Goodyear Tire & Rubber Company's third-quarter earnings call highlighted ongoing challenges in the European market and a strategic review of operations. The call was led by Goodyear's Chairman and CEO, Richard Kramer, and CFO, Christina Zamarro.
Key takeaways from the call:
- The European business continues to be weak with a 1.5% margin. The company is evaluating all options to generate value in the near term and assessing long-term solutions given the challenging macro environment.
- Goodyear is actively assessing its operations, including with a review committee, with the goal of maximizing shareholder value.
- The company has seen a stable pricing environment in Q3 and this trend continued into October. It’s focusing on driving value in the premium part of the market where its value proposition holds up well.
- The company expects to see some inflation in 2024, which it plans to offset in the marketplace with the value of its products.
- Goodyear's raw material tailwind is expected to be about $400 million over the first half of 2024, down about $120 million due to the increase in spot rates across base commodities.
- Restructuring cash for 2024 is expected to be around $300 million due to in-flight programs and announced changes.
During the call, Kramer acknowledged the challenging market conditions in Europe, citing the conversion from internal combustion engines to electric vehicles, competitive challenges, and the high cost of doing business. He stated that Goodyear is "looking at all options to generate value in the near term and continuing to assess the long-term solutions."
Regarding pricing, Kramer said they are seeing a stable environment, particularly in the premium market segment, which has favorable dynamics for the company. Despite expected inflation in 2024, the company plans to offset this with the value of its products.
Zamarro provided an update on raw material costs, stating that the company expects a tailwind of about $400 million in the first half of 2024, although this is down $120 million due to increased spot rates across base commodities. She also noted that the company expects restructuring cash for 2024 to be around $300 million due to ongoing programs and announced changes.
The call ended with a reminder of a separate call scheduled for the following Wednesday to provide an update on the results of the strategic and operational review.
InvestingPro Insights
In light of Goodyear's Q3 2023 earnings call, InvestingPro provides some valuable insights. Operating under a significant debt burden, Goodyear's revenue growth has been slowing down recently, reflecting in part the challenges faced in the European market. This aligns with InvestingPro's data showing a quarterly revenue growth of -6.62% for Q2 2023.
InvestingPro also notes that Goodyear is a prominent player in the Automobile Components industry, yet it suffers from weak gross profit margins, with a recorded gross profit margin of 16.55% in the last twelve months as of Q2 2023. The company's net income is expected to drop this year, and analysts do not anticipate the company will be profitable this year.
InvestingPro's real-time metrics show a market cap of 3650M USD and a negative P/E ratio of -9.64, indicating the company's struggles. Goodyear's stock price movements have been quite volatile, with a 1-year price total return of 25.0% as of the end of 2023.
These insights are just the tip of the iceberg. InvestingPro offers numerous other tips and data points for those seeking a deeper understanding of Goodyear's financial performance.
Full transcript - GT Q3 2023:
Operator: Good morning. My name is Gigi, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Third Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After some opening remarks, there will be question-and-answer session. [Operator Instructions] Today on the call we have Rich Kramer, Goodyear's Chairman and Chief Executive Officer; and Christina Zamarro, Chief Financial Officer. During this call, could hear we'll refer to forward-looking statements and non-GAAP financial measures. Forward-looking statements involve risks, assumptions and uncertainties that could cause actual results to differ materially from those forward-looking statements. For more information on the most significant factors that could affect future results, please refer to the important disclosures section of Goodyear's Third Quarter 2023 Investor Letter and their filings with the SEC, which can be found on their website at investor.goodyear.com, where a replay of this call will also be available. A reconciliation of the non-GAAP financial measures that may be discussed on today's call to the comparable GAAP measures is also included in the investor letter. I will now turn the call over to Rich Greer, Chairman and CEO.
Richard Kramer: Great. Thank you, Nicky. Good morning, everyone, and thanks for joining the call today. By now, you've seen our investor letter covering Q3 results and also an announcement that we'll be with you again next Wednesday, November 15, with an update on the results coming out of our strategic and operating review. Now with that in mind, we're happy to take questions on the quarter this morning, but I'd ask that you hold any questions related to the review until next week when we'll be able to say more. So thank you for that. And Nicki. With that, let's go ahead and take the first question.
Operator: Thank you. [Operator Instructions] I will take our first question from Rod Lache with Wolfe Research. Please go ahead. Your line is open.
Rod Lache: Good morning. I was hoping to ask two questions, maybe just higher level, I know you don't want to get into any details on the strategic and operational review. But just first of all, at a high level, maybe you could talk a little bit about the European business, which is still quite weak with a 1.5% margin. And just at a high level, there's - the worry is that it's a very structurally challenging market that would require a lot of investment. Right now, your restructurings typically take $3 to $4 of restructuring cash for every dollar of savings. So could you maybe just talk to us a little bit about the changes that are being made there and whether some of the -- you see some structural changes that make this more fixable. And on the strategic side, I expect that you'll give us more specifics over the next couple of weeks, but any -- at a high level, any indications of interest that you're assessing on businesses within Goodyear.
Richard Kramer: Rod, first of all, I think we would agree with you relative to the performance of EMEA. You may recall, we said our near-term goal was to get back to the sort of the $50 million - pre-COVID $50 million per quarter run rate. And Q3, while a little bit better than Q2, certainly is well below that run rate, and that's the issue that needs to be addressed to your point. I'd point out, again, as you know, the industry is still really challenged relative to 2019. As you've seen in our investor letter, we included the 2019 numbers, where you see the consumer business is down, let's call it, still 15% in the truck business, 22% versus 2019. So look, it's not back to normal. But having said that, to your point, we've been and are evaluating EMEA and looking at all options to generate value in the near term. and continuing to assess sort of the long-term solutions as well given the macro environment and what's going on over there. And particularly, I think we've all seen sort of the recent sort of number of articles talking about the ICE (NYSE:ICE) to EV conversion, the competitive challenges, high cost of doing business there and the like. And I think that's the tough environment that you've referred to. So I'd say, Rod, near term, like we have, we're acting now. And I'd say more to come. What we're doing now is, as you've pointed out, we've announced already some manufacturing and some plant actions there and some SAG actions as well over the last 2 quarters. You've also seen some competitors do some similar things like that. And also in the near term, what we're looking to do is make sure that we stabilize those earnings in the near term and not lose the benefit of those cost savings that we've done as we know that's happened in the past as well. So I'm going to go back to my opening statement and say, look, we are continuing to actively assess this, including with our review committee. And I would just say more comments to come next week as we look at this. But it is certainly a challenging year, I would agree with you.
Rod Lache: And on the IOIs, just relative -- at a very high level, are you receiving any indications of interest from other players in your businesses is pretty well known that you're going through the strategic review, and you'll have more detail to come, but can you just offer any kind of high-level comments on that?
Richard Kramer: Yes, Brian, again, I'd have to say we'll be back to you next Wednesday on a separate call that the committee is doing all inclusive, including EMA a comprehensive review, evaluating all the options, again, with the idea of maximizing shareholder value. So we'll come back to you on Wednesday.
Rod Lache: Okay. Then just maybe one thing that you may be able to answer is just you've had a pretty nice improvement in raw materials versus net pricing again this quarter. But obviously, oil prices starting to move in an adverse direction. Any thoughts on how things are kind of shaping up into early 2024?
Richard Kramer: Yes. I mean, Ron, maybe I'll let Christine jump in. I would just maybe add to your point. We're still seeing a very stable pricing environment in Q3. We continue to see that in October as well. And our business this quarter really focused on those areas where we can drive value, again, which is that premium part of the market where our value proposition holds up really well. And that's what we did, that's what we saw. And I would tell you that part of the market, even as we get into 2024, and Rod, you'll remember this as we sort of bifurcate the market, the premium part of the market still has the dynamics that are favorable to us. Certainly, in terms of segments, it's the profitable -- that's the most profitable profit pool, if you will, of the market. It's where we have 18 inch above growing fairly significantly, I think, about 7% in 2023. Our products, our brand, our technology, both Goodyear and Cooper plate really we're really well there. And again, the demand to supply dynamics still work in our favor. And I think that's what you saw in Q3. That's what you'll see in Q4 as we move ahead. And look, maybe I'll turn it over to Christina. We'll certainly still see some inflation coming at us, and you'd be right to think that we're going to go to offset that in the marketplace with the value of our products. But Christina, you might want to jump in on it.
Christina Zamarro: I'll just anchor us back to what we said on the second quarter call, and we had given some guidance for the first half of next year, indicating that we had our raw material tailwind would be about $400 million over the first half with the increase in spot rates across our base commodities. -- we would say that feedstocks are down about $120 million since then. So we find a benefit of about $280 million in the first half. I think we right now would still see a benefit in Q3, maybe a headwind in Q4. But we are continuing to assess all opportunities on nonfeedstock savings as well. Some of those energy transportation costs are coming down. So we'll continue to refine the assumptions and come back to you on our fourth quarter call, but that's how we're seeing it right now.
Rod Lache: Thank you. [Operator Instructions] We will move next with James Picariello with BNP Paribas (OTC:BNPQY).
James Picariello: Hey, good morning,. Just for the fourth quarter guidance framework, if we want to call it that. The only missing piece and of course, you continue to appreciate the color on the quarterly outlook roll-up. The only missing piece would be the other line, right? So in the third quarter, for instance, you had your chemicals business incurred $21 million headwind, $32 million overall for other. How should we be thinking about that one line item in the 4Q guidance for SOI?
Christina Zamarro: Yes, James. So we've indicated a $15 million SOI impact from the fires that impacted our factory in Poland in the third quarter that a discrete item -- and that was what we've shown in other -- we won't have a continuing impact from chemical sales like we saw earlier in the year. We're lapping that comp in Q4.
James Picariello: Okay. So excluding the fire impact, the other line should be something close to neutral is what you're saying? A - Christina Zamarro Yes.
James Picariello: Okay. Understood. And then as we think about restructuring spend and free cash flow for next year and just focusing on the series of actions that you guys have announced throughout this year with detail on what the intended cash spend is for those actions. Can you speak to what cash restructuring could look like for next year relative to the $100 million that you're guiding for this year?
Christina Zamarro: Yes. So we've announced programs in flat program so far this year, totaling $100 million in savings for 2024. And Rich mentioned earlier, a couple of programs in EMEA, that was a larger SAG restructuring program, also a reduction in our production at a pulafactory. And then there's also been an announcement related to a change in our go-to-market model in Asia Pacific and Australia, in particular. So with those in-flight programs and what's been announced to date, restructuring cash next year would be around $300 million in 2024. Those programs also have a stub into 2025 of about $60 million.
James Picariello: Okay. Thank you very much.
Operator: Thank you. And this does conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time. +
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