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 Fourth Quarter 2019 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 Nick Mitchell, Senior Director Investor Relations.

Thank you, Keith and thank you everyone for joining us for Goodyear's fourth quarter 2019 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 draw -- now draw your attention to our 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 now turn the call over to Rich.

Great. Thank you, Nick and good morning everyone. During today's call, I'll share some highlights of our fourth quarter performance and discuss the market environment in each of our regions as we look ahead. Darren will follow with a review of our financial performance as well as cover some of the puts-and-takes as it relates to our first quarter and full year 2020 outlook.Notwithstanding a challenging environment, I was very pleased with the progress we made on multiple fronts during the quarter. First, we continued to see a positive trend in price versus raw materials, reflecting the actions we've taken to capture more value in the marketplace, especially in the United States.Second, the working capital initiatives we implemented earlier in the year helped drive more than a 40% increase in our cash flow from operations during the quarter. This performance was ahead of our expectations.Third, in Americas, our U.S. consumer replacement business gained share during the fourth quarter capping off a year of outperformance. Unit volume increased 2% driven by growth in the high-margin premium segments of the market. Shipments of large-rim diameter tires increased 8% significantly outpacing the industry. This benefit stems from our consistent investments we've made in our product portfolio.Over the past three years, we've launched 10 major product lines to bolster our product offerings including the Eagle Exhilarate, the Assurance MaxLife, and the Assurance WeatherReady. And not only is the vitality of our products strong, these lines are among the industry's best with both consumers and trade magazines praising the innovation that we're bringing to the market.In 2019, the Eagle Exhilarate earned the coveted number one rating in the ultra high-performance all-season tire category from a leading consumer magazine. The Assurance MaxLife is ranked number one in its category in the key consumer rankings reflecting its…

Thanks, Rich. I have to agree with Rich's level of excitement, about the impact, our investments in technology and service offerings are going to have on our business as market evolves. In addition, there are a number of actions I'll cover today that will support improved results over the next two to three years, as we work on those longer-term programs and as we move through the recessionary environment we're seeing right now across much of the world.Turning to the fourth quarter, while several of the positive developments from the third quarter continued to benefit our business, our results fell short of our expectations. As I reflect on our performance, three factors stand out is impacting our results relative to our thinking last time we spoke. First, our OE business faced significantly -- significant incremental headwinds, reflecting continued year-over-year declines in light vehicle production as well as the downturn in the U.S. and European commercial truck cycles.Light vehicle production declined 5%, including the impact of the OE strike in the U.S., which was a deterioration from the third quarter. And the downturn in commercial truck builds in EMEA and the Americas accelerated in the period, further reducing demand for high-margin commercial truck tires.Second, demand for consumer replacement tires remained at recessionary levels in Europe. Industry shipments fell 3% in the EU driven by declines in the winter category. Shipments of winter tires declined 6%. We gained share in this important category during the period. However, our volume and price/mix performances were significantly impacted by the loss of winter tire business.Third as always recessionary industry conditions are resulting in increased competitive pressures. These conditions are making it difficult for us to capture the full value of our products and geographies where demand is the weakest, including OE markets in Europe and…

[Operator Instructions] We'll take our first question from Ryan Brinkman with JPMorgan. Please go ahead.

Great. Thanks for taking my question.

Good morning, Ryan.

Good morning. You mentioned on slide 19 that in the first quarter of 2020 depressed OE demand and restructurings and distribution changes are expected to more than offset the impact of improved pricing environment. I'm not sure if those comments are year-over-year. And so the implication is first quarter SOI, should then be below last year's level. I don't know if that's the case?And then secondly, what magnitude of price/mix gains could be reasonably expected for 2020? And do you think those gains are enough to be able to offset these other headwinds to drive higher SOI in the remaining quarters of the year beyond 1Q absent the unknown impact of coronavirus?

So Ryan let me take a shot at 2020, because I think you're -- the view on slide 19 to be clear that is a year-over-year view. So that -- the pluses and minuses there are meant to indicate how we feel like the first quarter might evolve versus a year ago. So, obviously, a lot of minuses on the page.As we look at 2020 segment operating income. I think we look at volume as something that clearly is going to create some pressure. We're operating in an environment where we're expecting the industry to be largely flat, and for us to have a couple of unique factors impacting our volume.One of those is risk of up to 1.5 million units for their distribution transition that we're going through in Europe, and so we expect that to be a hit for us. We also are -- in our OE volume -- we're expecting our OE volume to be down a couple of million units in a relatively flat industry and most of that drop coming in Asia Pacific. And there's a specific issue that we encountered in China that has resulted in us losing some OE business there.So, that is part of what's driving a couple of million unit drop in OE volume for us for the year, and that's before we take into account any impact of the coronavirus. So, we've got a couple of things there that are driving volume down in addition to an industry that's not very robust.With regard to pricing, I think the point we made there is we will get some benefit, carryover benefit from pricing actions that we took in the second half of 2019. However, that's going to be largely offset by price decreases that we've encountered at OE. So, between the…

Okay, great. Thanks. And then just lastly for me. It looks like you are planning to spend some more cash restructuring this year than in some prior years. You've expressed some dissatisfaction with your performance level in EMEA. Is it fair to assume that restructuring efforts will be concentrated there then?And I thought I heard you in your prepared remarks say too that you're focused on having the right level of investment in Europe going forward. Are you contemplating any potential changes to the scope of your operations there, or should we just expect a more traditional restructuring?

Yeah. I think the restructuring actions that we've taken have fallen in the category of trying to reduce our less capable higher cost manufacturing capacity and also to reduce the -- our level of salaried headcount. And both of those have been part of the plans that we've had in Europe and continue to be.The biggest issue that we face business-wise in Europe right now, I think is the alignment with our distribution channels. And therefore, that's where we're putting a lot of time and attention. But as we move through 2020 into 2021, we should see some benefit in recovering volume on our distribution channels, and we'll start to see some of the cost benefit from the two factory downsizings that we announced last year for our factories in Germany.Clearly in Europe and in fact in the company overall, we'll continue to look at additional restructuring opportunities, just given the softness in the markets we're in and the part of the cycle that we're in.

Okay, great. Thank you.

That’s okay.

Our next question comes from John Healy with Northcoast Research. Please go ahead.

Thank you. Darren, I was hoping you could talk a little bit more about the European distribution efforts. Just hoping to understand maybe a little bit more granular kind of how those new channels might look compared to what you did in 2019, and additionally how that 1.5 million unit volume might flow through the year. Should it be first half weighted or second half weighted?

Yes. Well, so John let me take the second question first. I think the – I mean the European business is characterized by a couple of seasonal sell-in periods. And so I think that effectively what that means is that the volume impact is going to be spread pretty evenly throughout the year, as we move through the need to reposition inventory, trade inventory toward our aligned distributors.And I think the way you can envision this is we're – the number of aligned distributors we have is directionally sort of half the number that we've been working with. And we're asking and working with each of them to increase their capacity both in warehousing and in transportation in order to be able to handle higher volume in our brands and that will take them some time to do. And so they'll work through the increases in those capacities.At the same time, the distributors that either we have not chosen to work with as full-service distributors or who have themselves chosen, not to want to put the additional resource into our brands, they're going to gradually be destocking. And I think that destocking process probably takes a bit longer than the inventory growth in the aligned distributors takes. And that is going to reduce the sell-in volume that we experienced during the year and it may in fact impact sell-in volume more than it impacts sellout volume. And certainly that's our expectation.So in some ways similar to the expectations that we had had for TireHub, although in the TireHub transition, we certainly had a better outcome than we expected. And obviously, we'll work on improving on the outlook here as well. But that process started for us in January. So it is ongoing right now.We're doing it in a market that's already a bit soft. So I think there's a number of things that are going to be playing into this program. Importantly though, I think we're looking at this as an opportunity to reposition our volume and to put us in a position where we can get full value in the marketplace for our brands and reduce unneeded multiple touches in distribution so that – which is obviously cost that we don't want to pay for and consumers don't want to pay for. So I think there's really good opportunity there for us to drive our earnings in Europe in 2021, 2022 and beyond.

Sounds good. And then a question for you Rich. As it relates to the coronavirus, I understand that it's impacting production in China for you guys but was – wanted to get your big-picture thoughts if you think that this has an impact on the U.S. replacement market. I know a lot of import tires come in from the region. And as you look out to the spring, do you think the industry as a whole is in a position where potentially there can be tire shortages? And do you think the company is positioned to benefit from that potentially with most of its U.S. production in the U.S. or in Mexico?

Yes. I think it's a bit hard to predict given all the variables that would have to happen to have that play out. I think the two things that I would consider in thinking about that and that's the channel inventories are pretty much in good shape, so there's not a lot of excess tires out there at the moment. So any disruption that were to happen I think, people aren't sitting on long inventories at the moment. But again it's really hard to have to predict what would have to happen for all those things to fall in place to happen. So it's too early to say that.I'd also just say that that situation would largely impact the low end of the market again and that's not exactly as you know where we play. So I think that the focus that we have and will continue to have is really winning in the markets in the segments of the market where we know we have a value proposition that works. So a long way of saying, don't really know what will happen but we don't see that as really a big opportunity or a big impact for us as we look forward.

Understood. Thank you, guys.

We'll take our next question from Rod Lache with Wolfe Research. Please go ahead.

Good morning, Rod.

Good morning. I had a couple of questions. Just first could you just give us a little bit more insight into what's behind these additional pricing concessions on OE? Like you said, it goes beyond the contractual pass-throughs on raw materials. And obviously, OEs always demand pricing. But until recently you're pretty disciplined on that?

Yes, Rod. I think maybe I'll take a step back a little bit as we think about the OE business, which we love and will continue to love going forward. If you look over the last 10 years a situation you're very familiar with and most people on the call are, we've seen a technical requirements for the tires that we've been supplying increase dramatically, whether that be in rim size or rolling resistance or ride and handling or whatever else it might be.We and other tire companies obviously put the investments in place to supply that. And we had certainly an added a margin opportunity for the advanced fitments that we were supplying there. And as a result, our OE profitability increased fairly substantially and that probably peaked two to three years ago. And since then, what have we seen? I think the first thing is probably what you put in the normal bucket, which is just the normal down cycle or cyclicality that the OE industry is going through. And when that happens, obviously that has an impact through the supply chain.The second thing and probably a bit more unique is the increased focus and investment that's going into EVs and simultaneously the increased focus on cost reductions that are going into sort of the legacy internal combustion engine fitments that they still have to make. So you have those things coming in. And as you put those together, you've got some margin compression that I think is hitting the supply chain including us as we look ahead. So their focus on cost down cycle in the industry a few more tires available out there because of that I think is what's behind that.But having said that, look, we've been through these things before. And as we look ahead, I'm frankly more excited about where we're going in our OE business because we're getting out of the sort of traditional supply of the 15- and 16-inch tires that are still needed out there and so on and so forth. And our focus goes to the EVs and tires with even higher technical demands around waste work and noise. And we're finding out that few people a few other companies can actually do this. This is what we're told in the marketplace.So our win rate on these is substantial. I mean in the last 18 to 24 months our win rate on the EVs we're bidding on is sort of two out of three. So I'm -- I appreciate having gone through this. I think now a couple of times before with the OEs that over time I'm confident the benefits from these future fitments is certainly going to balance off the compression on some of the traditional fitments that we have now. But in the near term, we'll have to work through some of the price pressure that I think you understand well.

Okay. And just thinking about the bridge, it sounds like you're expecting a 1.5 million unit decline in replacement which using your sensitivity to volume and overhead that's about $30 million. The OE 2 million unit decline is about $40 million negative and you've got the $15 million Gadsden impact. It seems like that would be offset by -- if you use spot prices for raw materials that's $80 million positive and you said $10 million a quarter or $40 million on the cost. What happened to some of the other idiosyncratic positives that you've talked about before like the actual savings from the Gadsden headcount or the German headcount reduction and plant closure or the TireHub losses declining? And I think you've also mentioned before that some of that seven million of new OE fitment starts to come in?

Yes. So I think Rod on the last point that you made, the OE fitments for us we're going to -- I mean, we effectively bought them out in 2020 and we start to rebuild the portfolio in 2021. Yes, so the -- when we've talked about the increase that we expected, which is sort of 7 million units off of last year's base that's targeting out like 2022. So it's 2021, 2022 where the regrowth in OE is taking place. So that's where we start to recover that volume.The restructuring actions in Germany and Gadsden are still sort of in process right now. So the headcount reductions are going to take us a good part of this year to execute. So the savings from those aren't going to be fully ramped up until next year. And 2020 is going to be the year that we get the transitional cost impact from changes we have to go through to move products around as well as in the case of Gadsden running a factory that is a relatively high-cost location running one shift. So there is -- even without the headcount, there's a lot of associated costs for the factory that create a drag.So I think what we're looking at -- and we have to recognize that -- so 2020 isn't going to get a lot of benefit. I think we're continuing to look at and will target additional actions during the year to do what we can to accelerate it and to try to increase the savings that we're getting. But in fact the benefits we're going to get are largely going to be in 2021.

Okay. And is TireHub a year-over-year positive? And can you also just lastly clarify, what corporate overhead was in the quarter? Did you have some kind of catch-up here for incentive comp?

Yes. I think that is the story on the corporate overhead Rod. I think the delivery on cash flow in the second half of the year did result in an increase in our compensation accruals. So I think that's -- there's not too much more of a story to it than that.

What's the number, the corporate overhead number in the quarter that you guys put up?

Yes. So I think for about $50 million for the quarter.

Okay. And TireHub?

Yes. So TireHub, we've continued to improve there. So in the quarter, it was a $4 million improvement from a year ago. So a year ago, our equity loss in TireHub was about $9 million. In the fourth quarter, it was about $5 million, so that's $4 million better. I think as we go through the first half next year, we had $25 million of equity losses in the first half of 2019. If we're running at $5 million a quarter which is kind of where we've been in the last couple of quarters then we'd have $10 million or $15 million benefit there and then hopefully some continued benefit as well. But the focus on TireHub right now is making sure they're making the investments to be able to continue to expand their distribution coverage. So that's I think not really pushing for profitability as much as we are for the service and coverage.

And it continues to go very well.

Right. No it's a very good asset for us.

Okay. Thank you.

Yeah.

We'll take our next question from James Picariello with KeyBanc. Please go ahead.

Good morning, guys. So just regarding the European wholesale channel exits, you're going to get -- you're exiting the 1.5 million units there. Have you quantified or can you quantify the associated overhead absorption costs for this year?

Yes. Yes so I think the unabsorbed overhead in Europe depending on where tires are made is $8 to $12 a unit. So if you average around $10 a unit then there's around $15 million worth of unabsorbed overhead for us to deal with as a result of that. And there is some of that that because of the lag for inventory might bleed over to the beginning of 2021.But on the other hand, we cut about 1 million units from our production schedule in the fourth quarter and that was sort of split between the U.S. and EMEA. So EMEA had some of that coming into this year. So I think that $15 million may not be too bad a guide for the overall impact there.

Okay. And then the $65 million-plus in savings over the 2 year to 3 year outlook would that be in addition to the headwind that you're experiencing in 2020, or would that be captured in the $65 million?

Yes. So it is not. So we'll -- two benefits after 2020.

Yeah.

The first benefit is recovering the volume. The second benefit is the $2 to $4 of additional net revenue per tire that we would expect. So those are two benefits. Part of which is recovering what we lose in 2020 but part of which is upside relative to history.

Got it. Yes. Just within raw materials in the past you kind of separated out feedstock versus non-feedstock costs. Are there any of the latter the non-feedstock factors playing in for 2020?

Yes. So James for 2020 we've got non-feedstock cost increases embedded in our forecast of about $50 million. And therefore we've got feedstock decreases of about the same amount. And the two kind of offset each other. And that's what's embedded in our flat guidance.

Any color at all on what the non-feedstock increases relate to maybe regionally commodity-specific anything at all?

Yes. Generally speaking it is a matter of either resourcing commodities where we have lost suppliers. And certainly there's a lot of instances in China where in petrochemicals we've got suppliers that just aren't making the material anymore and we have had to shift back to suppliers outside China.In other cases, we've got suppliers that have had to make incremental investments in order to meet environmental standards. And the cost of those incremental investments are being passed through. And so it's not -- strictly speaking it's not feedstocks, but its increased investment that they've had to make in order to deal with the new regulations. So I mean those are very common examples for us behind us.And the amount of non-feedstock increases is declining so less of an impact this year than last year. So I think we're working our way through that. And obviously we're focused on trying to find ways to mitigate those but that is the view that we've got sitting here today.

Got it. That's helpful. And just last one on mix. I believe backing into the fourth quarter maybe it was still a $5 million headwind within the EBIT bridge. One is that right? And then two just how are you thinking about mix for this year? I believe the headwind -- a major headwind or a good portion of that headwind in 2019 was related to your consumer alignment mix in North America. Does that finally abate in 2020?

Yes. So I think in the impact -- the negative impact in our consumer replacement business in North America, I think, we do see that abating because there's a number of actions that have been taken to address some of the factors that were causing that negative impact. So we've addressed it with some commercial discussions with customers in order to at least get rid of some of the duplicative distribution costs that we were experiencing.So I think that's good. I think the -- what we will see in 2020 is loss of commercial truck tire volume, as the commercial truck cycle and particularly OE build starts to hit. And some -- we expect some loss in our off-highway business, as well as that cycle. And the cycle for mining tires, has started to turn negative.So we've got a couple of other factors working against us. So I think that, while we're, as you said, we're sort of $4 million or $5 million negative, in the fourth quarter. I think we're hoping to see something, at least in the positive direction, in 2020. And I think, we're confident. We'll see something in the positive direction, in the consumer replacement business.

Right.

I think the question is in some of the other businesses. And we'll try. And provide some color for that, as we go through the year.

Thanks.

Yeah.

We'll take our next question from Itay Michaeli with Citi. Please go ahead.

Hi. Great thanks. Good morning. Just two questions, I apologize if I missed that. The first on slide 20, just continuing the mix conversation, in terms of the expected positive contribution over the next two or three years, hoping you could elaborate more on that.And maybe kind of talk about, the individual buckets of product, customer and channel? And, kind of how you're thinking about different scenarios for mix over the next couple of years?

Yeah. So I think, the -- Itay, the starting point here is that our product mix, continues to improve, and so we're continuing to get more growth and invest in more growth in higher-rim size more complex tires. And I think, as we start to ship OE tires for electric vehicles that will help as well.So I think the core of product mix has been a positive, will remain a positive. We will -- we have started to address some of the channel and customer-related mix issues, in the replacement business. So I think that will improve.And then, as we see the cycle improve we work through, whatever weakness we experienced this year in the off-highway and commercial truck businesses. Then those business line mix drivers of revenue per tire will start to recover. And we'll see some benefit there.And then in the OE business itself, as we work -- start to bring in some of the new fitments that we've won in 2021 and 2022. And particularly, the electric vehicle shipments but not only those, we're bringing in some fitments that have revenue per tire, that are fairly strong.So our electric vehicle fitments, those tires are harder to make. And as a result, bring revenue that's sort of directionally 15%-or-so higher, than a traditional internal combustion engine fitment.So we've got a number of things there that, we may be cycling through in 2020. But we see some upside, as we get beyond 2020. And we get rid of some of the things that have been a drag. And let the core product mix come through in the results.

That's helpful. And then just on the consumer OE price reductions that you referred to are you seeing this as sort of a new annual normal this kind of part of the contracts that you've signed for the seven million units, or is this more of a kind of more onetime-ish type of a headwind, just in response to market conditions?

Yeah. Itay, I would say, it's really the latter. I mean, as we go through, what we're seeing is, again the combination of a down cycle and a transition to EVs. And again the story you all know well, in terms of moving to the different powertrains and what's going through.So, I think that, with any cycle this pressure kind of comes in. We know that, we know how to work our way through it. I think the transition that the OEMs are going through I think that is -- that's temporal as we move ahead.I mean we've seen this for example even happen in China. Darren mentioned the units that we're coming off of in China. We actually had a really a good fourth quarter there. We substantially outperformed the industry where we saw a very challenging environment. As you know industry was down. Production was down about -- new car production was down about 8%. And our customers were impacted even a little bit more significantly there that being the Ford and the GMs that were down 15% and 13% in particular.So, those type of headwinds I think are there from the cyclicality side. And then we also -- what happened to as Darren mentioned to this earlier, we were recently informed by one of our major customers that one of their high-volume vehicle is going to be discontinued early and that they were actually taking us off, switching us off a vehicle that was in its last year production which is a bit odd. So, those type of things I think are sort of the temporal things that we see going on at the moment.It doesn't at all deter our view of where ROE fitments are where the OE business is going. We're focused on continuing to grow it. As I mentioned earlier, the reception that we're getting from the OEMs on the new vehicles that are coming out as Darren mentioned in 2021, 2022 timeframe is very strong. And that's before we move into the sort of the requirements of even more sophisticated tires as we think about certain levels of intelligence being put into them.So, yes, we're going to have some headwinds in 2020 but it really -- some of those shipments were going to come off anyway so that's kind of normal course. And out over the long term we see a very robust environment. And actually -- frankly since I've been doing this I'm more excited about what's happening with the OEMs and the directions that they're taking than I have been since I've been around. So, I feel pretty good frankly.

That's very helpful. Thanks for all that. And maybe just lastly for Darren just going back to the puts-and-takes on Slide 21 on working capital and restructuring are you expecting free cash flow to be able to comfortably cover the dividend again in 2020?

Yes. So, I guess, Itay the thing I would say is that we feel like that this dividend -- the dividend we have is appropriate for us through the cycle. And for 2020 even if our earnings are under some pressure, we believe our cash flow is going to enable us to cover both our planned CapEx, our restructuring payments, and our dividend without a meaningful increase in our net debt.We've got several actions that we've taken to protect our balance sheet and we are very cognizant of that. But I think that we're in a position here where we can cover it without any meaningful increase in net debt.

That's very helpful. Thanks so much.

Thank you.

It appears we have no further questions. I'll return the floor to our presenters for closing remarks.

We just like to thank everyone for joining us today. Appreciate it. Thanks very much.

That does conclude today's program. Thanks for your participation. You may now disconnect.