13/02/2024 - The Goodyear Tire & Rubber Company: Goodyear Fourth Quarter and Full-Year 2023 Earnings Release Investor Letter

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INVESTOR LETTER Q4 2023

Feb. 12, 2024

TABLE OF CONTENTS

03

05

08

13

15

15

16

17

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Conference Call Details

Important Disclosures

Forward-Looking Statements

Non-GAAP Financial Measures

Use of Hyperlinks

Reference Tables

Financial Tables (Unaudited) Other Data Tables

Reconciliation of Non-GAAP Financial Measures

See "Important Disclosures - Non-GAAP Financial Measures" and "Reference Tables" for further explanation and reconciliation tables for historical Total Segment Operating Income and Margin; Free Cash Flow; Adjusted Net Income (Loss); and Adjusted Diluted Earnings per Share, reflecting the impact of certain significant items on the 2023 and 2022 periods.

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 2

FORWARD

DRIVING SHAREHOLDER VALUE

In November of 2023, we announced a transformation plan - "Goodyear Forward" - which leverages our existing strengths to position us for future growth with higher profitability and greater financial flexibility.

BY THE END OF 2025 OUR PLAN IS EXPECTED TO DELIVER …

Streamlined portfolio, resulting in unlocked incremental value

Operating margins of ~10%

Net Leverage of 2.0x-2.5x

Increased financial flexibility & sustainable free cash flow

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 3

FORWARD

BY THE NUMBERS

Goodyear Forward is a transformation plan designed to optimize our portfolio, deliver significant margin expansion and reduce leverage to drive substantial shareholder value creation. During 2023, we began laying the foundation to drive the execution of that plan. We expect this program to benefit segment operating income by approximately $350 million in 2024.

$1.0B Cost Actions1

The Goodyear Forward program includes specific actions to deliver annualized cost reductions of $1.0 billion by the fourth quarter of 2025, ensuring we remain competitive and positioned as a leader in our industry. These cost reduction initiatives are underway.

Annualized Run Rate by Q4 2025

˜$300

FY 2024 Estimate

˜$50

Terms: $ in millions

Workstream

Annualized Run

FY 2024

Rate by Q4 2025

Estimate

Footprint & Plant Optimization

˜$400

˜$75

Purchasing

˜$350

˜$125

SAG

˜$200

˜$75

Supply Chain and R&D

˜$50

˜$25

Terms: $ in millions

$300M Margin Expansion

Building on our position as an industry leader delivering premium products and services, we have developed plans to capture $300 million of incremental segment operating income primarily through better price/mix in North America. These include actions to optimize brand and tier positioning, rationalize SKUs, increase customer and channel profitability and enhance coverage in premium product lines. We expect these actions to have a positive impact of approximately $50 million in 2024.

Portfolio Optimization

Goodyear Forward includes plans to optimize our portfolio, both creating value and driving significant deleveraging. Processes centered around three of our assets are underway, with the expectation to deliver gross proceeds in excess of $2 billion.

OFF-THE-ROAD2CHEMICAL

TARGETING GROSS PROCEEDS OF >$2.0B

  1. Costs to achieve in 2024 include corporate other expense of approximately $100 million - mainly advisory, legal and consulting fees as well as costs associated with planned asset sales. Additionally, we expect to make approximately $300 million of rationalization payments in 2024.
  2. Off-the-Roadequipment tire business provides specialized tires for the mining and construction industries.

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 4

FINANCIAL RESULTS

Fourth quarter earnings were ahead of the expectations we outlined during our announcement on November 15, 2023, driven by strong operating results in Americas and Asia Pacific. These results reflected our strongest price/mix versus raw materials since the fourth quarter of 2012. Additionally, we generated the strongest fourth quarter operating cash flow since the pandemic. Our quarter results position us well as we execute on the Goodyear Forward plan.

Tire Volumes

Tire unit volume in the quarter totaled 45.4 million units, down 3.8% from prior year.

Global replacement volume was lower by 6.7%, reflecting a strong fourth quarter 2022 comparable for Americas and continued weak trends in EMEA. Global OE volume increased 6.0%, driven by share gains in Asia Pacific.

TIRE UNITS

47.2

45.4

(1.8)m

YoY

-3.8%

2022

2023

(2.3)m

REPLACEMENT

OE

0.5m

UNITS

-6.7% YoY

UNITS

+6.0% YoY

Income Statement

Fourth quarter sales decreased 4.8% compared to prior year driven by the impact of lower replacement volume and lower third-party chemical sales. Sales increased 1% due to currency.

Fourth quarter 2023 net loss was $291 million ($1.02 per share loss) compared to a net loss of $104 million ($0.37 per share) a year ago. The change in net loss was primarily due to a goodwill impairment charge related to our EMEA segment and higher rationalization charges, partly offset by higher segment operating income.

After adjusting for significant items, our fourth quarter net income was $135 million, compared to $20 million in the prior year's quarter. Significant items included $35 million in Corporate Other expenses related to Goodyear Forward, which includes advisory, legal and consulting fees and costs associated with planned asset sales.

Adjusted earnings per share on a diluted basis were $0.47 compared to $0.07 a year ago.

Goodyear Forward

Financial Results

SBU Results

NET SALES

($258)m YoY

$5,374

$5,116

-4.8%

2022

2023

GOODYEAR

($104)

NET INCOME (LOSS)

($291)

($187)m

YoY

2022

2023

-180%

RETURN ON NET SALES

-1.9%

-5.7%

EPS

($0.37)

($1.02)

ADJUSTED EPS

$0.07

$ 0.47

SEGMENT OPERATING INCOME

$383

+ $147m

YoY

$236

+62.3%

2022

2023

SOI MARGIN

4.4%

7.5%

Terms: Units & $ in millions except per share amounts

All per share amounts are diluted

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 5

FINANCIAL RESULTS

Segment Operating Income Drivers

Reported fourth quarter segment operating income was $383 million, up $147 million compared to prior year. Excluding the impact of the fire at our Debica, Poland facility, fourth quarter segment operating income was $395 million.

The impact of lower volume was ($103) million, including ($57) million from lower sales volume and ($46) million from lower production during the third quarter to align with industry demand (down

4.8 million units compared to the third quarter of the prior year).

Results included net price/mix versus raw materials of $249 million, the highest since the fourth quarter of 2012. Raw material cost decreases of $329 million more than offset price/mix of ($80) million. Lower price/mix primarily reflects continued mix declines related to commercial truck tire industry weakness and the effect of contractual raw material price adjustments with OE and fleet customers.

Net cost savings of $10 million was driven by the benefits of lower transportation rates, which exceeded the negative impact of general inflation in our business.

"Other" changes in segment operating income of ($9) million included the ($12) million impact of a fire in our Debica, Poland facility in August 2023.

Segment Operating Income

Fourth Quarter 2023 versus 2022

$329

($72)

$82

($9)

$383

Other1(c)

Q4

$236

($57)

2023

SOI

Calculated

Cost

Q4

($46)

Inflation

Savings

2022

(CPI)1(b)

SOI

Volume

($80)

Unabsorbed

Fixed Cost

Price/Mix

Raw

Materials1(a)

($103)

$249

$10

Total Volume Impact

Net P/M vs Raws

Net Cost Savings

Terms: $ millions

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 6

FINANCIAL RESULTS

Balance Sheet and Cash Flows

At the end of the fourth quarter, total debt was $7.6 billion compared to $7.9 billion at the same time last year. Net debt of $6.7 billion was relatively unchanged.

Cash flows from operating activities for the fourth quarter were a source of $1.2 billion compared to a source of $1.1 billion in the prior year.

TOTAL DEBT

$7,890

$7,624

($266m) YoY

$6,722

$6,663

NET DEBT

+$59m YoY

2022

2023

AS OF DECEMBER 31

Terms: $ in millions

Debt Maturity Schedule Fourth Quarter 2023

$2,3652(a)

$882(b)

$8842(c)

$801

$1,285

$1,072

$592

$850

$1,600

2024

2025

2026

2027

2028

2029

2030

≥2031

Funded Debt

Undrawn Credit Lines

Terms: $ millions

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 7

SBU RESULTS - AMERICAS

Fourth Quarter Summary

Americas fourth quarter segment operating margin of 10.1% was the highest quarterly result since 2021. This is evident in our consumer replacement margins, which expanded significantly during the fourth quarter.

Americas volume was 8.8% lower than prior year following particularly strong volume in the fourth quarter of 2022. While our U.S. volume has seen a significant amount of volatility since 2020, our overall consumer replacement share is in line with our strategy to focus on profitable growth.

Our commercial truck replacement volume declined 12% on continued industry weakness.

Net Sales

Net sales in Americas of $3.1 billion decreased by $333 million, or 9.8%, compared with the fourth quarter of 2022. The decline in sales was driven by 8.8% lower volume.

NET SALES

($333)m

$3,400

$3,067

YoY

-9.8%

2022

2023

Goodyear Forward

Financial Results

SBU Results

Segment Operating Income

Segment operating income in Americas was $309 million compared with $279 million a year ago - an increase of $30 million.

This result reflects the impact of lower volume following a particularly strong fourth quarter in 2022, including ($63) million of lower sales volume and ($20) million of unabsorbed overhead from lower production in the third quarter.

Net price/mix versus raw materials was $62 million. Raw material cost decreases of $188 million more than offset price/mix of ($126) million. Lower price/mix includes the impact of contractual raw material price adjustments with our OE and fleet customers and continued weakness in the commercial truck tire industry. U.S. consumer replacement pricing was stable.

Net cost savings were $35 million, driven by lower transportation costs.

Segment operating income also benefitted from stronger performance in our chemical business of $12 million.

SEGMENT OPERATING INCOME

+ $30m

$309

$279

YoY

+10.8%

2022

2023

SOI MARGIN

8.2 %

10.1 %

Terms: $ in millions

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 8

SBU RESULTS - AMERICAS

Tire Volumes

Overall volume in Americas was down 2.3 million units, or 8.8% below fourth quarter 2022 levels. Replacement volume was 8.9% lower

(1.9 million units), while OE volume was 8.6% lower (0.4 million units).

  • The decrease in replacement volume reflects a strong comparable in the U.S. consumer tire market, industry destocking in Latin America and continued commercial weakness.
    • Consumer replacement share in the U.S. was in line with year-to-date results, with continued strength in premium brands.
  • The OE result primarily reflects UAW strike-related impacts during the quarter and weaker commercial truck build rates given weak trucking industry conditions.

TIRE UNITS

(2.3)m YoY

25.4

23.1

-8.8%

2022

2023

(1.9)m

REPLACEMENT

(0.4)m

OE

UNITS

-8.9% YoY

UNITS

-8.6% YoY

Terms: Units in millions

Sell-Out Activity

U.S. industry retail sales to end consumers (i.e., "sell out") were down slightly compared to prior year. Goodyear sell-out volumes were in-line with the industry.

At the end of the fourth quarter, Goodyear's U.S. consumer replacement channel inventories were down approximately 5% compared to prior year.

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 9

SBU RESULTS - EMEA

Fourth Quarter Summary

EMEA's earnings recovered compared to a low base in the prior year. Results reflect continued destocking in consumer replacement, which was more than offset by strong price/mix performance and the benefit of lower raw material costs.

The European consumer replacement industry grew in the quarter, driven by low-cost imports. Goodyear's consumer replacement volume declined 5%, reflecting continued channel destocking.

Our commercial truck volume declined 11%, reflecting weak industry conditions.

Net Sales

Net sales in EMEA of $1.4 billion increased $35 million, or 2.6%, compared with the fourth quarter of 2022.

The increase in sales was driven by 2% higher revenue per tire (excluding mix and foreign currency), partly offset by lower unit volumes.

NET SALES

+ $ 35m YoY

$1,364

$1,399

+2.6%

2022

2023

Segment Operating Income

Segment operating income in EMEA was $6 million compared with a loss of ($80) million a year ago - an increase of $86 million.

The result was driven by net price/mix versus raw materials of $170 million, including raw material cost decreases of $108 million and price/mix benefit of $62 million.

These benefits were offset partly by the impact of lower volume, including ($6) million of lower sales and ($27) million of unabsorbed overhead from lower production in the third quarter.

The impact of inflation and other cost increases in our business were approximately ($27) million.

Additionally, segment operating income was impacted by ($12) million from a fire in our factory in Debica, Poland.

SEGMENT OPERATING INCOME

$6

+ $ 86m

($80)

YoY

+107.5%

2022

2023

SOI MARGIN

-5.9%

0.4%

Terms: $ in millions

Goodyear Forward

Financial Results

SBU Results

Outlook

End Notes

Disclosures

Reference Tables

Q4 2023 - 10

Disclaimer

The Goodyear Tire & Rubber Company published this content on 13 February 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 February 2024 09:47:23 UTC.

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