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…

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,…

[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,…

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.