Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear First Quarter 2022 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. . I will now hand the program over to Christian Gadzinski, Senior Director, Investor Relations. Please go ahead.

Thank you, Ashley. And thank you, everyone, for joining us for Goodyear's first quarter 2022 earnings call. I'm joined here today by Rich Kramer, Chairman and Chief Executive Officer; Darren Wells, Executive Vice President and Chief Financial Officer; and Christina Zamarro, Vice President, Finance and Treasurer. . 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 in the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation. And with that, I will now turn the call over to Rich.

Great. Thank you, Christian, and good morning, everyone. I'm pleased to be with you today as we cover our results for the first quarter, which underscore the continued momentum of our business amidst the challenges our world is facing. Before jumping into the business performance, I'd like to take a few moments to recognize the current events that are impacting our customers, associates and communities around the globe. The latest wave of COVID lockdowns in China is a reminder that the pandemic is very much still with us. Our hearts and minds are with our associates and others dealing with the related impacts of the virus there and elsewhere. At the same time, we shared concern for those impacted by the war in Ukraine. It's heartening to see our Goodyear associates around the world responding to humanitarian aid efforts, including associates in countries neighboring Ukraine who have offered housing, meals, medical attention and legal services to those in need. Our response to this volatile situation embodies the Goodyear culture and the Goodyear spirit. We thank all of our associates for their selfless efforts and we hope for the health and safety of everyone affected. Moving on to our business results. I'm very pleased with our sales and earnings performance in the quarter. The results are a testament to the strength of our value proposition and solid execution by our teams. While the world continues to experience new levels of uncertainty, we remain focused on delivering our strategy. During the quarter, we continued to grow consumer market share globally and delivered price mix in a market that grew 4%. And while industry recovery from the pandemic hasn't been predictable, we have the technology, the brand and the aligned distribution to win with customers and consumers in the market. We're also benefiting…

Thanks, Rich. Our first quarter results continue to reflect a number of favorable performance trends, building on our strong 2021 results. We continue to see strong top-line growth, strong growth in revenue per tire and significant benefits from the Cooper Tire combination. And we continue to increase earnings despite the challenging cost environment, the conflict in Ukraine and continued disruptions from COVID. The combination from Cooper was completed in the second quarter last year. So Q1 volumes are hard to compare directly to historical results. Excluding the addition of Cooper, volumes for the quarter remained 4% or 5% below pre-pandemic loans with disrupted OEM industry production being a major driver. This remaining volume recovery remains an opportunity going forward. Notwithstanding, we continued lower volume and pressure from rising costs, Q1 operating income for the legacy Goodyear business is more than 20% above pre-pandemic 2019 levels and including Cooper operating income is up nearly 60% over the same timeframe. These results demonstrate the improved earnings power that's resulted from actions taken during the pandemic, including restructurings in our manufacturing footprint and actions taken to improve distribution, including in Europe. Turning to the income statement on Slide 9. First quarter sales totaled $4.9 billion, including about $870 million from Cooper. Sales from Goodyear's legacy business increased 20%, excluding foreign currency, driven by price/mix improvements and volume growth. Unit volume increased 29%, reflecting the addition of Cooper units as well as growth in multi replacement and OE channels of our legacy operations. First quarter segment operating income was $303 million, including an estimated $69 million from Cooper, net of merger-related costs totaling $8 million. Excluding these costs, merger adjusted segment operating income was $311 million. After adjusting for significant items detailed in our press release, our earnings per share were $0.37. The step…

And we'll take our first question from Emmanuel Rosner with Deutsche Bank. Please go ahead. Your line is open.

Good morning, Emmanuel.

Hi, good morning. Thank you very much for all the color. So I appreciate the comments about the outlook and some of the clarity around what you're seeing on the cost pressure side. Can you talk about the efforts you're making in offsetting some of these higher costs, the pricing environment, in particular? And I was specific curious just based on the recent history, it seems like a lot of your direct competitors have passed -- price increases in maybe early April. Just wanted to know if you can comment on what has been Goodyear's strategy at the same time.

So Emmanuel, let me start on this one. And I think the -- obviously, the work that we're doing to offset the impact of not only raw material costs but other cost pressures is front and center for delivering near-term results. And I think the -- a lot of the dialogue here has been around North America. So I'm going to start there. And first off, I think we have to acknowledge that the Americas more than covered raw material cost and inflation with price/mix during the quarter. And obviously, most of that price/mix is coming from the replacement business, given there is a lag before we catch up on raw material costs in our OE contracts. So a lot of work there to cover those raw materials. Now I'm going to give a little bit of background to make sure that we're on the same fact set here. But I think that we've got to acknowledge that we've got major competitors who have announced two or three price increases during calendar year '22. And Goodyear -- North America has announced an increase of up to 12% on January 1. Now the announcements of our competitors generally have been lower amounts, but there have been a couple of them that have been double digits. So we have to acknowledge that. And then if we go back to last year, Goodyear announced three price increases of up to 8% during 2021. And our major competitors announced three or four price increases generally as well, some of which were unspecified in amounts, but most of which were in the mid-single digits. So those are the announcements that we've seen. So I guess I summed that up by saying that hard to differentiate based on just the announced pricing, but there is an…

Okay. That's great for the -- on the recent actions. And can I ask you about your confidence level around the ability to offset some of these cost increases as they continue into the back half of the year? So obviously, I think your first half raw material outlook is largely unchanged. But obviously, now you expect a similar one in the second half. Where do you stand based on prices already announced? How much more would need to be done to be able to offset raw materials and possibly nonmaterial inflation?

Yeah, Emmanuel, it's obviously a question that's on our mind as well. Just as it was when we spoke last time in Q4. And we expressed the confidence then that we had the plans in place to offset raw material costs and even other cost inflation with price/mix and other cost actions. And I think you see that in our first quarter results. As we look to Q2, we pretty much see price/mix versus raws similar to Q1. And I think, again, I'll repeat what Darren said. We went out early, we went out often and the prices are sticking out there. And in this environment, we believe that's the right thing to do. So as we look ahead, as we look to second half, we're certainly confident in the plans and actions that we've taken to date and our ability to get after that cost increase. But I will tell you -- excuse me. I got a bit of a cold here. But I can tell you that we do see some higher costs coming in the back half of the year. We also are positive to see that continued market pricing actions in recent months that Darren referred to. So we know we have some work to do in the second half of the year. Again, particularly as we think about OE coming back or some of those contractual contracts or the contracts we have with fleets where we have a bit of a lag before we cover that increased raw material cost. So again, we know we have some work to do in the back half of the year. But having said that, and I'll say, similar to what I said in Q4, we have a long, and I would say, with Q1, a recent track record of offsetting raw materials with price/mix and other costs. And that's how we're going to approach it. And I think the key is knowing it's there, anticipating that it's coming and make sure we put the plans in place to execute to be able to address it.

Understood. Thank you.

And we'll take our next question from Ryan Brinkman with JPMorgan. Please go ahead. Your line is open.

Great. Thanks for taking my questions. Just another one on raw materials, of course, relative to the outlook for a raw materials headwind in the back half similar to the first or roughly $800 million, I think. It would be great to get just some more color around that, including starting with how much incremental headwind might that represent versus your earlier thinking, which I know wasn't as granularly communicated. But how much has it changed since the last time we spoke? And then how much incremental pricing might be required? I know you not necessarily mean the fully but to offset that. And if you were to sort of look at the prices that you have currently or expect to have in place based on announcements that are pending and the stick rate, et cetera. And when you compare that to the prices that you had in the back half of last year, how are you just thinking about that magnitude of price/mix tailwind in the back half compared to the communicated raw materials headwind magnitude? .

Yeah. So I guess -- let me take it in this order, Ryan. The changes that we've seen since our last earnings announcement in early February, it have been principally in a couple of areas. I think -- and it's generally oil-based commodities that have increased in price because in fact, natural rubber right now is a little bit lower than it was back then. The -- so -- but we've seen the oil-based commodities. So carbon black. And I was going to say that the category that we refer to as chemicals, pigments and oils, all of which are from the petrochemical space. I mean, those have generally ticked up since the outlook that we were looking at for the second half based on spot prices back in February. I don't think we ever quantified that. But I think we're probably looking at an environment that for the second half, it's a couple of hundred million worse on feedstocks. So on commodity prices that it would have been back then. But we've also had increased cost pressure coming from the cost that our suppliers are incurring. Yeah, so we're getting -- and some increased costs from transportation. So our overall view is probably up even a little bit more than just the feedstock outlook when we're arriving at that $800 million. And that $800 million really captures everything. I mean it captures transportation cost, it captures the additional costs that our suppliers are incurring, including their energy and utility costs, which is a big factor in some parts of the world as well as all of the feedstock costs. So we'll wrap that all up and say that's what's driving the $800 million. It has continued to go up. I think in terms of what kind of actions quantitatively would be required in order for us to stay on top of that. I think, generally speaking, the pricing actions that we took last year, we would have to take pricing actions in similar amounts in order to stay ahead of the raw material costs that we're going to see. So there's additional -- because we're going to anniversary some pricing actions that we took last year, we're going to have to go further to offset those costs.

Okay. Great. And then I just wanted to lastly kind of check in on China following these COVID lockdown measures. It's easy to see from a number of public data sources and some of the forecast that we subscribe to that the lockdowns have had a sizable impact already on new vehicle manufacturing so far in 2Q. The impact on the aftermarket industry is harder for us to follow on the outside. So it'd be great to know what you're seeing there. I would imagine the aftermarket impact is quite a bit less, but I'm not sure. And then also if you could just sort of -- if there is a disparity impact, maybe just remind us, I think the rule of thumb is your kind of 80% replacement and 20% OE, although in China, that mix is different. So it would be great to get an update there.

Yeah. I mean, our mix of business in China is more like 50-50 because -- which is reflective of the market there. I mean, just a lot more weighted toward OE. And that's one of the things that we see as upside going forward as China ultimately is going to move toward a market that's got more like the 80-20 mix of the rest of the world. And I think that's one of the reasons we work so hard on our position in China as we've seen that upside in terms of our opportunity to grow earnings in the replacement market going forward. I agree with the observation that you made that there has been less impact on replacement volume in China than there has been OE volume. And in fact, our replacement volume in China has been okay. We did -- as you saw in the outlook slide for the second quarter, we have seen some disruption in our factories. And that's effectively the impact that we're seeing based on what's happened so far. And if we lost -- between our two factories there, we lost about 700,000 units of production during a shutdown at the end of March in Pulandian and then shut down during April in our factory near Kunshan. That's effectively worth about $10 million to us with the unabsorbed overhead and the lost margin on those tires. Sort of unclear what, if any, additional disruptions there might be there. But if we don't see any further disruptions, then I think that's probably a pretty good summation. And obviously, we're hoping that we get to a point where those disruptions are behind us.

And Ryan, I would add that we have a very, very constructive relationship, particularly in Dalian and Pulandian where our factory is. And we opened very early coordinating with the local officials to give our people the authorizations to get back to work. So I think that those -- the COVID lockdowns are obviously something we're all watching, but I am pleased that we at least have the ability to keep the plant running there as the country needs it to, albeit at a lower level.

Very helpful. Thank you.

And we'll go next to John Healy with Northcoast Research. Please go ahead. Your line is open.

Hi. Thank you. I wanted to kind of talk a little bit more about pricing potential, but maybe a different kind of way to look at it. I kind of find it interesting that the U.S. market seems to be the market that is kind of covering almost the global increase in commodity costs. So with that said, does that tell you that maybe there's a bigger opportunity to recover profits here over the next two years as those international markets kind of find their footing? And is there a potential for Europe and Asia to be later part of this year and '23 part of a pricing recovery story for you guys? Just trying to understand why those markets maybe haven't seen the same pricing throughput. And if you're thinking about this as a global business, why wouldn't that happen at some point in the future?

Yeah. So I think, John, I think it's absolutely right to look at the geographies differently. I think the work that we've done and the market dynamics in North America and, in fact, in Latin America as well. So the Americas in aggregate have been early on have allowed us to recapture more of the raw material and other costs that we've been experiencing. Helpful that we are more heavily weighted towards the replacement market, for sure, because that's the market where we have a better opportunity to recover those costs in more of a real-time way, where OE is obviously more lagged. We do have -- Europe I would say that there has still been some pretty good progress. And I think we feel good about the fact that the European market is recovering. I think a number of the programs we put in place in Europe make us feel much better about where our business is in Europe right now. And we do have raw material index agreements in place there with our OE customers. So I think the outlook for the benefit of pricing in Europe and being able to catch up on those costs, I think we're feeling reasonably good about although not as far along as we were in -- as we are in the Americas. Asia, I think is -- it is the toughest market. And I think that's why in our prepared remarks, we sort of acknowledged that this is a market that is a, it's heavily reliant on OE, particularly in China. And b, the OE contracts that we have there, which are increasingly not with -- increasingly weighted toward Chinese and Asian OEs do not yet have raw material index agreements embedded in them. That's something that I think we will see more of as the market matures, but we don't have those automatic mechanisms yet. And it's obviously some real challenging macro elements over there right now. So it's not the best environment to be trying to negotiate those changes. So I think we're -- while we feel good about that business long term, I think it is a much more difficult environment to try to keep up with cost pressure. And I mean there's been some element of that historically, but we're really feeling it right now.

Great. That's very helpful. And it sounded like you guys are forging ahead and pushing forward with the Cooper integration. But would just love to get some thoughts about maybe the integration from a sales standpoint. I think you mentioned TireHub, the product is now kind of running through there. But what sort of integration have you seen in the field? And is this allowing for broadly share of wallet at your retail partners, do you think that it's growing your share position there?

Yeah, I would say the answer is yes. And maybe if I zoom out for a moment, the one thing I would say is we're very pleased with how the whole Cooper integration, the whole Cooper transaction is playing out for us. You see it in our Q1 results. You see it in their performance. Their business is really on a trend that's above pre-pandemic levels. We see it in our integration. We see it with the delivery of the synergies and the plans we have. We see it with integrating our teams of people mixing Goodyear in Cooper Associates in different roles. And certainly, we see it in the product line that's out there. And as you say, we started the process now of distributing Cooper through TireHub and getting it out to our different retail points. And I would tell you that that's in line and pretty much in line and in plan with where we wanted to be right now. This is taking a product line that serves a different market with certain different products. And we're being very thoughtful how we roll that out in the market. And I would say where we are right now is pretty much we intended to be. More work to be done, and we're also very conscious of making sure that we keep our products in the channels that they need to be in as we continue on with the integration. So a long way to say, I think more to come as we think about how our product screen changes over time. But where we are now, I'm very confident to tell you is exactly how we planned it. So I'm very, very pleased with the way it's going.

Great. Good to hear. Thank you.

And this will conclude today's Q&A session as well as the Goodyear First Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect.