlook on Slide 15. We now see full year volume about flat with 2016, following weaker sellout in the first quarter in the U.S. and revisions to our OE production assumptions in the U.S. and China, particularly in the second quarter. The volume reduction will generate slightly higher unabsorbed overhead in the second half as we align production in our factories. The second quarter's unabsorbed overhead should be about what we saw in the first quarter. Raw material spot rates, particularly natural rubber, have eased over the last 60 days. At current spot rates, we expect our full year raw material headwind to still be significant at about $750 million, with the second quarter representing about a 23% increase year-over-year. As a result, our net price/mix versus raw material assumption improves to a positive $25 million, which is driven by the impact of moderating raw material costs. Another change is the decrease in the expected headwind from foreign exchange, which is reduced to $30 million for the year. In total, our SOI outlook remains unchanged at about $2 million for the year. Other financial assumptions are shown on Slide 16. The only change on this page is a reduction in corporate other of $20 million, taking our full year expectation to $140 million. And finally, we repurchased $25 million worth of stock during the quarter, in line with the level you've seen with -- from us from the same period in prior year. We continue to expect to generate strong free cash flow in 2017, and we'll execute on our capital allocation plan over time and as we generate the cash. Now we'll open up the line for your questions.

[Operator Instructions] And we can take our first question from Rod Lache with Deutsche Bank.

A couple of questions. One is just to confirm, you're lowering your raw material cost inflation expectation from $1.1 billion to $750 million. Is that correct?

That's right, Rod, about 27% to about 19% full year now.

Okay. And can you just talk about what's happening vis-à-vis pricing? Because there's really a lot of confusion about the price increases but also the promotional activity that we're hearing some of your peers talking about. At a high level, looks like the companies that implemented price increases lost some share. And you guys did allude to some -- your prospective weakness in some of the key markets, with high inventories in North America, weaker production and caution on demand in Europe and China. So what gives you the conviction that the price increases are sticking in that dynamic?

So Rod, good question. A lot of sort of moving parts in there. And I guess the first thing that I would -- I'd comment on because I -- and I said it in my remarks on the call because I think it's got to be the pillars of what we do. And that's to have the discipline to stick to the strategies that we've had around putting a value proposition out in the marketplace. And I know you've heard me say it before, and I'll -- I guess I will repeat it again because it's so important to us: our strategy is predicated on a value proposition that goes beyond just recovering our input costs, if you like. We have a value proposition around innovation, around brand, around promotion, around training, service, supply, the digital customers we bring, national accounts, so on and so forth. That's the competitive advantage that we predicate our strategy on and that we're driving as we go forward. So this is important for us particularly as we go through, as I've also said, an industry that doesn't necessarily just move sequentially forward. There's volatility in our industry, and we're experiencing some of that right now. Now having said that, we have a proven track record on being able to offset our raw material costs with price/mix. We've done that over time. We've done that time and time again, I should say. And we've done that over time because there's a lag between when these raw material prices come in and hit our P&L and when we recover them. And then we add on to that those customers that are covered from our raw material indexes that have a lag as to when those things cover. So as we have volatility in raw material prices, it takes us a while to recover those costs, as we've often said. But our strategy says that we've got a proven track record to do it, and we're sticking to that with the discipline and -- as we have and as we will. You mentioned earlier the raw material price -- the raw material headwind now about $750 million. It's real. Q1, we took $42 million of that, which obviously implies the balance of it comes in over the rest of the year. So we've -- have our announced price increases out there to go cover that, and we're committed to doing that because that cost is very real for us as we move ahead. And as you talked about that, we have announced price increases out there, but we did not implement any incremental rebates out there. In fact, Rod, I would say the reverse is true given that headwind, the raw material coming in ahead of us. And you make reference to our volume numbers as well. Take OE out of that, our volume numbers weren't where we necessarily would have liked them. But at the end of the day, we know that we're sticking to our strategy, and that's a bit of an outcome. So I would say we certainly didn't put in any rebates in there. Our volumes certainly wouldn't indicate that. But having said that, you got to remember, we're playing at a higher end of the market. At the low end of the market, I would tell you, the value proposition is different from what I described. The value proposition at the low end of the market really is where customers are more price sensitive, and I think you see a different sort of equation there than you have with us. So we're sticking to our strategy. We continually reassess. We're going to move with agility and discipline. And that's how we're going to continue to drive forward. And there are consequences to that in the context of not just going for volume. Candidly, it's easy, right? But that's not the name of the game over the long term. Sticking to our mega trends, and we're sticking to where we see this industry going over the long term. So hopefully, that helps.

Yes, that helps. But I guess just at a high level, I appreciate what you're saying about Goodyear's specific discipline. It sounds like you guys are committed to doing this. Do you sense that there's any change in the competitive dynamic that would make, just broadly, the industry price environment a little bit more challenging? Or not really?

I would say, Rod, overall, no. But we also acknowledge you've got a period of raw materials going up and then raw materials coming down. We've announced our price increases. We were early in the market to do that right upfront. So you got a lot of moving parts right now, and that's why you can't look at this as sort of a snapshot in the quarter and use it to say that's indicative of everything that's going to happen going forward. As I said, the raw materials are coming. So overall, I don't see what you're suggesting. But we -- as you know, we look at this daily around the world to make sure we're sensing what's going on and taking the right steps as we deal with it.

And just lastly, if you can maybe help us. What does the $47 million of price/mix that you showed in the quarter, what does that actually calibrate to? Is that -- should we just interpret that as maybe kind of half a quarter of the February 1 price increase? So your run rate is like $100 million a quarter, just off of that, so $400 million for the year, and to get the $750 million, you need -- that's why you need the second price increase. But maybe just a little bit more color on that.

No. I think, Rod, I wouldn't do sort of an extension to that. I mean, when we look at our price/mix -- and we typically don't break it out, as you know. But I think what that's indicative of is our focus on mixing up our business, of taking steps -- we haven't talked a lot about EMEA, but in EMEA, we're taking steps to assess our position in that low end of the market that's highly competitive with a lot of imports, and we're continuing to mix that business up as well. And that's how we're thinking about driving price/mix and particularly mix in our business going forward. And so I think that's some of that in the quarter as well, but I don't think that you should do the math as an extension like that to make that assumption.

Yes.

And we'll take our next question from David Tamberrino with Goldman Sachs.

One question for me. As we look at Americas OE volumes in that negative 12% in the quarter, I might have missed this in the comments when you went through the regions. But is there anything to be concerned of there? I know that there's been, I think, a couple of plants opening up in North America from competitors that were looking to take some OE share. So wondering if that segment's not getting -- or is getting more competitive or if there's something we should -- something else that maybe is a destock from shipments in the fourth quarter or a loss -- OE changeover/refreshment, if there's -- just kind of talk to those numbers.

Well, first off, I'd say our business, OE or otherwise, has been competitive, is competitive, will always be competitive. And that's the environment we're working in, and we assume that will continue. But David, our approach to our OE business has really been strategically focused as well. We don't pursue just volume for volume's sake in OE, just like we don't in replacement. And I would say that, that approach has really served us very well. And we do that really to find the balance in the partnerships to serve those OEMs, to meet their needs and to get on the fitments, that we can deliver them the technology they need and try to exceed their expectations but also then have a business model that has the mix, the right mix and the pull so we can get that first, second and even third replacement. And that strategy has been ultimately working. But as you know, OE production, the fitments, demand, all that sort of thing changes from time to time. And I think we're at one of those points right now. So you can't -- I would suggest you can't take our OE business and, again, look at the performance in 1 quarter because it doesn't -- it's not really indicative of what happens. You need to judge us over longer periods of time. And I think as one of the charts we included in our material sort of indicates, we're really pretty pleased with how our OE business is tracking, particularly in terms of mix, with what's going on there. So that's our response there.

Yes. Yes, sometimes there's fitment changes and so on that comes into play. Yes, absolutely.

And in fact, maybe 2 other quick points, to Laura's point. What we -- when OE production changes happen, which they are, we're impacted maybe a little bit bigger because of that because of our share of market with those OEMs. But I'd also point out, as I think many know, that the shift is moving from sedans, production coming out, retooling to bigger SUVs, CUVs and light trucks. And I would say that's a trend that bodes well for us. We like that. So we're seeing a little bit of that volatility right now, but I would say that's kind of due course, and we are going to continue to try to create value for our OEMs and to create value for us going forward.

Right.

Okay. But specifically on the quarter, that negative 12%, and I might have missed this in your response, but was there anything that we should be circling? Is that expected to repeat? Or is that just a couple of changes from your OE partners and really is more of a blip than a trend that we should be looking at for -- despite a challenging North America production environment?

And again, David, I'm sorry. Should have also mentioned, I think you'll see it in the script. It's also a comp from last year.

Right.

We had a -- we outperformed the market significantly last year, and you're just seeing that sort of roll over right now.

Yes. I think the first quarter, we were up about 11 -- 10% or 11% last year. So it's a tough comp, very tough.

All right. Look, that's helpful. And then just following along the same lines as the questions from Rod. You brought down other raw material headwind. You brought up a couple of other positives within the FX. But you held the line on what your guidance is for the year. And I'm curious on that as what you're seeing within the market, why as you got arguably plus $400 million or so, why you held the line on your $2 billion. And then secondly, on the back of that, do you need any further price increases with what we've seen as a whipsaw effect in raw materials that -- as they've been coming down? Or do you feel good with the 2 that you've announced so far in the market will be effective enough to offset the headwinds?

Yes. So maybe I'll start, David. I think first of all, in answer to your first question on the added $25 million while raws are going down obviously at several hundred million, our go-to-market strategy is based on that value proposition. And we've shown over time that price equals raws. But right, we still are. It is a competitive market. And as you know, markets are efficient, right? So we just -- it's early in the year. We have a lot of things, timings -- different timings out there, moving parts as we go. But that's kind of how we see it at this point, okay?

Right.

And really, again, we have 2 announced price increases out there in the U.S. It is all about the value proposition and recovering as raws go up or down in the marketplace. So we'll do what we need on that front as we go.

And we'll take our next question from Brett Hoselton with KeyBanc.

Let's see. A couple of questions here. First of all, the original price hike that you guys announced was pretty consistent with what we saw in the industry. But then you made a second price increase. And I guess my question is simply, what was the purpose of the second price increase? Was it that raws had increased more than you had expected, and therefore, you needed some more incremental pricing? Or I mean, kind of just give us some understanding of that.

And Brett, you're talking about particularly our North America business where we made that announcement. I suspect that's what you're ultimately referring to. And I'd just say -- I go back to what I said and what Laura said, it's the value of the products that we have. We have our input costs. We have the value proposition we're putting out in the marketplace. We put all that, analyze that together, and ultimately, that's the conclusion that we came to. Raw material costs are clearly a part of that as we go. Remember, we started out with $1 billion, $1.1 billion, as Ron said, down to $750 million. But we want to point out, $750 million is still a 19% year-over-year increase in raw material costs, and it's still coming. Again, not to be repetitive, $42 million in the first quarter, it means the balance is ultimately coming in the remaining 3 quarters of the year.

The second quarter will -- as I said earlier, but the second quarter has a big hit from raw materials of -- it's like over 20%, 23%, I think, year-over-year.

And then switching gears. You maybe indicated this in the press release or on the call already, and I just haven't heard it. But the -- you made some adjustments in your corporate expenses, and obviously, the full year and the first quarter came in lighter than we expected. Can you just -- what's driving that?

Okay, sure. So no doubt, and maybe I'll talk about the full year as we see it. So it was about $22 million in the quarter. I think as we go forward, we'd be back on track with something more like closer to $40 million, $35 million to $40 million kind of Q2 through Q4 each, for that $140 million for the year. In the first quarter, it was driven by a lot of moving parts but driven by lower accruals related to incentive comp relative to our 2017 target. That's the primary driver of that lower. That stays, and again, we get back into about $35 million to $40 million each quarter after that.

It appears we have no further questions at this time. I'll return the call to you, speakers, for any closing comments.

No. Thank you. Thanks, Keith. And again, we appreciate everyone tuning in today. Again, we're very pleased with the quarter. We've got a lot of work to do over the continuation of the year, but we're focused on our strategy. We're staying to what we said we were going to do, and I think we're off to a great start. And again, appreciate everyone listening. Thank you.

Yes. Thank you.

And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.