GT Q3 2026 earnings call transcript, November 5, 2026

Welcome everyone to Goodyear's third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After some opening remarks, there will be a question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Vice President, Investor Relations.

Thank you for joining us today. I'd like to start by sharing my perspective on our third quarter performance, and I'll spend some time discussing the actions we're taking. Actions we're taking to strengthen our competitive position, improve our structural profitability, and return the business to sustainable free cash flow. During the third quarter, we achieved segment operating income of $174 million, compared to $36 million in the second quarter and $95 million in the first quarter. This is a meaningful improvement over the first half of the year, but our earnings remain below our expectations. Our SOI shortfall has been impacted by several factors. These include softer than expected consumer replacement demand in EMEA and a continued pressure within America's commercial replacement business. We've also discussed for some time now the challenges facing the global tire industry. Competitive intensity remains high. Demand has been uneven and changes in channel inventory have created more volatility. All these dynamics continue to impact our business and our cost structure amplifies these pressures. This reinforced effort. This forces the need for more fundamental change. We must deliver improved performance through actions within our control. While we have made important progress within our cost structure through the Goodyear Forward and other initiatives, that progress hasn't yet translated into the level of earnings and cash generation we expect from our business. After completing Goodyear Forward, we entered 2026 focused on identifying further opportunities to strengthen our structural profitability.

This year's operating environment has reinforced the importance of that work. We've been focused on identifying a comprehensive set of actions and making sure we're positioned to execute them effectively. We're not basing these plans on a recovery in volume. Instead, we're focused on what we can control. This includes channeling our efforts and resources towards the areas of our business where we have the greatest competitive advantages. Optimizing our manufacturing and cost structure. And making disciplined decisions about how and where we deploy capital. We recognize the urgency of improving our performance and the significant opportunity ahead of us. As I'll discuss later, we're evaluating changes to our business to strengthen our competitive position, improve returns, and generate sustainable free cash flow. During the third quarter, from a market or industry. perspective, we continue to see a challenging combination of lower OE production, uneven replacement demand, strong competition, and pressure on the industry price mix versus raw material increases. In EMEA, both consumer OE and replacement demand contracted during the third quarter. That said, we grew our share within the consumer OE again in quarter three. That builds on more than two consecutive years of OE gains. In the EMEA region, commercial OE was relatively flat, and commercial replacement showed moderate growth.

In Asia Pacific, the consumer space showed mixed performance between OE contraction and the replacement growth. The region continued to deliver strong SOI margins of roughly 13%. This demonstrates the results we can generate when product mix, competitive position, and our operations are aligned. Asia Pacific has leveraged the strength of the Goodyear brand, grown our regional OE presence, executed well on price mix, and focused on serving the most attractive segment. In fact, 53% of Asia Pacific's consumer portfolio is 18-inch and above rim sizes, which leads the company. We're pursuing these strategies across all regions. In the Americas, the overall consumer OE market control contracted, though once again, we grew market share during the quarter. The commercial OE market is trending in the right direction, and on top of that, we grew share. The consumer replacement market remained challenging. After starting the year with a sharp decline, we now see our volumes continuing to normalize. We've seen demand for commercial replacement weaker than expected, reflecting the continued soft freight trends in the market. This has been an important source of pressure on both the market. Overhead absorption, as well as the price mix. We continue to progress through the effects of our deliberate skew rationalizations over the past several quarters. Those decisions have reduced our participation in lower return segments. They've also created near-term volume and utilization headwinds as we transition towards a more attractive portfolio mix. Our focus remains on competing more deliberately, aligned with where we can earn appropriate returns, rather than

pursuing volume simply to fill factories. We also continue to make steady progress in strengthening the quality and competitiveness of our product portfolio. Last quarter, I discussed the deliberate choices we're making to concentrate our resources on the products and segments where Goodyear can deliver the greatest value. That means continuing to invest in differentiated products and premium technologies. It also means we're reducing the number of lower resources.

We're seeing that strategy take shape through our product pipeline. Just last week, we launched the Cooper Discover HT, a new all-season highway mixed-terrain tire. It is tough, robust, reliable. It is designed for folks who rely on their full-size trucks and SUVs to get the job done. We also unveiled an expansion. We ended 2026 UltraGrip winter tire portfolio in EMEA, and late last week, we introduced an ultra-premium, limited-edition Mickey Thompson Street Comp GHT Signature Series. Our tires continue to earn recognition in the market all around the world. Goodyear Wrangler, Outbound AT, Steadfast AT, Assurance Comfort Drive, and the Eagle F1 Asymmetric 6 earn recommendations from Consumer Reports. All right. Eagle F1 Asymmetric 6 won Evo's October 26 summer test tire. The annual Evo test is considered to be one of the most rigorous, independent evaluations. And the Goodyear Vector All Season 4 was crowned test winner by Tire Reviews, AutoBuild, AutoBuild All Rad, and their respective all-season tire tests. I want to thank all of our talented teams behind the design and the engineering of these awesome new products. Across the company, we're continuing to prioritize larger rim sizes, ultra-high-performance tires, and the all-weather and all-season categories. That's where our technology, brand, and product performance come together to really make the difference. We see our consumer mix as a key indicator of our progress.

In the third quarter, tires with rim sizes of 18-inch and above made up 44% of our consumer portfolio. Compared to sure. with 39% a year ago. This increase of 5 percentage points demonstrates continued advancement of our strategy. The financial rationale behind this strategy is compelling. These products typically generate higher profit per tire. This improves our mix with higher value products, creating an opportunity to expand margins independently from volume growth. While we're seeing some consumers shift towards... ...lower quality and lower priced alternatives in the current environment, the long-term growth in SUVs and vehicles equipped with larger rim sizes continues to expand the market for more technically demanding tires. By focusing on these segments where our Goodyear technology and brand strength sets us apart, we believe we can improve the profitability of our portfolio to generate more attractive returns. We're also continuing to make progress with OE customers. In the third quarter, we grew our OE volumes in both the Americas and EMEA despite industry contraction. This generates clear share gains in both regions and builds on a trend that has been well established over roughly the last three years. These gains in OE business, which have been disproportionately in 18-inch and above rim sizes, help establish a future pipeline of high-end replacement demand for Goodyear.

In the U.S., our Velocity program continues to expand our indirect dealer network, adding nearly 1,500 rooftops through new dealer additions and expansions this year. Also in our U.S. retail business, we opened 11 new stores so far in 26, including our new concept store in Detroit. We have plans to open five additional locations by the end of the year. We've also completed the rollout of our digital vehicle inspection process. across more than 500 stores. This process provides real-time vehicle data insights, providing an improved customer experience and loyalty opportunity. These are important proof points because they demonstrate that we're improving not just the products we offer, but how effectively we compete in the marketplace. The combination of increased premium products, selectively around the segments of the market we serve, stronger customer relationships, and disciplined portfolio management remains central to building a more competitive Goodyear. One of the clear realities in the current environment is that we have the opportunity to reduce our earning sensitivity to changes in volume. When demand falls short, the resulting pressure on factory utilization and fixed cost absorption can significantly affect our profitability. Given volume trends over the last decade, we... see a meaningful gap in our relative financial performance and underutilization in our manufacturing footprint. We are laser focused on addressing this issue. As our product portfolio evolves, we see an opportunity to better align our manufacturing network, operating model, and capital requirements with the markets and product segments where we intend to compete. We've been clear that our footprint strategy is not simply a...

about reducing capacity. It's ensuring we have the right capabilities in the right geographies with a cost structure that allows us to compete effectively. The closure of our Fayetteville, North Carolina facility is an important example of that approach. We're focused on a smooth transition for our associates and for our customers. We remain on track to complete the closure by the end of 27 with $270 million of SOI benefits. Beyond Fayetteville, we're executing on more opportunities across our manufacturing network. In September, we announced we're closing our two remaining chemical facilities. That's expected to generate $15 to $20 million of annual SOI benefits beginning in 27. Earlier this year, we closed a mold operation in Ohio as well. Together, these actions reflect our continued focus on aligning capacity. the future requirements of our business. We're approaching these hard decisions, recognizing that the business needs to operate efficiently at realistic demand levels. Chasing low return volume to support utilization is not sustainable. The path forward is a more flexible, competitive, and appropriately sized operating model. The actions we've already announced are meaningful, and we expect them to approve our structural cost position. But these actions alone won't deliver the level of earnings or cash generation we believe the business can deliver. Next, I'd like to spend a few minutes on free cash flow, which we view as the clearest measure of our progress.

Over the past several years, we've improved our balance sheet, we've simplified the portfolio, and we've enhanced our operating performance. Goodyear Forward delivered substantial SOI benefits and are... Business portfolio actions help reduce debt and increase our financial flexibility. At the same time, our recent earnings performance has resulted in additional cash utilization. We are not willing to wait for industry volume recovery to solve this issue. While market conditions have certainly been a headwind, the fundamental challenge is one we can address. We need to generate more cash from our operations relative to the capital required to maintain and advance... ...our competitive position. That makes our mandate super clear. Goodyear must be capable of generating sustainable positive free cash flow through a range of industry conditions. Doing so requires stronger structural margins, a more competitive manufacturing footprint, disciplined capital allocation, improved working capital efficiency, and a portfolio focused on products and channels... ...that generate attractive returns. It also requires a willingness to continually assess where we compete and how we deploy capital to maximize long-term value creation. Our Goodyear Forward Plan positioned us well to pursue these investments. It gave us a significantly strengthened balance sheet. That has provided sufficient financial flexibility to support our transformation while preserving the company's ability to...

to invest in our highest return opportunities to serve our customers. Over time, sustainable, positive free cash flow should support leverage, reduction, and further solidify Goodyear's financial foundation. Ultimately, our success cannot be defined by revenue, volume, or even SOI. It will be measured by our ability to consistently deliver free cash flow. That is the financial objective guiding our decisions. Given all this, let me close by discussing how we're approaching Goodyear's next phase. Goodyear Forward formally concluded at the end of 2025, following an intense focus on executing the program and delivering ahead of our commitment. Throughout 26, we've been developing opportunities to improve the structural economics of our business. These actions we've announced to date matter, but incremental improvement alone, won't take the business to where it needs to go. We need to make more fundamental changes to improve Goodyear's structural profitability, capital efficiency, and ability to generate cash. The goal is to build a business with stronger earnings resilience and more consistent cash generation across the cycle. The industry environment this year has reinforced the urgency of that objective. We're approaching this work with speed, with discipline, and with an openness to change. We're assessing where Goodyear has the strongest competitive positions, where our brands and technology create the greatest differentiation, and where we can generate attractive and sustainable returns on the capital we deploy. These are consequential decisions, and we're rigorously evaluating the financial and operational implications and pressure testing execution plans prior to moving forward.

Again, our objective is to build a stronger, more focused Goodyear with structurally higher returns, greater capital efficiency, and sustainable, positive free cash flow. We have a strong foundation, including one of the world's leading brands, strong market positions, a talented team, a refreshed premium product portfolio, and differentiated technology capabilities. To support these efforts and get the results, we've established a dedicated transformation office. This brings together leaders with the responsibility to advance this work and drive focus execution across the company. This structure will provide accountability and speed as we evaluate opportunities and move those decisions into action. We expect to provide an update on the work of the transformation office with you on our next quarterly earnings call. The actions we've already announced are important steps, but they do not represent the full extent of the opportunity we're evaluating. We see tremendous opportunity to improve Goodyear's structural returns and cash generation, and we're committed to pursuing the actions necessary to realize that potential. Our 2026 financial performance reinforces the importance of that work. We recognize investors expect more from Goodyear, and we share those expectations. We are committed to delivering value. Thank you. I'll now turn the call over to Scott.

Good morning, everyone. As Mark discussed, third quarter earnings improved meaningfully from the first half of the year, supported by continued strength in original equipment and normalization in the U.S. consumer replacement market. Softness in other areas of our business and continued pressure from our legacy fixed cost structure, however, resulted in financial results that were below our prior expectations. This morning, I'll focus on the financial drivers of profitability for the quarter before discussing cash flow, the balance sheet, segment results, and our outlook. I'll also discuss how we are approaching the broader transformation that Mark outlined from a financial perspective. Turning to the income statement on slide six, third quarter sales were $4.5 billion, down about 2% from last year, reflecting last year's divestitures of the chemicals business and the Dunlop brand, as well as slightly lower volumes. These effects were partially offset by price and mix improvements. Excluding the divestitures, all inorganic sales were up about 2%. Tire unit volume declined about 3%. by lower consumer replacement demand in EMEA and Asia-Pacific. Gross margin decreased by 2 percentage points, primarily due to fixed cost absorption headwinds and higher operational costs. SAG decreased about 1.5%, reflecting benefits from Goodyear Forward and other actions. All considered, these factors resulted in segment operating income of $170,000.

$74 million. Our tax expense remained elevated in the third quarter due to the regional mix of profit generation. As earnings improve in key markets, particularly the U.S., we expect that our effective tax rate will normalize over time. After adjusting for significant items, including rationalization charges and discrete tax items, non-GAAP earnings per share was a loss of $11. Turning to the segment operating income walk on slide 7, our 2025 earnings base was lowered by $56 million due to the sales of the chemical business and the Dunlop brand. After this change in scope, our 2025 SOI was $231 million. Lower tire unit volumes represented a headwind of $16 million during the quarter. Fixed cost absorption was a reduction of $61 million, primarily reflecting lower production levels in Q2. As we've previously discussed, lower volumes affect us not only through lost contribution margin, but also through the absorption of legacy fixed costs that remain in our manufacturing footprint. This absorption impact typically lags one quarter. Price and mix contributed $105 million. to SLI, while raw materials were a headwind of $29 million. The continued benefits of Goodyear Forward accounted for $90 million of SLI, while inflation, across both manufacturing and administration, was an unfavorable impact of $69 million. Other operational costs were higher by $40 million, primarily related to elevated transportation costs.

Tariffs were a headwind of $8 million. Finally, foreign currency and other were a combined headwind to SLI of $29 million. Turning to slide eight, free cash flow was a use of $283 million in the third quarter, compared with a use of $181 million a year ago. The year-over-year change reflected the flow. through of lower earnings, partially offset by reduced CapEx. Capital spending was $139 million during the quarter, compared with $183 million a year ago. For the full year, we expect CapEx of $675 million, of which roughly 70% is directed toward maintenance investments, with a balance supporting growth and strategic initiatives, namely investments necessary to extend our capabilities in larger rim sizes and other premium categories as we drive continued improvements in our product mix. As we look ahead, we continue to evaluate our capital requirements carefully, balancing necessary investment with our strategic objective to reduce the capital intensity of the business over time. Net debt was $6.6 billion at quarter end, but declining nearly $700 million versus a year ago. We ended the quarter with approximately $4.5 billion of available liquidity, providing an important source of financial flexibility as we continue executing our previously defined restructuring initiatives and evaluate additional opportunities to improve the business. As Mark mentioned, consistent free cash flow generation is a central objective that our team is intending.

We are intently focused on achieving. That requires more than just improving SOI generation. We are also relentlessly focusing on tightly managing cash requirements, including CapEx and working capital, as we further shape the cost structure. Moving to the SBU results on slide 10, America's tire unit volume was flat year-over-year. Volume growth in both U.S. consumer OU. and replacement was offset by weakness in commercial replacement. More specifically, U.S. consumer OE volume increased at a mid-single-digit rate, despite a softer overall market. In consumer replacement, our volumes grew at a low single-digit rate, driven by greater than 18-inch rim sizes, compared with a total industry sell-in decrease of about 1%. This is a significant improvement from earlier in the year, and encouraging the evidence of our progress toward higher-value products, even in the current cost-sensitive market. Commercial replacement remained weaker than anticipated, weighing on both fixed-cost absorption and price and mix. Commercial OE volumes increased again, however, and outperformed the market. America's essence of the market. SOI was $96 million, down $110 million versus the prior year. Excluding the impact from the sale of the chemicals business, SOI was down $76 million year-over-year. Higher unabsorbed costs, transportation expense, and inflation, more than offset continued favorable Goodyear forward savings.

Turning to slide 11, to me, a third-quarter tire unit volume. Decreased about 7%, reflecting weaker than anticipated consumer replacement sell-in. In addition to weak sell-in demand, partially the result of a slower start to winter, Goodyear consumer replacement volume was also impacted by the continuation of our planned SKU rationalization of lower-tier product offerings. However, we continue to see growth in the targeted high-value segment. As well as strong response to our Cooper brand, where we see sustained growth. Consumer OE continued to outperform in the region, with market share growth for the 11th consecutive quarter. Commercial OE volumes also improved. EMEA segment operating income was $12 million, excluding the impact of the Dunlop brand investiture. SOI improved organically by $5 million year-over-year. Turning to Asia-Pacific on slide 12, third quarter tire unit volume decreased 6%, driven by planned SKU rationalization and consumer replacement. Despite volume pressure, earnings benefited from our emphasis on the premium segment of the market, driving strong price and mix versus raw material costs. in the region. SOI increased to $66 million, representing 13% margin, up 270 basis points compared to the prior year. Now, before closing with our outlook, I'd like to connect our quarterly financial results to the transformation priorities Mark outlined. From a financial perspective, we are evaluating this transformation work against three

I've seen a lot of changes in the pandemic of your time. And we've seen an obvious remark on a huge difference between the pandemic of these kids' experiences and how we could do it. And we've seen a huge difference in our website. And we've seen a huge difference in our lives. I've seen that great prices. Interlinked objectives. First, we are establishing a more competitive cost structure that can generate acceptable profitability across a range of industry conditions. Our results this quarter demonstrate this need. When volumes soften, the resulting pressure on factory utilization and accordingly reduced overhead absorption quickly offsets any improvements that we are able to realize in price and mix. So as I said, as we drive improvements in our operating model and manufacturing footprint, our objective is not simply to remove cost, but to structurally improve the foundational economics of the business. That will enable us to compete profitably without fully relying on cyclical recoveries in industry volumes. Second, we need to improve the earnings power of our business portfolio by focusing on the products and markets where Goodyear has the greatest competitive advantages. That means continuing to shift towards differentiated products, larger rim sizes, and higher value segments where our technology and brands support more attractive profit per tire. As Mark mentioned, we're focused on improving the strategic positioning and profitability of the business for the longer term, not simply tactically maximizing volumes or preserving revenue for today.

Third, we need to improve free cash flow generation. That requires looking beyond operating income improvements to address the capital intensity of our business, improve working capital efficiency, and review other areas of our business to ultimately generate more cash. Some of our transformation initiatives will naturally require near-term investment. Importantly, our strong liquidity position of $4.5 billion dollars. provides us with the financial flexibility to undertake these actions while continuing to manage seasonal fluctuations in our working capital requirements. These investment decisions will be guided by a clear alignment with the ability to generate sustainable improvements in free cash flow from them over time. Importantly, while we do believe that the industry is currently facing uncharacteristically high headwinds in both cost 裳 and demand, our financial framework for the transformation is not built around an assumption that the market volumes return to historical levels. We are evaluating the business thoughtfully against the realities of the market and, accordingly, realistic volume scenarios. As Mark mentioned, our work is ongoing, and we are not yet in a position today to quantify the full financial implications or provide financial goals. Plans are finalized in the coming months, however. We do intend to provide investors and other stakeholders with clear visibility into the expected financial benefits and timing of our planned actions. Ultimately, the financial objective of this transformation is to build a more profitable, less capital-intensive business that is capable of generating consistent free cash flow across the cycle.

To set the stage for our fourth quarter outlook, I'd like to address the raw material environment as it relates to our input costs. As we've discussed, on average, movements in commodity prices typically affect our P&L with a four- to six-month lag, reflecting our inventory, sourcing agreements, and production cycle. During the quarter, natural rubber prices initially declined but ultimately rebounded, reaching near-term highs early last year. month. Petroleum-derived raw materials also increased earlier in the quarter, and they remain elevated. Looking ahead, we continue to expect raw materials to be an approximately $170 million headwind SLI in the fourth quarter. Moreover, while there is the opportunity for these trends to ultimately revert with better weather patterns and lower crude prices, given the recent progression of commodity prices and the typical lag before these costs flow through our P&L, we still expect elevated raw material costs to continue through the first half of 2027. Contractual raw materials index mechanisms, mainly within our OE and fleet businesses, help manage a portion of our raw materials exposure. In non-index businesses, we will continue to evaluate price, mix, and cost actions as the environment evolves. Turning now to our fourth quarter outlook, I'll begin with the key drivers of our expected year-over-year bridge in SOI. First, the absence of earnings from previously

divested businesses will reduce SOI by $44 million compared to the prior year. In addition, the non-recurrence of an insurance settlement in Q4 of 2025 reduces our earnings base by $56 million during the quarter. Meaning that our comparable starting point for SOI one year ago is $316 million. We now expect global tire unit volumes to decline modestly versus prior year, reflecting continued pressure in both consumer and commercial replacement markets. We also anticipate roughly $45 million of higher unabsorbed fixed costs, reflecting lower production levels during the second half of the year. Price and mix are expected to contribute approximately $60 million, supported by recent pricing actions and continued improvements in our product mix. As I mentioned, raw material costs are expected to increase by approximately $170 million, reflecting the impact of higher commodity prices flowing through our P&L. Goodyear forward is expected to contribute roughly $110 million. and year-over-year benefits during the quarter. General inflation is expected to increase costs by approximately $70 million, while other costs are expected to be higher by about $40 million, principally the result of increased transportation expenses. And finally, regarding non-operating items, we continue to expect the tax expense will remain elevated relative to pre-tax income. Due to our current geographic mix of earnings, for the fourth quarter, we anticipate tax expense of roughly $50 million. With that, we'll open the line for your questions.

Your line is now open.