Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Q2 2023 earnings call. All lines have been placed on mute to prevent any background noise. Today on the call, we have Rich Kramer, Goodyear's Chairman and Chief Executive Officer, and Christina Zamarro, Chief Financial Officer. During this call, Goodyear will 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 Q2 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 measure is also included in the investor letter. This call will focus on questions and answers. At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may withdraw your question by pressing star two. Once again, for your questions, please press the star and one on your touchtone phone. I will take our first question from James Picariello with BNP Paribas. Please go ahead. Hey, guys, it's Jake filling in for James. First thing I just want to talk about is the Q3 bridge items. If I work through those, we get to about $300 million SOI in 3Q, and I just want to make sure that I'm thinking about that right. Then, looking to Q4 or looking full year, it looks like the implied guide is about $900 million-$950 million. Can you just talk about some of the puts and takes for the Q4? Yeah, sure. Hi, Jake, this is Christina. I'll start on SOI. I would say, you know, if, if you look at our outlook, obviously, we are layering in the trends in the industry that we're seeing as we look into the Q3 and Q4. As we think about how this has played out, obviously, impacts in our earnings in Q2 due to transitory factors like destocking more in consumer, but also more recently in commercial. What that means is volume weakness still yet in Q3, and a lot of that is due to, you know, our plan for some additional destocking, particularly in Europe, with volume approximately flat to up in the back half over the Q4. When I think about the drivers of our SOI walk, I mean, we've laid out the industry assumptions for you. Unabsorbed overhead wins. I mean, we'll have lower Q2 production of about 4 million units, excluding Tupelo. That obviously will impact the Q4. We've given you those values as well. Price mix versus raw materials should more than offset other cost inflation in the second half. I'd say that that's true on a full year basis as well. You know, if I think about commercial truck, and maybe this gets to the heart of your question, what we said is, you know, big impact, $60 million in mix in the Q2. You know, that declines pretty significantly in Q3, and it's pretty much not, not an impact at all in our Q4. When I look at Q4 price mix versus raw materials, what I would say is, you know, obviously really strong benefits in lower raw material costs. We do have RMI indexes beginning to take effect, but I would say that they're still relatively small here in the Q4, something like 10% of that raw material benefit. Hopefully that's a help. Thank you. That's very helpful. It looks like channel destocking was a pretty big drag on the quarter. When should we expect that trend to start to reverse? Thank you. Yeah. we... I mentioned this just a minute ago, Jake, and the way that we're thinking about destocking in the back half of the year is that we're, we're essentially complete in the U.S. I'm seeing some incremental weakness in demand in Latin America, so Americas in the Q3 down slightly, but more of the destocking to continue in EMEA consumer replacement. That's all driven by still higher levels of winter inventories versus last year. Even though we had a tough industry in Europe last year, we're still planning for declines this year. As I think about commercial truck, you know, more volatile segment of the market for us. Big destocking event in Q2 because we did see the spot rates for freight just decline so precipitously. Spot rates were down 25% in the month of June. Lots of, you know, an immediate type of destocking happening with our commercial truck dealers and distributors. That will still continue on into Q3, but not nearly as severe as what we saw in the Q2. In truck unit volume in commercial was down 600,000 units. It's gonna feel something like 200,000-300,000 in Q3. By Q4, truck will normalize in line with what's happening in freight ton miles, and that's something that's just slightly down in the U.S. and a little bit more in Europe. Great color. Thank you. We will take our next question from John Healy with North coast Research. Please go ahead. Thank you. Hey, John. Hey, everyone. Just, just wanted to ask a little bit about the pricing environment in the U.S. and in Europe. Obviously some, you know, different status of where we've gotten to with pricing over the last two years. But is there, is there any signs with raw materials now coming in a little bit, that you're seeing, I don't know, any sort of behavior or, you know, erosion of the pricing environment, either by, you know, tiers of operators, or has it remained pretty consistent? Kinda, what's your confidence level that that can continue into the end of the year? Thank you. Excuse me. Hey, thanks, John. I mean, you know, sorry. It's a, it's a, a really relevant question, and I think as we, as we look at what we're seeing today, price is still holding, and I think that's because everyone, across the industry has seen the higher raw material costs and other inflationary costs. They're all having to deal with that, and I think that's what you're seeing, that, that revenue per tire is still holding in very well and pricing is holding in very well. If we look ahead, we see sort of the, you know, last year for us, we had over 30% raw material cost increases. We had headwinds in the first half that turns into some tailwinds in the second half. In that period, you know, the question becomes relevant, how will, you know, how will things hold up? I, I, I will tell you, you know, we've seen this before in historical periods when this happens. We're traditionally able to hold our prices as we see raw materials come down. I, I think that that's probably even more relevant now, given that inflation really is sticking around. In the past, we've been dealing with raw materials alone, but now, if you look ahead, we've got, we've got our higher labor costs, so we've got other energy costs. We have other inflationary costs that are more sticky right now. I think as we look at this, I don't think that we've seen a reversal of the need to recover all our input costs through market pricing action. We still feel pretty good about where that's at. Now, to your point on tiers, I mean, you know, and you know this, I mean, tier three, tier four have always been price competitive. That's not where we play, as you know that. That, you know, that's an area where, where, where units move by price, and, and we're always cognizant of that as well. Great. Then just a question or two on the OE business. Just any sort of preliminary thoughts about kind of model year 24s that are coming out and, and how you're positioned and, and maybe how you're positioned relative to previous years? Just as well as with the potential uncertainty on kind of labor for the manufacturers, any sort of, you know, guardrails or thought process to how you're approaching kind of the fall timeframe? Thank you. Yeah. On the OE side, I, I, I will tell you, you know, Christina sort of alluded to this, obviously, we missed in the quarter, that was a lot of European replacement volume and truck volume across our regions. A bright spot was the OE business in both the U.S. and in Europe. I think, you know, that, that still is a, you know, it's still a factor of all the work that we've done on working with the OEMs to make sure that we're on the new models coming forward. remember, we've talked about a win rate that's like in the 60% range, highly weighted toward EVs and at higher margins. I think that trend is continuing for us, very positive. Also, I would, you know, I would tell you that our work with the OEMs has, has really shown a lot of promise. I think now we've done, in, in just a quarter, I think three fitments that have been virtual submissions, where we actually haven't even had to build tires, where we've built sort of digital submissions and then built only 1 tire for them to move forward with. We did that on new fitments, and we did that actually taking fitments away from some competitors. I, I would say really confident that what we've done in OE continues to move in a very positive way. Thank you. We will take our next question from Emmanuel Rosner with Deutsche Bank. Please go ahead. Morning, Emmanuel. Thank you so much. Good morning. Thanks for taking the questions. You know, Christina, in the, in previous quarters, you indulged me and essentially provided your latest thoughts on the full year free cash flow scenario for the company. I was wondering if you'd be so kind to update it, you know, in the context of obviously, the pressures you've seen in the Q2, some of them continuing in the third, especially on the, you know, on the mix front, and what, what would that do for your full year free cash flow? Yeah, sure, Emmanuel, and thanks for the question. You know, I'd have to say free cash flow certainly remains a top priority for us, and as we think about what our business should be able to generate in normalized environments, and also as we think about our leverage go forward. You know, as we look at 2023 right now, I'd say we continue to expect some positive free cash flow this year, albeit less now than before, so slightly positive free cash flow. We've set out all of the drivers for you that should help frame that up. With a smaller contribution coming from free cash flow than maybe what we had expected when we last spoke, we are focused on additional actions in the near term to generate some cash, including the sale leaseback program. We included in the investor letter, you know, an expectation for cash proceeds of, call it, $150 million-$200 million this year from those transactions. I do, I do think it's important to say that, you know, we understand that our business is one that should generate free cash flow, and we'll continue to keep our focus on that as earnings improve in the nearer term, and we really get to see the underlying earnings power of our business. All of that thought process will go into our next year's planning. I appreciate it. My second question is on the, some of the reiterated comments in your, letter, shareholder letter around approaching or closing in on the 8% SOI margin, you know, in the back half of the year. It seems like based on the factors of, outlook you're, sharing with us for the Q3, that's certainly not gonna be the case in, in this quarter. I, I'm, I'm not sure if it is, if I guess your thinking is you could get there in, in the fourth, or that you're just saying directionally, there's some sequential improvement and, and over time, you sort of like could get there? I didn't see it's a change in language, even though it seems like, you know, the outlook at, at the very least for the Q3 is, is quite a bit weaker than you would have thought, probably, you know, last time. Can you maybe share your thoughts on that, that path towards 8% and, and timing? Yeah, sure, Emmanuel. The way I think about the change from when we last talked, I think our second half outlook right now would take a more run rate scenario for EMEA's earnings into consideration in the back half of the year. Where we were at the end of the Q1 was a position where we thought that EMEA would have by mid-year gotten to historical run rate earnings. Just given the weakness in the industry over the past quarter, you know, we have really downgraded that expectation. You know, certainly, big improvements sequentially in margin into Q3 and then again into Q4, and EMEA still remains subject to a great deal of volatility. What I would say is we still, still see a very strong recovery in Americas and in Asia Pacific. This means a realistic scenario where both of these businesses are gonna be at or above the 8% target in Q4. I mean, I think it's relative to the first half margins and also really strong improvements in at least a couple of our businesses. Yeah, Christina, I listen, I'll jump in. I was gonna reiterate the point as well. When we look at the exit rates for the Americas and Asia, we still feel pretty good about where those businesses are heading. Again, the destocking point, I think our inventory in the U.S. was down, I think it was 11% in Q1 and 14% in Q2 in terms of channel inventories. That bodes well. Add to that in the U.S., VMT is up. Add to that, you know, the economy is actually probably stronger than we thought it would be. We still feel pretty good about where we're gonna be in the U.S. and Asia as well. I think the numbers there speak for themselves. Europe continues to be the area that we need to focus on. We got hit much harder on truck and passenger on a declining industry. I mean, it was, it was worse than our, our expectations for sure. The industry was down about-- consumer was down about 13% in Q1, was down another 12 in Q2, and sellout was down about 4% in Q2 as well. I think that's indicative of the economic sort of malaise that we're seeing over there. Having said that, you know, it doesn't do any good to talk about it. We need to get volume back in Europe to get that business back to the $50 million run rate that we're talking about per quarter. We need to make sure that we're aggressive on our cost structure over there, both from an SAG perspective, from a footprint perspective, from everything we do over there. Last quarter, we alluded to some of the actions that we were in process of taking. Those are in play. Those are things we're doing. One, you saw the action that we took in our, our plant in Fulda already, and you'll see more of that coming. In fact, some of this will move into some of the special committee work that we're focused on, so following the settlement agreement that we had with Elliott. Europe is front and center on that. We just can't live with the, the cost structure and the results we have over there. One final one, maybe speaking of the agreements with Elliott. You announced last week that, you know, you set up not just an operational review committee, but also a strategic review. You know, within this, you know, hired, I guess, a number of investment banks, you know, as part of that process. Can you maybe directionally talk to us about what is or isn't on the table in terms of strategic options for that review? You know, in terms of assets that may be for sale, is it only sort of like some of the adjacent, you know, businesses? You know, could it be regions of your core tire making business? What is or isn't on the table as part of the strategic review? Yeah, Manuel, I, maybe, you know, maybe I'll, I'll take one step back and just say that the discussions that we've had with the Elliott team that we've been speaking with have been, I would suggest, very constructive and collaborative. You know, I think when they look at us, they see an opportunity for improved margins, a margin expansion, if you will, and a better balance sheet on reducing leverage. I would tell you, we agree, for obvious reasons. That, that, you know, that's where we stand. As we, as we think about that, special committee would, as, as an addition to adding some new, very qualified directors, we put our special committee together to start looking at these things. As you said, that'll be both operational, and it'll be strategic. Maybe I'll just talk a little bit about the, the strategic side for a moment, and then, Christina, you can jump in on some of the things we're thinking on from an operational side as we move ahead. You know, I, I should also say, we're not gonna get ahead of the committee here and, and lay things out. Manuel, to your question around assets, I think from our perspective, and as long as I've been with the company, we've been very open to looking at where decisions make sense to add value for the company. I think if you go back and look at our track record, you'll find that that's true. Remember, we sold our EPD business, and we sold a wire business. We sold essentially our farm business, where we get a royalty back. You know, we've done a lot of actions like this, and I, I would suggest to you, without getting into any specific, it's that attitude and mindset that we're coming to, to look at the strategic analysis that we're gonna undertake. I think that makes sense to us. We'll make decisions that make sense for the business to achieve those goals, and as we do those, we will let you know. Obviously, strategic may take a little bit longer than the operational, but we'll be back soon talking about these things. Christina, maybe, maybe you wanna just jump in on the, on the, on how we're thinking about some of the operational areas that at least come under the umbrella that, that we in the committee will be looking at. Yeah, sure. Thanks, Rich. Manuel, I think as we look at the operations side, we're gonna take a comprehensive review across the organization, and it's gonna be multiple facets of the business, multiple areas of focus. What I mean by that is, you know, we're gonna spend time in R&D, looking at our portfolio work and understanding, you know, how to rationalize maybe R&D demand. Rich mentioned digital a little bit earlier, you know, harnessing that capability, and leveraging that to drive increases in engineering productivity, as another example. We'll also look at our brands and our SKUs and our product positioning and supply chain. We'll spend some time making sure that, you know, we have the right SKU placements for customer service levels. Of course, in manufacturing, we're gonna spend time on labor productivity. That's a lot of changeovers, material handling, and the like. Of course, purchasing, SAG, non-FTE spend will all be in there as well as we look at the operations. You know, I guess I'll wrap it up to say, we've always benchmarked really well on working capital, but, you know, that's still an area that we're spending some time on as well. Then, you know, I'll just come in and second Rich's comments on the portfolio of assets and brands. I mean, we'll assess what's creating long-term strategic value for our business and also what we might be able to monetize in order to redeploy capital. More to come. Thank you so much. Thank you. As a reminder, it is star and one on your touchtone phone. If you would like to join the queue, star and one. We will move next with Rod Lache with Wolfe Research. Please go ahead. Good morning, everybody. I guess I wanted to firstly just ask for a little bit more clarification on what happened during the quarter. 'Cause in May, one month into the quarter, when you published your investor letter, you had guided to global replacement volume, consumer replacement volume being down 5%, and they were down 15%. I look at markets like Europe, the market for consumer replacement, not truck, consumer replacement was down 4%, you were down 26%. There is some clear and noticeable underperformance here. What specifically are you attributing the underperformance to, and why did it seemingly accelerate so much from into May and June? Yeah, Rod, I, I think, you know, maybe we'll, we'll take a step back. You know, first of all, you're right, right? We have to own it, and we didn't see the industry fall off as dramatically as it did, and our, our forecast didn't show that. We had weaker than expected conditions in truck, and we had weaker overall industry environment in Europe, as I, I spoke of before. They weren't just small industry changes, they were, they were significant. I would tell you, you know, particularly on the truck side, when we look at the truck replacement market, the markets, the industry was much worse than we expected. Americas was down 21%, EMEA was down 15%, and that's in some case, double what we might have expected to see in the markets. Christina alluded to it before, Rod. I mean, what happened on the truck side is, is the cycle that you've seen before. We know it's coming, it's just very hard to predict. We came off some of the COVID situation where we had demand running so far ahead of supply, finally, what we saw are lower ton miles. We saw a lower capacity utilizations in the trucking industry. As Christina mentioned, we saw significantly lower, particularly in June, freight rates that were out there. Those are signs that our distribution saw. It's not their first rodeo. This is true in Europe and in the U.S.... What they did is start destocking right away. They know that it's coming. They've seen it before, and that's what that's what they did, and that's why we saw the volume decrease in truck. I will tell you the positive side on the, on the truck part of the business, our fleet business is holding up very well. In fact, we even won fleets at higher prices in the quarter. That business, the whole fleet service model with all the digital tools, is proving to be very durable, which is, which is what the, the plan was. Secondly, on the positive side, as Christina mentioned, we'll still see some destocking in Q3, probably more so in Europe than in the US, but that will that will, will, will turn around as well as we go. That's, that, that, that's what happened in truck, and, and we're dealing with it, and you saw that in the forecast, we're, we're kind of moving forward with industry trends, making sure we're not gonna build tires that we can't sell, that we need to move on price. That's, you know, that's what we're taking into consideration. If, if the industry gets better, we'll benefit from it. Then on the, on the Europe side, on the passenger side, excuse me, Rod, it's kind of what I said. I mean, for us, we saw the industry members down 12% after being down 13%. I think you'll see a lot of imports coming in as well. On the low end of the market, a lot of those imports that came in last year are actually making their way to the market now. That certainly had an impact on the overall market, but from a member perspective, it was about 12% falling 13%. We had really weak sell-out as well. I mean, people just weren't buying as, as the economy continues to cause people to, you know, to cause our distribution to not go long on inventory and causes consumers to be more cautious on how they're spending their money. That's not gonna last forever. That will change, Rod, but right now, that's what we're seeing, and candidly, it was worse than we expected. What we're doing about it maybe is equally important. You know, that's one, we're still strong on price and mix. The European business, I think, you know, Christina, for the first time in well over a year, we offset raw material and inflation with price mix. We'll see those, those raw material tailwinds come back into the Q2. That's a positive. We have to then take those actions on cost that I, I mentioned earlier. We're not gonna sit still. Rod, the market was certainly weaker. We felt it. I, I understand what you're saying about the market, Rich. I'm really asking about Goodyear specific underperformance. In consumer replacement, the market was down 4, the members were down 12, you're down 26. In commercial replacement, the industry was down 15, and you're down 34%. What, what is... I, I imagine that, that the delta versus your expectations, obviously, it's partly the industry was weaker, but isn't the magnitude of the underperformance relative to the industry, a factor too? Well, I, Rod, maybe I'll jump in here. This was noted in our letter on the summary of the quarter reflections page. In Europe, we gained a lot of share in the Q2 of last year versus the industry. This year was more of a normalization of just sell in share. Now, this isn't reflective of what's happening in sell out. Last year we picked up 2 points a share versus the industry, so our volume, much stronger than our major competitors. This year, you know, we're giving that back. That was essentially in our plan, albeit at better industry levels. Okay, just lastly, on, on the strategic side, I mean, Europe has been a challenge for Goodyear for as long as I've covered the company, and, I'm just, just wondering if you believe that that business is ultimately strategic to the company, and whether, whether there's, there's alternatives that, that could actually create some value from that, from that region? Well, Rod, I, I, I have to say there, there are alternatives that we have to look at in terms of everything from going to market, to the brand portfolio, to the segments that we, we play in. I, I think all those things have to be on the, on the table. To answer your question on it being strategic, I, I think as we look at the OEMs that work over there, and we look at the technology trends that they tend to lead, not solely, but that they tend to lead, it's a market that our technology plays very well there, and we have to be there. How we turn up, I think, is the question that we have to continue to look at. Some of the most complex problems from a vehicle perspective, a mobility perspective, take place in Europe, and that's where we have some of our best technology. Absolutely, we have to be there. That said, it is an incredibly difficult market, as you say, and as we look at ourselves there, Rod, and you know this, and you know the actions that we've taken over time, we have a footprint tilted toward Western Europe rather than Eastern Europe or other low-cost countries. Our labor costs are higher. That got worse with inflation from COVID. We've been acting on taking factories out, from Amiens to Philippsburg, now to Fulda, and I can go back in time. We will continue to do those things, and we'll continue to right-size the business where we can make sure that the advantages that we have around our technology are, are coming to the bottom line. When you look at a slow economy, you look at the volume coming out, and you look at the high-cost footprint we have there, that's what we're, we're struggling against. We recognize it, you know, and and we're gonna continue to put the actions in place as we referred to last time, and I think you'll see more to come sooner than later. Okay. All right. Thank you. Thank you, Rod. This does conclude our Q&A session as well as our conference call. Thank you all for your participation.