Good morning. My name is Keith, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's Third Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now hand the program over to Christina Zamarro, Goodyear's Vice President of FP&A and Investor Relations. Please go ahead.

Thank you, Keith, and thank you, everyone, for joining us for Goodyear's third quarter 2018 earnings call. I'm joined here today by Rich Kramer, Chairman and Chief Executive Officer; and Darren Wells, Executive Vice President and Chief Financial Officer. 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, on 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 now turn the call over to Rich.

Thank you Christina, and good morning, everyone. Before beginning my remarks, I'd like to welcome back Darren Wells who recently rejoined the company as our Chief Financial Officer. For those of you who are unfamiliar with Darren, during his prior time with Goodyear, he was instrumental in the development of our turnaround strategy during the mid- 2000s and was the architect of several of our major capital structure decisions. He also served as a leader of our email operations and helped to bring stability to the business. Throughout his tenure, Darren has experienced several business cycles and can add valuable perspectives as we work our way through the current environment. With his deep knowledge of Goodyear, the tire industry and its familiarity with many of our analysts and investors, it goes without saying that we're very excited to have Darren back on the team. Welcome Darren. In the third quarter, segment operating income totaled $362 million and segment operating margin was more than 9%. Our global tire shipments increased by 2% on a year-over-year basis, driven by the significant gains in the Americas and EMEA. Globally despite significant headwinds in China, we grew both our consumer and commercial volumes led by our consumer replacement and commercial OE businesses. During the quarter, we continued to improve the operating performance in our key mature markets, driven by the benefits of strong mixed trends, and solid volume growth. Our teams delivered outstanding growth in the premium segments of the US and European consumer replacement channels. These gains contributed to improving momentum in our two largest regions as EMEA delivered operating income growth of more than 20%, and the Americas turned in its best year-over-year performance since 2016. We're pleased to see that our total operating performance was relatively stable in a period of…

Thank you, Rich and good morning, everyone. Let me start by saying that I'm very excited to be back on the Goodyear team. While we're going through a period of some adverse macroeconomic conditions, the underlying business fundamentals impressed me as being stronger than they were five years ago when I did my last earnings call as CFO. Even though I'm only 30 days into my return to the role, I wanted to take a couple of minutes to offer you some initial impressions. My first impression is that the current cycle of raw material cost increases has a lot in common with prior cycles. There are some differences as well but overall I don't see anything that should change our ability to recover margins over time. I'll talk more about this in a few minutes. My second impression is that the tire industry hasn't gotten any easier Even in times with pretty good economies; we find challenges that make our near-term financial results difficult to predict. For Goodyear, this means we have to continue to focus on disciplined execution of our operational excellence initiatives, as well as on our connected business model, making sure that we are as well positioned as possible when the current volatility settles. My third Impression is there are businesses positioned with the right capabilities to navigate these challenges. I'm impressed by the progress over the past few years on multiple fronts. The company is continue to address its cost structure, continued its strategy of reinventing U.S. distribution and it's made investments in technology that sets us up for changing automotive ecosystem. Hopefully, you can tell how enthusiastic I am about our prospects in the coming years that are one of the reasons I've rejoined the team. However, I also realized that you're very focused…

[Operator Instructions] We'll take our first question from Rod Lache with Wolfe Research. Please go ahead your line is open.

Good morning. Just first of all two housekeeping items. Can you just confirm the accounting for Tire-Hub shipments at this point, are they still on a consignment basis? In other words there's no benefit from channel filling there and are you bucketing some of the big changes that we've seen in Turkish Lira, Peso and some of those other pretty significant moves in the raw material bucket?

Yes. So, Rod, I think, I'll answer your second question first and say, yes, the devaluation does have transactional impact that we do put in raw materials to the extent our factories in Turkey are buying raw materials that are denominated in dollars or in non- Lira currency. So you're thinking about that one the right way. And I think it confirm there's no benefit from moving tires into the channel with Tire-Hub.

And Rod that's by definition that's not the purpose of it and certainly that's not happening in the quarter and we're pretty much through the consignment element of it as well.

Okay and I'm just hoping you can help us with a few kind of perspective items, one is, is pricing mix really accelerating to about a $100 million in the fourth quarter? And I'm wondering how we should be thinking about some of these things that we look out to 2019 just on a preliminary basis? If price and mix adjustments you're making right now hold what would that mean for 2019? How should we think about raw materials? And then any other color that you can provide for us on some of the other things that you've mentioned in the past like San Luis Potosi ramp and the non-recurrence of the Tire-Hub and cost reduction. Some of those things are as they stand today looking out to 2019?

Yes, Rod, let me, I guess the first thing I'll say is that I won't, I offer you what I can on 2019. I think our plan for 2019 is something that I'm certainly still working with the team to try to better understand. So there's going to be some elements of 2019 that I won't be prepared to comment on today. But I think your point on the price mix performance for the fourth quarter is a fair one. And based on achieving $45 million of price mix for the full year, but that does imply that the fourth quarter is going to be a big turnaround so we're going to go from having negative impact of price mix over the last three quarters to having a very significant positive effect of price mix in Q4. And I think that is something that is a positive for us as we set ourselves up for 2019. The other positives I guess as we look out to 2019 that we've got some clarity on at this point is, yes, and I think you've pointed some of these out that the continued ramp up of our factory in Mexico and the additional units that will be getting out of that factory which are both high margin units and have a better cost structure. Then - we would high cost factories. The reversal of some of the impact of Tire-Hub. So some of the hit we've taken for reduced volume in Tire-Hub this year, obviously, that will unwind next year, and will provide some positives. And we'll have, I think we'll continue to have net cost savings. I think it's worth having a longer discussion about and I'm not fully ready for that discussion yet. But we've got, our net cost savings I…

Okay, thanks. And just to clarify if the, on that turnaround in price and mix. Is that something that kind of all things being equal. You would have 3 more quarters that sort of that level through next year or is there something unusual that is occurring in the fourth quarter of this year that was that number?

Yes. I mean, we're obviously getting pass the anniversary of some of the price decreases and that's helpful. Some of the price balance that took place last year. That's helpful for Q4 and it will be somewhat helpful going forward. Rod, just I'm not at a point where I'm comfortable giving you a clear view of where price mix is going to be going into 2019. But I think we're --obviously we are making progress there. Continuing to deliver very strong mix and taking some continued action on price including the price increase that we announced in the U.S. that really started benefiting us will start benefiting us in Q4.

We'll take our next question from John Healy with Northcoast Research. Please go ahead. Your line is open.

Good morning, guys. I wanted to ask to say a kind of a big-pictured question on the volume side, so three quarters in a row with replacement market growth in the US, clearly you can point to the economy driving that. But can you help us understand what's changed? And maybe a view of how sustainable this will? obviously not 11% but sustained growth, and we might expect sustained growth for the next few quarters on the replacement side, your level of confidence there?

Yes, John, I think, I think I'll go back and maybe refer to questions that we got a lot last year that I suspect many remember. And that was when we saw such a robust economy relative to sentiment and consumers and VMT and everything else. And we weren't seeing the demand out, the sellout demand in the marketplace. And what we said back then it was going to be a question of when not if. And I think that when is now. And I think that's what you're seeing. And as you think about this year, go back to Q1 remember, our volumes were down about I think about 3% or it was $3 million, I can't remember exactly what the number was. We were down in Q1 but sell out was up 8% at that time. And what we said is that pent-up demand was going to come forward because inventory channels were emptying. And since then just as you said, we've had a very, very, in North America and in Europe we've had very robust second quarter volumes and very robust third quarter volumes. And on top of that what you're seeing is the channels are in good shape as well. So that speaks to where we are, as I said on my script we've had good, we've had mid-single digit sell out for three quarters now. And that trend is we're about ending October continues into October. And if you think about that we're getting the volume, we're getting sellout, and channels are in good shape. And as Darren just mentioned, the benefit of our price is going to come in into the fourth quarter. So you've got a lot of those things all working together right now which is exactly the momentum that we want to take in to end the year and then take out into 2019. So I think it's really the economy, the demand for our product, the demand to support VMT and tread rubber burning finally coming to fruition.

Okay, helpful. And then I thought slide 9 was great in terms of illustrating previous cycles and the raw increases, but when I look at that slide you highlight the eleven quarters it took to recover the raw increase. Given the environment on the volume seems healthy. And you guys seem like you expected to continue, can that period of time in terms of recovering the raw prices actually potentially be shorter do you think the net 11 quarter timeframe. And how do you think that might play out?

Yes, So, Rich, I'll start on this one. And I think the fact that we're - our volume is recovering. And our market share is in a strong position and clearly those are things that make the job easier. We've been through obviously a period of time last year where volume went the other way. And that continues to be something that we have to be watchful of because we're working to recover this but we're working to recover it in a competitive marketplace. Yes, the thing I find to be the, require the most thought about this particular cycle, is that the raw materials have been through periods of flattening out, which makes it sort of harder to read the direction. And if we got to a point where we believed raw materials we're going to go back down. And I don't think we're there but if we got to that point, then it would raise questions about which direction pricing would likely take. And I think that's the biggest uncertainty for us as we move forward, but I think that what we've done in the third quarter. And I think what we'll continue to work on is going to demonstrate that we're committed to, taken that area that we're experiencing, you're under the line so to speak over the last seven quarters. And create some space above the line. As we did in the last cycle and that, that is the model, it is a business that has these raw material cycles. And that, that's how we work through and we're going to continue to hammer away at that.

Great and this is one final question for me, Tire-Hub, any color you could give us just on how installer response has been to the launch. You are seeing good retention of the dealers that you had in your network prior. And are you seeing any big wins out there in terms of geographies or just markets where you had been, may be underserved in the past?

Yes, John, I would say it's frankly exceeded our expectations in terms of its ramp up and in terms of servicing customers. Like any startup if you will, there's hiccups along the way. And I think on a customer by customer basis there's probably been some out there and we work diligently to get through that but no customer losses, no big customer losses and none at all really. And the process is working very well as we intended. And I think as we think about it from a strategic perspective, it's absolutely in line. And what our strategies and what our intentions are, so to get off on the right foot, I think was key for us and that's exactly happened. In terms of growth, we never intended to have significant growth in 2018 as we ramped it up. I think if you look out to 2019 and beyond, that's where you're going to see the benefits of expanding the distribution. And it will also support some of the new initiatives that we're working on, whether it's goodyear.com, and working with our partners out there, our partner dealers, and our other aligned distributors, or the new retail concept that we're testing out as well in a few markets in Washington called Roll by Goodyear, and I can elaborate on that if you like. But that's what Tire Hub's for, and I'd say it's on plan and frankly even a little bit ahead of plan.

And we can take our next question from Anthony Deem with Longbow Research. Please go ahead. Your line is open.

Good morning, everybody. Thanks for taking my questions. This first one's for Darren. I'm wondering if we can get an update on your leverage ratio outlook and investment grade intention. At the beginning of this year it was Goodyear's goal to grow EBITDA, to lower the leverage ratio more so versus paying down debt, and just wondering where we sit today, with you in the CFO role, will buybacks remain priority over deleveraging?

Yes. So, Anthony, I think you've raised a good question here, because obviously when we look at our shareholder return programs, those programs were always meant to be a reflection of our ability to generate cash. And as we go through this part of the raw material cycle, our results and our cash generation have been impacted. I would say that we are still committed to having a balanced, investment grade type balance sheet, I mean that is a long-term objective for us. It's something that has, I think, always been part of the DNA here, and has a lot to do with the types of companies that we compete with. So we need to have consistent access to reasonable cost capital through the cycle, and so the investment grade balance sheet is what helps drive that. So, as we've seen, obviously our debt - I don't know, different leverage ratios available but certainly on a debt-to-EBITDA basis, we were having some nice improvements down into the mid 2s. And our intention was to continue to work toward a ratio of around 2x. And instead in 2017 and 2018, because of the results, I mean the drop in EBITDA, our leverage ratio has moved back up. And I think the commitment is still there, to answer your question. I think we're going to have to balance our commitment to shareholder return programs with our desire and our strategic need to keep improving our balance sheet. So I mean that commitment is clearly there. So I think the balance is going to have to be struck, and we've had, so far this year we have repurchased about $200 million of Goodyear stock. So, a fairly substantial amount, I think that's something that we're going to have to moderate, quite honestly, as a result of what our cash flow is. And in order to do the right things for our balance sheet. We've got confidence in our business for the long-term, no question, you would have seen that in the increase that we made in the dividend recently. So I don't think it's a question of what we think we can do, or the cash we can generate in the long run, but as we go through a cycle like this, and given that it's difficult to predict how long a cycle like this lasts, we're going to have to take some steps to protect the balance sheet. Does that answer your question, Anthony?

Yes, that does, it's probably tough to commit to a targeted timeframe, I assume, at this point, right, because previously it's 2020.

Yes, I think that's fair. I mean, we're going to be taking a hard look at our 2019 plan, and then obviously coming back to take a look at where we think we're going to be 2020 and beyond. So we need some time to work on that, I need some time to work on that, just from a personal level. So we will come back on that question. I understand the question, and obviously we'll keep having dialogue and listening to our investors, and the viewpoint that they have.

Thank you. I have a few more questions if I may. And sorry if this is already answered. Can you specify exactly how much of the $80 million raw material guide down for 2018 is related to transaction impact versus increases in the commodity and non -commodity costs? Spot pricing was just sort of flat to slightly lower, raw material cost third quarter versus second quarter. So just want to get that's mostly FX driven.

Yes. So I think that of the $80 million about $30 million of it is foreign exchange related. There is another substantial factor here and there is some that is a reflection of higher commodity costs. And most of the increases that are not foreign exchange related are in the categories of carbon black and some of the-- and some oil based derivatives that we purchase. Within that carbon black and oil based derivative category, you heard me mention earlier the fact that there has been a fairly significant change in the availability of supply in China. And over the last several years, a lot of the production of these materials has shifted to the point where most of it is made in China. And so if China then starts to regulate through environmental regulations or other policies, starts to reduce the amount of this material that's produced. A couple of things happen, both of which are affecting us. One, there are some suppliers that just stop and you aren't able to make the required investments to comply with the environmental standards. And therefore if you are a customer there's you are forced to change supply. And generally you're changing supply for a higher cost supplier. The other effect is that all the suppliers in the market start to raise their prices to recoup the additional investment for those who are able to make it, recruit the additional investment in meeting the environmental standards. So it is something that that pushes up those materials and for our Asia-Pacific business and even for our business in North America, we do a lot of our procurement for these materials in China. So that is playing into it, and it also plays into our outlook for raw material cost going into next year.

And I know you're not prepared to give the price mix outlook for next year, but given the circumstances that you just described do you see Goodyear undergoing another round of price increases maybe here in the fourth quarter?

Yes. So I think, we will probably going to stand on the fact that we're going to recover the --we're focused on recovering the impact of raw material costs on our margins and doing it over time. we have to do it in a way that fits the marketplace that we operate in. So I'm not going to point to particular timing, but I think we're making a big step forward in Q4 and it's something that we'll get a lot of time and attention from us going forward.

Great, then it's one last quick one, is 5% a good estimate for the pre buy benefit for US consumer replacement shipment growth? The 11%, we saw about 5% industry growth. So assuming maintain market share was the pre buy benefit 5 to 6 percent-ish.

So when you talk about the pre buy benefit, I want to make sure I'm answering the right question here or we are answering the right question. Are you talking about the pre, the question of, are there people buying tires ahead of our price increase?

Yes. As I understood it, it was September first price increase that was somewhat expected in the marketplace to the third quarter. So I was, I believe that you gave some opportunity for free buy for your customers and wondering if that provided a benefit to your shipment.

Yes. Frankly, it's been very positive in the sense that there's really been no significant pre buys, I would say not only for us, but as we look around at our customers, our multi branded customers. We haven't seen a lot of that from an industry perspective at this time. So I would say it's been very moderate, certainly relative going back to some of Darren's comments when we went through this before, and some of these recoveries of raw material price increases in the past were expected you might see some prices, there some free buy. We saw very little of that and again I think that goes back to the earlier question of volumes, sell in volumes are good, sell out volumes our good. Channel inventories are good and the price increases that we've put in as of September 1st have been very favorably received from our perspective, so they're sticking.

And we'll take our next question from Ashik Kurian with Jefferies. Please go ahead. Your line is open.

Good morning. Can I just start with following up on the previous questions. I mean did you just say, did you imply there was no pre buy effect because I think from or we understand your price increases were probably effective from September 1, most of the other Tier one I think price increases are from Q4, well the main question I want to ask because I think last time around in 2017 your pricing was slightly out of sync with the rest of the industry which had an impact on your volumes. This time around and especially for Q4 are you seeing any big distortions between your volumes and industry or you think both pricing and volume development is pretty much in line with what it is for the members.

Ashik, I would say in line. I mean again we didn't see any significant free buy and I guess maybe to answer the question directly, we said industry was up five, our volumes were up eleven in North America, greater than 17-inch industry was up 12, we were up 24. And you've seen those volumes now up for tracking like that for two quarters in a row. So it wasn't the announced price increase that caused the pre buy that drove our third quarter volume to be clear. And as we said sell out continues to be good and that continues in October. So the volumes we had have not been, the incremental volume hasn't been a pre-buy as we move ahead to be clear.

And should we worry about the Europe because no one's announced price increases there. Is that just a reflection of the high level of inventory there, lackluster market I mean any thoughts and how likely it is your price increase in Europe?

So, Ashik, remember, we did do a price increase in the commercial business that we talked about on the second quarter call. And again if you want to think and sort of environmentally at least from a macro perspective, here we have replacement markets in Europe and the corridor up five for commercial this is, and OE up about 14. So volumes are good, our business is good; industry is good. And as we look at this, what we see is a market that's good and taking pricing on as we look at the Europe truck market. Remember, passenger is much different particularly in the winter segments. Darren knows as well, winter pricing --our pricing on winter tires is set earlier in the year. So as we go into that selling season, it's sort of set as we go. So we didn't expect any incremental price as we went into third quarter. Having said that, remember we said our volumes on selling have been very good. We gained share in the winter markets and we did that on the back of some excellent products out in the marketplace. We'll see sell out start to happen now in October. We would have hoped it happened in September, but the weather still been warm as you know over there. So we'll see those tires coming out and getting pulled into the market, and then have a restocking of the distribution ideally in the fourth quarter, assuming we see snow coming into the market. Now, remember and I said this last time the opportunity to revisit how to recover our raw material costs will be with the new summer tires or the summer tire season that will start late in the fourth quarter as well. So we will be as Darren said earlier, we'll be looking closely at how we approach that market given the high raw material cost as summer tires get set in the market later in the fourth quarter.

One more on China. What are your views on the Chinese sellout trend? I mean is the weakness we are seeing in sell in largely destocking by the dealers due to credit issues or is there been an underlying sellout weakness as well? And also given your high OE proportion of sales in Asia if you do get a volume weakness, do you think you have enough demand in the replacements side to offset it?

So, Ashik, you hit on both points. Clearly, we've seen the deterioration in China and we haven't found the bottom yet as we go. And remember, as you point out, our mix in China is much higher, we're about 60:40 OE to replacement. So if you look at both markets, I say we leaned in to the OE market in Q2 and right now I think the orders, the OEM order books to us have kind of come to where we said they would be in our forecast in Q2. So it's been deteriorating, but we feel pretty good and as you know, auto sales have been down three months in a row. September down 12%, as really pretty severe as we go. That said I'll just comment on OE, we continue, I'm very pleased with the win rate that we're getting on new OE business in China particularly EVs and particularly around large rim diameter tires with both transplants and domestic producers. So I think OE will rebound as the economy gets better in China, but clearly the headwinds are there. On the replacement side, Ashik, I think you hit it right. What you saw was essentially credit drying up. Remember a lot of distributors paying bank acceptances, those large even mid to small size distributors, when they don't have access to liquidity, and they can't pay. You see them essentially selling tires that they have to get cash to pay down their debt whether it's in the tire business or for other businesses they've owned. So we're clearly seeing less purchases going in, but there's also because sellout is slow, there's also a lot of inventory in the channel right now. And I think that's what has to work its way through, and that's going to come through with consumers buying cars and buying tires. And I think that's a sort of a derivative of the slow economy in China that we all know about right now. And as we said in the past, the government, the Chinese government clearly puts stimulus into the economy. Our sort of rule of thumb was it took about two quarters to sort of turn up in our business and get volumes flowing again. Despite the government reducing reserve rates, reducing income taxes, putting more liquidity in the market, we still yet to see the benefit of that stimulus sort of hitting the end consumer to start to empty the channels and get buying going again. So it's taking a little bit longer this time. We get that but again I'll say it doesn't really deter our view that China is a great market and continue --will continue to be down the road. So we'll work our way through this. And yes, less OE demand gives us more to sell in replacement, but we need to see that sell out in replacement happen and we're just not seeing that yet.

And we'll take our final question today from David Tamberrino with Goldman Sachs. Please go ahead.

Great, good morning, gentlemen. Darren you kind of dancing around in a couple of times, I figured just ask you directly with you coming on board now should we view the 2020 guidance that was previously set as off the table?

Yes. So, David, I think right now I'm focused on making sure that - yes, I have been focused on making sure we understand where we are in the fourth quarter. And as soon as we get past today call, I mean the work is all going to be about where we're set up for 2019. I think that the question around 2020 is going to have, it's going to a degree be dependent on the external environment. In the past, if we look at the past cycle, we could say there was some very quick recovery. So there was the over a two year period of time we saw our segments operating income jump dramatically, coming out of the last cycle. So I think it will be, part of the determination is going to be where we are in this raw material cycle. And so really not going to make any definitive comments about it today other than to say that by year-end we're going to be in a position to talk in a robust way about 2019. And once we get through the discussion and lay out where we are in 2019, we're going to go to work on a view of where we are for 2020.

Okay and on that topic because I do really like slide 9 and trying to fit this into prior cycles. What I was surprised by within your commentary that you didn't really address the capacity situation within the industry today versus where we were previously. And the growing or recovering global backdrop from 2010 to 2013. So I'd be curious to hear your comments on how do you think that overlay with a lot of capacity that's been coming online because we had a really great period from 2013 and 2014 and 2015 with tight supply and demand, tight capacity utilization on HBA tires. And declining raw mat that we had a lot of projects greenlit. I'd love to hear that overlay from you on that capacity and how that might be different this time than the prior cycle?

Yes, no, and David I think it is the right question. And at some point in the future I think we'd like to do a larger discussion on how we see the supply versus demand balance evolving in that 17-inch and above or the high value tires. There are clearly some dynamics here that I understand that there have been a lot of new factories constructed. And there are some new competitors in the market. As I look at our businesses in North America and in Europe, the performance that we're delivering right now doesn't seem to indicate a situation of oversupply. And that we're getting to a point where we're going to be delivering volume and price mix improvements simultaneously. And I think that's that is an indication you have nothing else of a reasonable balance between the two. I realized that during that time in 2013-2017 because there was a real shortage of supply for some of the high-end product. I think for some of that product that's still true. Big question about how much capacity has been impacted by the additional complexity and the slower build cycle times on these higher end tires. And yes it's a question I have and I think it's one that we want to continue to inform you and our investors about. So it may be that I can't give complete clarity there, but I'll say I don't see the evidence that I would expect to see of an oversupply situation.

Okay, that's helpful. Look forward to that discussion in the future as you obviously take a look deeper into it. I appreciate you guys fit me in and taking the question.

Thanks David. So, everyone thanks. We appreciate you are listening today. Thanks for your attention.

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