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F500-2021-246-Goodyear Tire & Rubber

Well known for its long-running advertising campaigns featuring the "Goodyear Blimp," this company is the largest U.S.-based tire manufacturer. It sells tires and related products around the world under the Goodyear, Dunlop, Kelly, and Sava brands among others, and its tires are used on everything from cars to airplanes to mining equipment. Goodyear dropped 30 places in this year's rankings as its 2020 revenues fell by 16.4% to $12.3 billion.

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F500-2020-216-Goodyear

The tire manufacturer with facilities across the world had annual sales of $14.7 billion in 2019. The company also announced a venture capital fund, Goodyear Ventures, with $100 million to invest in "future mobility technology" in the next decade.

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Goodyear Tire &amp; Rubber is the third largest tiremaker in the world by volume after Michelin and Bridgestone. To pay down debt and bolster its balance sheet, the company announced in late 2023 three major divestments in conjunction with activist investor Elliott Management. In February it exited its Off-the-Road tire business before completing in May its sale of the Dunlop brand for combined gross proceeds of $1.6 billion. Under this Goodyear Forward transformation initiative, it still plans to sell its synthetic rubber operations, enabling the company to double its operating margin to 10% by the fourth quarter of 2025.

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Goodyear Tire & Rubber (GT): Company Profile, Stock Price, News, Rankings

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Goodyear Tire & Rubber

goodyear tire & rubber

Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to 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 one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. 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, and good morning, everyone. Welcome to our third quarter 2026 earnings call. With me today are Mark Stewart, CEO and President, and Scott Deakin, Interim Executive Vice President and CFO. Couple notes before we get started. During this call, we will make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect future results, and for reconciliations of non-GAAP measures, please refer to today's presentation and SEC filings. All of our earnings materials can be found at investor.goodyear.com. With that, I will hand the call over to Mark.

Thanks, Ryan, and good morning, everyone. Thank you for joining us today. I would like to start by sharing my perspective on our third quarter performance, and I will spend some time discussing the actions we are taking. Actions we are 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 have 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 reinforces 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 has not 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 have been focused on identifying a comprehensive set of actions and making sure we are positioned to execute them effectively. We are not basing these plans on a recovery in volume. Instead, we are 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 will discuss later, we are 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 continued 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 segments. In fact, 53% of Asia Pacific's consumer portfolio is 18-inch and above rim sizes, which leads the company. We are pursuing these strategies across all regions. In the Americas, the overall consumer OE market 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 have 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 overhead absorption as well as the price mix. We continue to progress through the effects of our deliberate SKU rationalizations over the past several quarters. Those decisions have reduced our participation in lower-return segments. They have 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 are 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 are reducing the number of lower-return products that do not support our long-term objectives. We are seeing that strategy take shape through our product pipeline. Just last week, we launched the Cooper Discoverer 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 expanded 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 HT, Assurance ComfortDrive, and the Eagle F1 Asymmetric 6 earned recommendations from Consumer Reports. Our Eagle F1 Asym 6 won evo's October 2026 summer test tire. The annual evo test is considered to be one of the most rigorous independent evaluations. The Goodyear Vector All Season 4 was crowned test winner by Tire Reviews, Auto Bild, Auto Bild Allrad in 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 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 2026, 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 earnings 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 have been clear that our footprint strategy is not simply about reducing capacity. It is 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 are focused on a smooth transition for our associates and for our customers. We remain on track to complete the closure by the end of 2027, with $270 million of SOI benefits by 2028. Beyond Fayetteville, we are executing on more opportunities across our manufacturing network. In September, we announced we are closing our two remaining chemical facilities.

That is expected to generate $15 million-$20 million of annual SOI benefits beginning in 2027. Earlier this year, we closed a mold operation in Ohio as well. Together, these actions reflect our continued focus on aligning capacity with the future requirements of our business. We are 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 have already announced are meaningful, and we expect them to improve 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 would 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 have improved our balance sheet, we have simplified the portfolio, and we have enhanced our operating performance. Goodyear Forward delivered substantial SOI benefits, and our business portfolio actions helped 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 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 commitments. Throughout 2026, 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.

Thank you, Mark. 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 in organic sales were up about 2%. Tire unit volume declined about 3%, driven 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. SG&A decreased about 1.5%, reflecting benefits from Goodyear Forward and other actions. All considered, these factors resulted in segment operating income of $174 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 $0.11. Turning to the segment operating income walk on slide seven.

Our 2025 earnings base was lower 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 SOI, while raw materials were a headwind of $29 million. The continued benefits of Goodyear Forward accounted for $90 million of SOI, 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 SOI 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 the balance supporting growth and strategic initiatives, namely investments necessary to expand 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 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.

Americas tire unit volume was flat year-over-year. Volume growth in both U.S. consumer OE 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 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. Americas 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. EMEA 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 segments, 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 EUR 12 million.

Excluding the impact of the Dunlop brand divestiture, SOI improved organically by EUR 5 million year-over-year. Turning to Asia Pacific on slide 12. Third quarter tire unit volume decreased 6%, driven by planned SKU rationalization in 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 would 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 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 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 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 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. As 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 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 to SOI 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 in 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. Finally, regarding non-operating items, we continue to expect that 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.

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. We'll take our first question from James Mulholland with Deutsche Bank. Please go ahead.

Hi. Good morning, guys, and thanks for taking my questions. I was hoping to dig in a little bit into this company transformation committee. When we think about it high level about what it could possibly entail, would it look like a Goodyear Forward 2.0? I mean, I think it's probably fair to say that you're likely to cut some capacity in some facilities, modernize other facilities, which are going to require some cash spend. Are there any parts of the portfolio that could be up for sale or monetization that could maybe give you some balance sheet breathing room, maybe the retail business or specialty ops like aircraft? I guess in the next earnings call, should we expect a full program outlay, or will it be something that just gets incrementally announced over time?

Yeah. Thank you, James. Good morning. As we think about the transformation office that we've created versus Goodyear Forward, maybe just to revisit the history again on Goodyear Forward. Goodyear Forward really addressed significant opportunities we had at that time around our cost structure. It was a cost reduction program, really to simplify the portfolio, to focus on core businesses, and it was to pay down debt and strengthen our balance sheet. We did accomplish that, right? Year on year, we're $600 million plus lower in terms of our debt structure. One of the distinctions that the work that we're doing now and have been doing over the course of this year is to focus on where we can compete. As Scott and I both mentioned and shared with you guys in earlier calls, it really is about our product mix up. It is about our overarching cost structure.

It's the structural elements of the business, and it's the economics of the business and where we operate. We're evaluating opportunities to create a much more focused business with greater emphasis on the premium consumer segment. You saw that success. I think the improvement from 39% to 44% of high rim size, high-margin products year on year, which we're really pleased with the progress of that and the great work our product development team is doing, our global product development team, where we can actually bring those products to market very cost-effectively by designing them and rolling them out around the world, as we've shared with you before on that as well, guys. It's packing a punch of greater than two times efficiency, getting closer to three.

So, again, it's that emphasis on premium consumer segments where our tech, our brands, and product mix can generate those stronger margins and returns. It matters because the objective is not just to take out cost and hope those exceed whatever's happening in the headwinds of the market or the geopolitics of the moment in terms of headwinds to raw materials, tariffs, et cetera. We want to improve the structure of the company, increase our portfolio to the more resilient end markets, and enhance the profit and the cash that we would generate from that portfolio. Feel very good about the products that we're developing and putting in the market in the blank spaces. We feel very good about deprecating the lower-end SKUs that were, as I would say, quote, "long in the tooth," or the vitality of those products were not what we wanted to be at Goodyear.

We understand that creates some short-term headwind to take those out. But just to say more plainly that we expect Goodyear to be less financially sensitive to changes in volume that really overpowered the P&L benefits we got of this $1.6 billion plus savings of Goodyear Forward, and we're leaning into our strengths. We've been developing those plans over the course of 2026. It has moved beyond just simply identifying areas where we think there's opportunity. Many of those consequential decisions are interconnected with each other. We know it can materially impact the value.

We do not think it would serve well for us to give snippets or little pieces of details on that before we have fully completed that, the analysis and the work of what we are rolling out, as well as us having the confidence and standing up of exactly what we are going to do and when we are going to do it. We recognize the importance as well, though, of demonstrating that progress in a measured way. We are going to provide clear milestones, what we expect to achieve, when we expect to achieve it, and we are going to share more with you on the Q4 earnings call.

Great. Thank you. As a quick follow-up, recognizing that you are not giving us a guide for next year, but we are swiftly approaching the midpoint of the fourth quarter. Could you give us any early indications of the puts and takes that we should be looking at for next year beyond raw materials? Fair to say there is probably going to be some SOI improvements, but restructuring expense is going to weigh on free cash flow maybe for another year. Could it be as negative as it is this year, or would you expect, at where we stand today, ignoring anything that might be announced, that there might be some incremental improvement? Is that fair to say?

Yeah, I think if you build on the indicators that we gave you for Q4 and start to look forward, our take is it is not necessarily a normalized earnings indicator of Q4 looking into the rest of 2027, but there are some key points that are indicative as a reference point. The volume environment, we would say that that would be largely consistent with what we are experiencing today. The higher raw material cost that we talked about, that we and the industry are contending with in Q4, look to carry into at least the first half of 2027. We have talked about the lag dynamics there generally, and we talked about it in our prepared remarks as well. We will obviously be working to mitigate those increases. I think everybody is familiar that we do have RMI mechanisms in place. That is about $50 million.

For those parts of our business that are not covered by those, we will be working to mitigate those in other ways as well. The other part is we will continue to realize the benefits from the actions we have taken already to improve our cost structure, and we will continue to see benefits. Again, I think if you look at those factors in Q4, they are indeed indicative in terms of the kinds of things that we will see into the first half, at least, of 2027. To your point about cash, for this year, we expect to use about $300 million-$400 million of cash in 2026. If you think about sort of the elements of that, roughly about $200 million of that is restructuring-oriented.

If you sort of remove that and focus on the operating free cash flow and the use of cash flow there, we are talking closer to about $100 million-$200 million. I guess I would just say look at that in the context of the overall restructuring. Next to the Fayetteville closure, just as an example, we are going to be talking about uses of cash up until about the fourth quarter of 2026. That starts to go positive, and then significantly positive from there forward. You bump up what I just talked about in terms of the non-restructuring general operating free cash flow of $100 million-$200 million. Fayetteville alone, on a mature basis, is close to $240 million of free positive cash flow.

I think those kinds of indicators in terms of the other things that the transformation office are going to be focusing on give a good positive indicator for us.

James, I would tack on just a little bit about the, we think about the volume and the top line for it. What we are seeing on the horizon for 2027, if we look at Mobility Global, the old IHS forecasting service that OEs used, that passenger vehicle production is expected to increase about 1% next year. The heavy truck that we know has been in a trough, really lowest levels in a long, long time/ever with the heavy truck build, is expected to grow mid-single digits in most regions around the world. We know the market is going to continue to be dynamic, and that is why we are continuing to strengthen our ability to compete, filling in the gaps in the product portfolio, in the premium, very profitable segments with that 18-inch and above.

At the same time, we are being cognizant that we need to make sure we have got products for everyone. It is why we really focused in Europe and bringing the Cooper brand there. From that standpoint, it is doing very well in the market, replacing those Dunlop volumes and providing a strong value proposition. The same thing, we will make sure we have a full portfolio for our customers and the end consumers. But we are building our plans on realistic volume assumptions, and we are going to focus on what is within our control to improve cash generation. It is also why we are focused on this transformation and having a dedicated transformation office to make sure that we execute and remove any roadblocks that could prevent us from getting things done.

Thank you. We will take our next question from James Picariello with BNP Paribas. Please go ahead. Your line is now open.

Just to hit on a few of the buckets for next year, at current spot prices for crude, in the $90-$100 range, would the raw mats impact also hit the third quarter next year, given the modest headwind that was realized this past quarter? Can you help dimension what this raw mats impact could look like for 2027? As we think about the reduction in CapEx this year, the reduction in your restructuring cash spend, how do those two buckets look like for next year? Thank you.

Yeah, so I will speak first to the raw piece of it. As we talked about, roughly about $170 million a quarter of headwind going into at least the first part of the year. We have talked about the lapping dynamics associated with that as we start to get into the second half of the year, depending on where raws shift. Obviously, to your point, crude is one element of that, but there has also been weather dynamics with regard to natural rubber that have been a big part of the headwind as well. If you start to move into the second half of the year, and if we see improvements in both of those areas, I think we would start to see some improvement from that. That will obviously tell going forward. Your second question was related to CapEx, and if I could just repeat that question.

I want to make sure I understand your point there.

Yeah, just on CapEx and your restructuring cash spend. Both of those were reduced for the 2026 guide. Just how to think about those two pieces for next year.

Yeah, as we talked about on the call, roughly 70% of the CapEx right now is more on a maintenance-oriented basis. The rest of it is related to the restructuring actions we are taking, growth-oriented actions. That will generally continue. As we talked about, roughly $300 million-$400 million of cash use is the expectation for this year. And within that, roughly $210 million, $200 million or so is related to restructuring. If you focus just on the non-operating cash aspects of things, and you start to look forward past that and start to see the benefits of the actions already being taken, that will start to come down some from there. I think those indicators for 2026 are pretty good indicators of the trends that you will start to see into 2027.

But for the transformation actions we just talked about, and to Mark's point, we would fully expect that as we outline those actions, outline those priorities, we will talk about the sources and uses dynamics for the cash that are a key part of that.

Yeah, maybe, James, if I could tack on a little bit on the CapEx itself, and we have shared with you guys in prior quarters. One of the areas I am really proud of from the team in terms of the results of it and the execution, you mentioned the lower spend in 2026, but that did not mean that we were getting lower amounts of modernization and efficiency in new product. We actually put 3x more products over this past year, as we have shared with you guys, than we ever have, in terms of that. We have been very efficient when it comes to, we have shuttered one of our mold facilities to go to a more optimized cost structure of keeping internal mold facilities full. Also partnering with outside mold facilities to have a big lift in that, which is a chunk of our CapEx for future of these new products.

But we, I think we shared with you before, we see between 40% and 60% capital efficiency over the past in terms of just how we were going to market. So shout out to our procurement, our advanced global engineering teams, and the execution, and quite frankly, our governance of CapEx has substantially changed since I have gotten here, where we go through the business cases in detail very rigorously. We have a team that works specifically on supplier development, so we are actually bringing new sources into the Goodyear zone, if you will, in terms of that CapEx efficiency. But it is very meaningful what we are able to buy equipment, whether it is automation equipment, tire building equipment, mixing, et cetera, much, much lower cost than what Goodyear was paying in the past, James.

Appreciate that. On the demand side of things, how is industry sellout and channel inventory trending in the U.S. for consumer replacement? What would be your assessment of the import volume trends there? In Europe, where are we at on the EU tariffs front, with respect to the tariffs levied against China imports? Is this now in place? Is there any benefit to be seen on this front in the future? Thanks.

Okay. Maybe why don't we start off with the EU tariffs, then come back around on the Americas sell-in and sell-out. The tariffs took effect middle of the year, I think in early July, if I am remembering correctly. While we do have some of the tier 2, tier 3 brands in our portfolio, if you recall, we have deprecated a lot of that product. We have kept some of our Fulda, Sava, Dębica, where we are competitive and needed that in terms of a full portfolio. We have put Cooper in, and Cooper is doing very well in that place.

It really, in terms of the tier 3, tier 4 market in EMEA, we believe we could see some benefit from that anti-dumping measures, and we already see through the published data that China is quickly moving away from Chinese-produced in China into Europe, into other areas of ASEAN, whether it is Thailand, Vietnam, Cambodia, and so forth. There will be a period of time for some arbitrage, we believe, but not a long-term impact for that. Meanwhile, we have really been focusing our footprint as we structurally change the footprint in EMEA with Fulda, first of all, the South Africa locations coming out of the network to balance supply and demand, so we were not stuck with those fixed overhead costs in very high-cost markets, and really working on our lower-cost footprint across Eastern Europe.

From that, we have been really focused on our capacity capabilities, and making sure that we have got the right capacity in place for that for premium products and focused on Seg A. We are continuing to focus in that market. So that is it on the EU tariff front. If we look at the sellout, as we said in the opener, we saw volumes being more normalized as we go through it. We have seen some really positive progress in terms of Goodyear sellout over this last quarter of us coming back very strong compared to others, and particularly on our 18-inch and above, growing very strongly as these new products are taking hold in the market, with the Eagle F1 winning a best in class, which has really helped propel that in the marketplace as well.

But across our portfolio, we see some positive signs on that in the upper tier of the market, which is, again, where that profit pool is, and it is where we have seen our tier 1 competitors be more resilient earlier in the year.

Thank you. Once again, let us start. Antoine, if you would like to ask a question. We will take our next question from Itay Michaeli with TD Cowen. Please go ahead. Your line is now open.

Great. Thanks. Good morning, everyone. Maybe just two follow-ups on the so-called Goodyear Forward 2.0 plan that you are working on. Maybe the first is, you mentioned you are not assuming any or reliant on any volume growth from there, but what are you assuming as you put this plan together for price mix relative to RAWS, particularly next year, but just generally, that relationship as you look to arrive at your future cash flow targets?

A couple things. First, we talked about for Q4 our expectations on the realization of price and mix relative to the raws, and we're getting some of it, but we're clearly not able to pass through all of it, and that's the realities of the market, and sort of the current volume economic sort of situation that we're dealing with. We will continue to try to do that, to try to off some of those raws, but at this point, we're only realizing part of it. As I said before, as you start to look forward into 2027 and beyond, we'll obviously be trying to understand after we get past the first half of the year how the crude oil shifts and how the natural rubber shifts based on weather improvement will impact us there.

But our ability to pass it on is really going to be dependent on sort of the overall trends in the marketplace. All of that said, we have not been able to, and at this point, we're not able to give you sort of full blow-by-blow indications of how the actions we're going to be taking ultimately manifest in sort of financial improvement for the business. But as I said before, and we said before, as we come into the first part of the year and into the spring, when we communicate all of these actions, we will do that not only with sort of base understanding of what we think that can do for the business, but again, as I said before, the sources and uses dynamics as well.

Hi. Good morning. It's Abe. Sorry, just to follow on really quick. The purpose of us working on or standing up the transformation office is really to get Goodyear in a much more resilient way, where we're price mix versus raws and so forth, so that we're resilient in that marketplace, to get our overarching structure in place so that we can maneuver much better as we go forward. I'll give you a good proof point of it, and that's in, as we shared in the opener, with Asia Pacific, right, for this quarter, where we have deprecated those low-end SKUs over time, over the last couple years.

We're super focused on the 18 and above, with over 50% of the portfolio there sitting in the 18 and above, and it's generating SOI margins of roughly 13%, which is exactly where we were intending to be, even better than from our first phase of Goodyear Forward. But that really demonstrates the results, again, we generate when that product mix, our product position, and the operational footprint are all in alignment. So, having those stars aligned gives us that tailwind and that strength, that resilience that we're looking for to do in all other parts of the world. So, because we're actually sitting at about 53%, I think, in total of 18 and above in AP, and having shed those. So, that's for us of why we're pursuing that strategy across all the rest of the regions.

We are doing it at a different place, so we make sure we bring our customers and the consumers along with us in the right way, and doing it in the chunks as we have talked in terms of this product portfolio mix up. So again, to make sure we have got resiliency when it comes and not worried about as much about the price mix and the raw factor.

That is very helpful, Mark. As a follow-up, I know we will wait till January to get all the details. Mark, you did mention a sense of urgency, and I am just kind of curious at a high level, should we think about this plan being starting to have an impact in 2027? Is it mostly 2028 or 2029? If we were just to think about a high level, like the sprinkling of all the initiatives, is it two years, one year? Kind of how do we think about the cadence of those benefits are coming?

Yeah. In terms of the work and why the transformation office as Goodyear Forward did it, certainly self-help continues to be a key part of our strategy. As we looked at it, I mean, I clearly saw that self-help alone is not going to get it. We need to continue to structurally change that business into that trifecta we talked about, where we compete, what we manufacture, where we manufacture it, and where we deploy our capital, and being very mindful of all of those things in conjunction with our working capital, our free cash flow, right? That is a key part of execution within our transformation office.

You can expect to see savings in 2027 as we roll that out as well, because we have had the work stream going with my senior leadership team for quite a while now, and you actually saw a little bit of it already in terms of the early spoiler alert, which was the Fayetteville restructuring that is very meaningful of that $270 million, and I know you guys have already digested that. As we look to it, we are evaluating every part of the business to make sure that we are to the right benchmarks, the best in class, and it is a value creation exercise in terms of where do we spend that precious capital? Where do we engage when it comes to spending our cash in order for the returns that we would get?

Thank you. We'll take our next question from Jose Asumendi with JPMorgan. Please go ahead. Your line is now open.

Thank you very much. Jose from JPMorgan. A couple of questions, please. I would appreciate it if you could speak a bit more around balance sheet and cash targets for 2026. Then also in conjunction with the strategic plan, which sounds very encouraging, if you could also speak about minimum liquidity you need in the balance sheet to run the business or cash, minimum cash you want to have in the balance sheet as we think about these strategic plans. Thank you.

A couple of things, and Mark, certainly jump in. I think we talked already for 2026, a use of $300 million-$400 million in cash. As we get into 2027, and particularly are able to share more of the details of the transformation we talked about, again, we will fully give you an indication of how we feel about the underlying performance of the business in that context, the sources and uses, et cetera. Honestly, right now, we feel pretty good about the liquidity we have. The team has done a really nice job putting the balance sheet in a healthy place. We've got about $4.5 billion of liquidity. Roughly $800 million of that is cash, and then we've got our revolver availability on top of that.

To the extent the transformation ultimately requires us to think differently about that, we will talk to you about how we plan on providing for that as a part of our discussion of the sources and uses.

Thank you, Jose, and welcome, by the way.

We have reached our allotted time for questions, and this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Goodyear Tire & Rubber (GT) Q3 2026 Earnings Call Transcript

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