Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's Second Quarter 2025 Earnings Call. [Operator Instructions]. Please note this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Senior Director of Investor Relations.

Thank you, and good morning, everyone. Welcome to our second quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements that involve risks, assumptions and uncertainties that could cause actual results to materially differ from those forward-looking statements. We'll also refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our filings with the SEC. All our earnings materials can be found on our website at investor.goodyear.com, where a replay of this call will also be available. With that, I'll hand the call over to Mark.

Thank you, Ryan. Good morning, everyone, and thank you for joining our call today. Let me start by saying our second quarter results were below our expectations and reflect an unprecedented level of industry disruption given changes in global trade that negatively impacted our consumer and commercial businesses globally. At the same time, the midterm outlook is also turbulent given what we're seeing in terms of industry environment. I'll talk about what we're seeing in detail before we move on to the financials and to your questions. While the near term has proved to be significantly more challenging, I am confident in our ability to regain our momentum once the market stabilizes and we work through some of the transitory headwinds we're seeing today. Within the current environment, our focus continues to be on controlling that which we can control. We have executed consistently on Goodyear Forward, where P&L benefits continue to be achieved ahead of schedule. We've increased pricing in the U.S. and Canada in response to the tariffs. in consumer OE in the U.S. as well as in Europe. We've increased the vitality or the refreshing of our product portfolio. We grew in the greater than 18-inch market, and we're on track with our new 18-inch plus SKU developments and launch timing. We've expanded our margins in Asia Pacific. Our SG&A, or SAG costs are down. And finally, we're on pace to deliver a strong balance sheet by the end of the year supported by the 3 divestitures we committed in Goodyear Forward. Net-net, we're paving the way for our organization to deliver increased value and focus on becoming #1 in tires and service. Market factors, the things that we don't control. They certainly had an impact during the quarter, and I'll share more about that shortly. As…

Thank you, and good morning, everyone. Mark has shared important context for what impacted our second quarter relative to our expectations. Looking at the financials, about half of the miss in the quarter came in our Commercial business given materially weaker OEM replacement demand globally. The other half was driven by lower consumer OEM replacement volume. Second quarter sales were $4.5 billion, down 2% from last year, given lower volume and the sale of OTR, partly offset by increases in price/mix. Unit volume declined 5%, reflecting the impacts of global trade disruption on OE production, distributor and fleet buying patterns and consumer sell-out trends. Gross margin declined 360 basis points. SAG was lower by $39 million, consistent with results in Q1. Segment operating income for the quarter was $159 million. Goodyear net income increased to $254 million, driven by a gain on the sale of the Dunlop brand. Our results were impacted by other significant items, including rationalization charges of $59 million. After adjusting for these items, our loss per share was $0.17. Turning to the segment operating income walk on Slide 10. The sale of the Off-the-Road business reduced earnings by $23 million during the second quarter. After this change in scope, our SOI declined $152 million versus last year. Lower tire unit volume and factory utilization were a headwind of $51 million. Price/mix was a benefit of $91 million, driven by our recent pricing actions in the U.S. and Canada. Price/mix came in $44 million lower than we guided on our first quarter call, driven by headwinds in commercial truck of about $30 million and lower mix in the Americas as U.S. dealer and distributor demand was geared toward our lower price point products in advance of announced price increases. Raw material costs were a headwind of $174…

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

I'd like to start by asking around the surge in low-cost imports that you referenced across your key markets. I mean, firstly, outside the U.S., on your last call, you did mention your more balanced near-term view and considered the impact of tires originally destined for the U.S. to be redirected to other markets. So just curious if that was a more considerable headwind than you earlier expected? And then in the U.S., just given the 25% Section 232 automotive sectoral tariff in place for much of the quarter on consumer tires, I guess the 15% increase in non-U.S. MTA imports is on the surface somewhat surprising. Maybe you could help us a little bit? I recall you mentioning on your 1Q call on May 8, something about tariffs beginning to be collected on May 3, whereas I thought they were to go into effect on April 3, at least for non-USMCA compliant parts. And so maybe you can clarify that because if it was May 3, then that could explain the ability for there to be a prebuy. Was there a surge then in April and it's already subsided beginning in May? And on commercial tires, which get the reciprocal rather than sectoral rate, I guess, did you see a prebuy there during the 90-day pause? And I know that pause only ended yesterday, but maybe like based on your conversations, do you expect that to be effectively over now?

Yes. Ryan, thanks for the questions. And I'll start on the first one, which was and ask around the guidance for the second quarter, where we had said we wanted to be balanced because we knew with tariffs in place in the U.S. that, that might, in fact, send imports into other of our international markets. What, in fact, happened is that those -- the imports that were coming into the U.S. still came in a big wave, and then we had a wave in Europe. And so instead of seeing U.S. imports redirected to another market, we just had a surge across our key markets in especially the U.S. and Europe. So I think that's the difference there. When it comes to the effective dates for Section 232 for tires, that was early May. And I think we are still seeing in the U.S. market, a very significant increase in imports here in the second quarter. It is counterintuitive. What I would tell you, I think the order rate and the time on the water for tires coming out of Southeast Asia could be anywhere between 3 to 5 months. And so the tires that are showing up, I think, now are more related to this on again, off again discourse around tariffs and speculation about tariffs actually potentially being pushed out further. We're at a point in time where the tariff narrative seems to be settling down. And so our expectations are that when we move into the third quarter, we might begin to see some declines in the imports in the U.S. I think what that means for Europe, though, is the potential for some additional tariffs coming in because those -- that investigation will not be complete until the first quarter of next year. Having said that, there is this idea that the tariffs might be applied retroactively back through July. So we'll just have to see how some of this plays out over the next quarter.

Second and last question is still on price/mix. But from the perspective of any color that you could please provide on the relative contribution of price versus mix? Are you seeing pricing tailwinds partly offset by mix headwinds given general consumer affordability angst issues? And then how to think about that going forward? It seems like the pricing component of price/mix can improve in a straightforward manner once the pre-buys are finally over. But how should we think about mix? Is mix going to be helped by the fact that the lowest tier tires will increase proportionately the most because they're the ones that are disproportionately imported? Or do you expect there to be a headwind to mix as consumers shift to lower feature tires to try to cope or compensate for the higher like-for-like tire pricing?

So I guess what I would start with is just to say that the price announcements that we made in early May are effective. Mark mentioned this in his script. I mean they are installed and effective, and that's what you're seeing show up in our second quarter walk, mostly offset by a couple of items. The biggest driver of the offset is commercial truck mix, just given the downdraft that we've seen in that industry. And then there's a little bit of an impact because when we implemented pricing, a lot of the demand in the U.S. came at the lower end of the market, I think around speculation that there will be more price inflation in the industry overall at the low end of the market. I mean we can't really talk about forward pricing. What I would say is we do have some seasonal mix impacts here, especially as we head into the fourth quarter, we always tend to have a strengthening mix heading into the end of the year. And then as Mark mentioned also, I mean, we are introducing just a ton of new products in greater-than-1-inch room sizes. We've got 11 new product launches in the back half of the year in North America, in particular, that should really help drive a rich mix for us as well.

Globally, we are -- we mentioned the 230 SKUs on the rich winter mix in EMEA. In total, Ryan, we've got over 500 new SKUs between the U.S. and EMEA as well as AP, but all heavily focused on the 18-inch and above that as we've discussed in earlier earnings calls, are really about us participating and gaining share in that premium mix of the market.

And we'll take our next question from Edison Yu with Deutsche Bank.

This is James Mulholland on for Edison. I have a question and then a quick follow-up. Just on your walk in the quarter, if we look at it, there's a significant headwind that came from this bucket of other costs. I was wondering if you could just double-click on what that $74 million is and whether it's something we should have in our models for the next few quarters?

Sorry, what was the figure you quoted, James?

There is a $74 million other costs that's sitting within your inflation and other cost bucket, and it's -- I think it's quite a bit higher than it has been in past quarters. So I'm just curious what's in there?

Sorry, yes, I'm sorry. I was focused on another basket on the SOI walk. But when we look at all of the buckets kind of concentrated in and around manufacturing costs, I break it down into a few major drivers. The first is annualized inflation that runs about $225 million across our cost base, and that's 3% annual inflation. Also included in that figure is about $350 million of annualized tariff costs. That's new coming into the cost base. So that's probably the increase you're noting. I'd expect that number to be on the order of magnitude of $60 million in Q3, $70 million to $80 million in Q4 as we continue to incur tariff costs across our global supply chain. And then we will expect to get to that run rate in 2026. The third factor I'd point out, and this is a big part of our Goodyear Forward programs is we're carrying some incremental manufacturing inefficiencies that would generally just attract costs more than what we would normally expect because we are ramping down some factories, especially in Germany, first involved in Fulda. So as we get to full facility closures on those, those costs will come out. And those dates are public and announced for each one of those factories.

Great. That's helpful. And then within that commercial vehicle headwind that we saw in the quarter, should we expect a similar SOI impact going forward for the next few quarters? Or was this maybe the peak of it? And then as you ramp down a little bit to adjust for it, it shouldn't be as significant?

Well, the way I would have you think about it is we talked about a $30 million headwind in mix. And that's because the contribution from commercial truck profit is so significant. And I think about -- we didn't give a robust outlook for the third and fourth quarters. So I would think about having to lap that. But then there's some additional that will come on top in Q3 and Q4 as we adjust production. And so I would think about that being an extra $25 million in unabsorbed over the course of the second half. And then I mentioned we're also incurring some new tariff costs. The Brazil rates have gone up from 10% to 50%, and that's where we source our retread products from our own operations. And then we're also doing some sourcing from our truck tire joint venture in Vietnam that will increase our cost. That's $20 million new on an annualized basis.

We'll take our next question from James Picariello with BNP.

This is Jake Scholl on for James. So it looks like tariffs are trending a little bit worse. So do you guys have any mitigation efforts in the hopper as we think about the annualization to next year? And it looks like at a higher level, this was a pretty significant reset for the full year with -- depending on your volume assumptions, 3Q SOI running towards the $285 million to $290 million range versus the previous walk at about $400 million and the full year at about $1.0 billion from the prior $1.3 billion. So can you just confirm if we're thinking about those numbers correctly?

So just a couple of comments. You started with the note that our tariff costs are going up from about $300 million this year to about $350 million, just given some of the changes in rate. I do think we will make adjustments to our supply chain to limit that risk on our P&L over the course of the second half. And we'll be able to come back to you at the end of the year, early next year with our plans, but certainly have cost savings actions as well as sourcing actions that will help mitigate that number going forward. There's obviously been a lot of volatility there. I mean, as I think about the outlook, I mean, what we're experiencing is really connected to an exceptional period of time in our industry. And we're delivering against what we can control. Mark mentioned that our Goodyear Forward targets are cost savings on path. And when I think about the fourth quarter, I mean, I don't want to be too positive or too negative. I think for us, we want -- on volume in particular, I mean, I've given a lot of perspective on how price mix is likely to play out. In my script, I gave a lot of perspective on how you should be thinking about our cost. And so in the fourth quarter, the variable that's left is really all around volume. And I do think that -- and potentially some additional price mix. But I do think the way that we're characterizing the industry environment right now says that not a lot of visibility into when we'll see this pre-buy sell-through. Our thinking is that, that will play out over the course of the third quarter, but we want to have -- see through that experience before we give you our perspective on volume in Q4.

The other thing, James, I would add on is just reiterating what Christina mentioned, right? And we talked about at the beginning. which is really around the cadence, the governance and the diligence behind our Goodyear Forward actions. And we continue the robustness of our cadence of sessions with all the associates around the world, continuing to refill our pipelines with projects and really focused on the ones that are value-add or cost controlling all around the world, right? So that's been embedded in our DNA, and we'll continue to focus on the flex to make sure that we are controlling every cost possible during this period.

And then for the wind down of the Cooper brand's relationship with ATD, can you talk about just the potential disruption that may have had on volumes in the quarter? And when would you expect that to resolve?

Maybe I can start and then Christina can pick up. I guess taking a step back, why did we exit ATD, right? Our very clear strategy at Goodyear is to make sure we're working with aligned distributors that are representing our full product portfolio, right? And working together with us to build our Goodyear brands in the marketplace. We are constantly looking and doing super careful assessments around operational capabilities, the service rate, stability and alignment. And we decided to strengthen our partnerships specifically with TireHub, which is our joint venture with Bridgestone and some other key partners who have long-standing aligned distributors that are in keeping with partnership with Goodyear. And we see a lot of benefit for us working with fewer but much more aligned distributors building our Goodyear family of brands and servicing our dealers and our retailers effectively efficiency with a full product screen, which we have available to the marketplace. We don't want to work with individuals that aren't representing our full portfolio. And as we looked and as I shared in my comments at the beginning, right? We took risk assessments. We took service assessments. And again, we feel that it absolutely is the right thing to do there. By the way, ATD was less than 5% of our total consumer replacement volumes.

Yes. Maybe I'll just pop in to say we had a distribution that we had to transition, retailers that we had to transition to new distribution. I would say, by the end of July, nearly all and 95% of the retail base voluntarily made that switch and all of our orders are coming in through those new distributors. We do have some private label volume at ATD as well. That's something that we expect to wind down over time in a very orderly way. And we expect to offset that volume through mutual commitments with other of our distributors.

[Operator Instructions]. We'll take our next question from Emmanuel Rosner with Wolfe Research.

I appreciate all the elements of outlook into the third quarter. Just curious if you could comment on how you would see, therefore, the full year play out on some of the main metrics. It doesn't look like some of these issues are probably going to be going away super quickly. So any sense where that sort of like leaves us on SOI or free cash flow on a full year basis? Or another way to ask potentially is what are puts and takes going to Q4? Are some things expected to get better or not necessarily?

Yes, sure, Emmanuel. I'll hit the fourth quarter SOI. I mean we've given you a lot of the different drivers for Q3. And these are the factors that we know. Q4 raw materials should be favorable. Goodyear Forward should be a benefit of $175 million. I think unabsorbed overhead in the fourth quarter is going to be a little higher than the third quarter, just given that we will be making appropriate ticket reductions in our factories in order to align with demand and manage for cost and cash. Other costs, I mean, we've talked about this a little bit already. Other costs in the fourth quarter will be higher due to new tariffs and some incremental factory inefficiencies ultimately depending on that production in the third quarter. And we want to be, again, aligned with demand and environment is very uncertain. Price/mix, I've made some comments about we have some seasonality benefit in the fourth quarter in mix, in particular. And then what that leaves us is with volume. And just having come through such a disruptive and challenging quarter, I think it's hard for us, again, to determine exactly how that's going to play out in the fourth quarter because we don't know how long it's going to take for some of this churn in the U.S. market is going to take. I think we're looking for some data that will help us give you more of a forecast around stabilization in the U.S. and that's data to support things like import slowdown and import channel inventory sell-through. And we're expecting that to come through over the course of the third quarter, maybe in the fourth quarter, but we just don't have that data yet to guide on the volume. When I look at free cash flow, Emmanuel, we've laid out those drivers as well. Last call, what we said is we would be slightly positive in free cash flow. Working capital has come down just a touch. you'll need to adjust the earnings. And so your cash flow should be lower. And then there's -- I talked about in my prepared remarks, there's an add-back related to supply agreements. And at the end of the year, the add-back in our operating cash flow should be $265 million, and those are related to those supply agreements on both OTR and transition agreements on Dunlop. I think overall, Emmanuel, I'd say our balance sheet position is going to be very strong at the end of the year, even with a little bit of this downdraft we're seeing right now in the industry.

Okay. And just a clarification, then I have a separate question, but these add-backs related to the supply agreement, those were not contemplated in your previous free cash flow walk?

No, they were not.

Okay. And then separately, I wanted to sort of just ask you a little bit about the longer-term view and picture. So sort of like I heard your remarks around, look, it's a question of when, not if, when things settle down, industry conditions, then you'll be able to perform. Just curious around the drivers of your confidence there. It sort of feels that essentially, whenever one market puts bears in place like the tariffs, then these imports still make their way to sort of another market where that is significant for Goodyear as well. And so now the U.S. may be potentially stabilizing, but then you have Europe. So I guess where -- what gives you confidence essentially that at some point, this would essentially stabilize and enable you to really show the benefit from your actions?

Well, Emmanuel, I guess I'll start and let Mark finish up. But I would say it's an especially turbulent environment. And we still should benefit. I mean we completely expect to benefit with the strength of our U.S. manufacturing footprint. And all at the same time, what's a little bit new news that's also really good for us is that there are these new contemplated tariffs in Europe and those rates are punitive, 41% to 104% is what the EU has disclosed as far as those tariffs. I think it's really hard for us to give you clarity on timing right now because I do think we're going to have to work through some of this disruption. But we're as confident today as we were last quarter that as the market stabilizes, we're going to be able to capitalize on those opportunities.

Yes. No, exactly, as Christina said, right? It's the investigation into the pricing around Europe with the tariffs that should be ultimately backdated, right? To the start of that investigation, for sure, creates a bit of a churn in terms of speculative prebuy, we assume from the folks there. But again, working through that and as that would take effect, assuming end of year, start of next year, right? The goodness there would start to flow through. We're also very encouraged, right? By winter sellout season from our side with that. In terms of the U.S., as we said, right? The kind of the on and off or the pushouts and different things in the U.S. marketplace created these gaps of opportunities for additional prebuy. So it's speculative as to when that will work through or churn its way through. We're starting to see those in the sellout in the marketplace. So it's a bit of a crystal ball of when that works through. But again, we are we are definitely positioned very well with our U.S. footprint. We're having lots of conversations with various OEs that are already starting to flex to more USMCA based, which we certainly are a benefactor of that, particularly with the U.S. footprint. So again, that's why we are confident the timing of the start piece is the question mark, right? But we are absolutely lined up right for that. And as we mentioned as well, Emmanuel, right? The push that we have in developing, launching and bringing to market the 18-inch and above higher performance and premium mix of tires, particularly in the Americas market in areas that we did not participate in before in a meaningful way gives us all of that confidence to things are -- if things start flowing, right? We are going to do it. And we actually saw that as well, though, in the quarter in terms of our growth in the 18-inch and above. We're very pleased with that part of it, and it will continue to be so with the new launches coming throughout the rest of this year and into quarter 1 of next year.

And we'll take our next question from Itay Michaeli with TD Cowen.

Just a follow-up to the last question. I know it's early to really talk about 2026 in any detail. But I'm curious, as you think about how the industry is progressing this year, what are the puts and takes to think about at a high-level impacts on next year when we start to think about the SOI bridge and kind of how this year's events may impact the bridge into next year?

Yes. Itay, I think Mark just touched on the difficulty in calling the timing with some of this disruption. Certainly would hope that by the fourth quarter, some of this has rolled through. But we're right now having difficulty in even calling volume in Q4, just given the level of disruption in the U.S. market. But as we look into 2026, there are variables that we do know. I mean, raw materials have flipped to a tailwind. And at least right now, and I realize it's only August, but the baseline of that at current feedstocks would be a couple of hundred million dollar tailwind next year. Goodyear Forward should be a benefit of at least $250 million. That's just what's going to be in the flow-through. And as we discussed a little bit earlier, we've got sourcing changes and other cost savings in the pipeline that we will share more with you about as we head into the end of the year. But again, just looking to see some of that stabilization as we firm up our thinking around 2024. The other pieces I just want to make sure I remind everyone of is that like as we think about the ability to scale earnings next year, a 1% price increase in our U.S. Consumer Replacement business is worth $55 million. And so far, we've implemented 4% in the U.S. market back in May. In the same way, a 1% price increase in EMEA is worth $25 million on an annualized basis. And then, of course, volume, I mean, when we talked about benefits that we may -- that we expect to see as -- out of all of this, we may also improve the volume, and that's about $40, including sales margin and overhead absorption on a per unit basis. So a whole lot of opportunity once we see some of this churn kind of stabilize -- sell-through and stabilize in the market.

That's very helpful. And then just given some of the near-term challenges, I'm curious if you are thinking about additional cost cutting or even restructuring actions, just given the asset sale proceeds and the incremental cash you'll be bringing on to the balance sheet. I'm not sure if you're at that point yet, but just curious if there's potential additional actions that you're contemplating?

Yes. I think, Itay, it would be super speculative at this point for us to make any comments around any additional restructuring to the cost base above and beyond what we've already committed to and are in process with. Again, we don't believe this current environment is reflective of the long-term part of the business or the normalized industry environment. With that said, we are in the process of closing the 3 factories in Europe. We announced the South Africa one last month or the month before. So the 2 in Germany plus South Africa. And we're rightsizing plants all around the world on a regular basis. It's just part of our flexing of our cost structure. So again, we continue to aggressively manage the cost structure with the Goodyear Forward discipline, keeping the pipeline full. So as I mentioned earlier, right, we're keeping those projects and new projects filled so that we are adding value by reducing the cost and continuing to look at that. But there's no major one that to be announced at this point above and beyond normal discipline.

And there are no further questions on the line at this time. I'll turn the program back to Mark Stewart for any additional or closing remarks.

Thank you, David, and thank you all for joining the call today. Let me just wrap up for Christina and I saying, while short-term outlook definitely remains turbulent given the industry environment broadly, we're staying very focused on what we can control and what we continue to deliver. We're continuing to execute ahead of schedule on Goodyear Forward. We're continuing to take the right cost control actions. We're taking smart pricing actions in the marketplaces, and we're gaining share in the profitable premium segments of the market. We continue to sharpen that portfolio and at the same time, strengthening our balance sheet as we've shared, right? We're really focused again on refreshing the existing product lines, bringing the new power lines into the market into the premium spaces. And despite these near-term headwinds, I am very confident as the market stabilizes, our momentum will return. The Goodyear team is committed to execution and delivering results. Thank you all for joining.

This does conclude the Goodyear Second Quarter 2025 Earnings Call. Again, thank you for your participation, and you may now disconnect.