Exhibit 99.1
INVESTOR LETTER
Q3 2023
Nov. 6, 2023
1
TABLE OF CONTENTS
03 Letter to Investors
04 Financial
Results
07 SBU Results
13 Outlook
15 End Notes
15 Conference Call Details
16 Important Disclosures
Forward-Looking Statements
Non-GAAP Financial Measures
Use of
Hyperlinks
17 Reference Tables
Financial Tables
(Unaudited)
Other Data Tables
As part of Goodyears 125th anniversary
celebration, Goodyear helped revitalize the iconic Goodyear sign that shines over the companys former headquarters. The historic Goodyear sign has served as both a Goodyear and Akron icon and represents Goodyears continued commitment to
the Akron community.
Reconciliation of Non-GAAP Financial Measures
See Important Disclosures Non-GAAP Financial Measures and Reference Tables for further explanation and
reconciliation tables for 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.
Letter to Investors Financial
Results SBU
Results Outlook End Notes
Disclosures Reference Tables
2
Q3 20232
LETTER TO INVESTORS
Fellow Shareholders:
Strong execution amid improving industry conditions enabled us to deliver
solid operating results during the third quarter. At the same time, we continue to lay the foundation for long-term value creation, led by the work of our boards Strategic and Operational Review Committee. We look forward to updating you on
the committees recommendations in a separate call on November 15. In our August investor letter, we indicated that second half 2023 segment operating margin would get much closer to our near-term target of 8% and our third quarter results
reflect this trend. Encouragingly, two out of three of our regions Americas and Asia Pacific delivered SOI margins above 8% during the quarter. Third quarter segment operating income margin was 6.5% and we continue to anticipate
further gains during the fourth quarter.
This was the first quarter in two years where the benefits of price/mix vs. raw materials exceeded inflation, including
price remaining a benefit in the quarter. And, importantly, we were able to expand margins in the context of a global tire industry that remains below 2019 levels: consumer replacement industry volumes remained 5% below 2019 on a year-to-date basis while OE remained about 2% lower.
That said, there were signs of
improving volume conditions in several of our markets, including the U.S., where industry volume grew 10% over last year, indicating an end to channel destocking that began in late 2022. Demand for travel in the U.S., meanwhile, remained strong,
with vehicle miles traveled more than 2% above last years level. During the quarter, we continued our strategy to focus on the most profitable segments where we can capture the value of our products, brands and technology in the market.
Our Asia Pacific segment continued to generate momentum, benefitting from a focus on growing in premium segments of the markets including EVs, SUVs and
luxury vehicles. The region recorded the highest quarterly segment operating income in several years and is positioned to return to 2019 earnings levels this year.
The consumer replacement market in Europe, on the other hand, has remained weak, reflecting above-average channel inventory levels driven by softer sell-out trends and an influx of low-cost imports. While our volume performance was solid among Tier 1 competitors, earnings remain below historical levels and are not
reflective of what the business can deliver. Current conditions have caused us to lean further into our overall cost structure to improve our competitiveness going forward.
As we do so, we also continue to strengthen our premium tire lineup in targeted market segments, evident in a host of new product launches during the quarter. We continue to be
recognized for our product lineup and leading technology. During the quarter, AutoBild an influential auto publication designated us as Manufacturer of the Year for outstanding performance in the winter tire category. This recognition
follows our award earlier this year as Manufacturer of the Year for summer tires.
Our products have never been stronger and our positioning in the marketplace has
never been better. While we expect margin growth again in the fourth quarter, we see significant room for improvement in SOI margin as we move ahead. I look forward to sharing more about our plans next week.
I am proud of everything our team is doing to execute and position us to win. I am excited about Goodyears future and our ability to capture value today while positioning for
further success in the future.
Rich Kramer
Chairman, Chief Executive
Officer & President
As part of Goodyears 125th anniversary celebration, Goodyear helped revitalize the iconic Goodyear sign that shines over the
companys former headquarters. The historic Goodyear sign has served as both a Goodyear and Akron icon and represents Goodyears continued commitment to the Akron community.
Reconciliation of Non-GAAP Financial Measures
See
Important Disclosures Non-GAAP Financial Measures and Reference Tables for further explanation and reconciliation tables for 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.
Letter
to Investors Financial Results SBU
Results Outlook End Notes
Disclosures Reference Tables
Q3 202
FINANCIAL RESULTS
Tire Volumes
Tire unit volume in the quarter totaled 45.3 million units, down 2.8% from prior year.
Global replacement volume was lower by 5.3%, driven by Americas and EMEA. The Americas decline reflects the impact of increased
low-cost imports in Latin America, the residual effects of the tornado on our facility in Tupelo, MS and continued weakness in the commercial truck industry. These headwinds were partly offset by strong growth
in premium segments of the U.S. market. The European result reflects continued channel destocking during the quarter.
Global OE volume increased 5.7%, driven by
share gains in Asia Pacific.
TIRE UNITS
(1.4)m 46.7 45.3
YoY
-2.8% 2022 2023
(2.0)m
REPLACEMENT 0.6m OE
UNITS -5.3% YoY UNITS+5.7% YoY
NET SALES
($169)m $5,311 $5,142
YoY
-3.2% 2022 2023
NET INCOME (LOSS) $44
($133) 2022 2023
m YoY
($89)
RETURN ON NET SALES 0.8% -1.7%
EPS $0.16 ($0.31)
ADJUSTED EPS $0.40 $0.36
SEGMENT OPERATING
INCOME
$373
($
37)m $336
YoY
-9.9% 2022 2023
SOI MARGIN 7.0%
6.5%
Terms: Units & $ in millions except per share amounts
All per
share amounts are diluted
Income Statement
Third quarter sales decreased 3.2%
compared to prior year driven by the impact of commercial truck industry weakness and lower other-tire related sales (mostly the effect of lower third-party chemical sales). The currency impact increased sales by less than 1%. Revenue per tire
increased 2%, excluding the impact of foreign exchange.
Third quarter 2023 net loss was $89 million ($0.31 per share loss) compared to net income of
$44 million ($0.16 per share) a year ago. The decrease in net income was primarily due to higher rationalization costs of $153 million, driven by a rationalization and workforce reorganization plan in Europe to improve our cost structure
and a plan to change our operating model in Australia and New Zealand to a third-party distribution and retail sales approach.
After adjusting for significant
items, our third quarter net income was $104 million, compared to $116 million in the prior years quarter.
Adjusted earnings per share on a diluted
basis were $0.36 compared to $0.40 a year ago.
Letter to
Investors Financial Results SBU
Results Outlook End Notes
Disclosures Reference Tables
Q3 20234
32
FINANCIAL RESULTS
Segment Operating Income Drivers
Reported third quarter segment operating income was
$336 million, Calculated inflation of ($84) million reflected a global inflation down $37 million compared to prior year. Excluding the impact of the rate of approximately 4%, which was partly offset by $17 million of fire at our
Debica, Poland facility and the storm at our Tupelo, MS cost savings. facility, third quarter segment operating income was $347 million.
Other
changes in segment operating income of ($43) million The impact of lower volume was ($87) million, including ($26) million were driven by a ($23) million net impact from other tire-related from lower sales volume and ($61) million from lower
production businesses mainly lower earnings in our chemicals business during the second quarter to align with industry demand (down driven by lower feedstock pricing. Other also includes ($11) million 3.9 million units
compared to the second quarter of the prior year). in impacts from discrete events, including ($6) million from the fire Results included benefits of improved price/mix of $22 million and that impacted our Debica, Poland facility and ($5)
million from the lower raw material costs of $140 million. Positive price/mix reflected storm that impacted our Tupelo, MS facility. the benefit of price increases over the last 12 months in EMEA and Asia Pacific, partially offset by the
negative mix impact related to lower commercial truck volume in Americas.
Terms: $ in millions
Letter to Investors Financial Results SBU ResultsOutlookEnd NotesDisclosuresReference Tables
Q3 20235
FINANCIAL RESULTS
Balance Sheet and Cash Flows
At the end of the third quarter, total debt was $8.7 billion compared to $8.6 billion at the same time last year. Net debt was $7.7 billion,
compared to $7.4 billion at the end of the third quarter 2022. Cash flows from operating activities for the third quarter were a source of $230 million compared with a use of $94 million in the prior year driven by improvements in
working capital.
TOTAL DEBT $8,646 $8,666
+$ 20m YoY $7,403$7,664
NET
DEBT
+$ 261m YoY 20222023
AS
OF SEPTEMBER 30
Terms: $ in millions
$1,9602(a)
Debt Maturity Schedule
Third Quarter 2023
$582(b)$3182(c)
$801 $1,690$1,089$1,104$850$1,600
2023 2024 20252026202720282029≥2030
Funded DebtUndrawn Credit
Lines
Terms: US$ millions
Letter to
Investors Financial Results SBU ResultsOutlookEnd NotesDisclosuresReference Tables
Q3 20236
SBU RESULTSAMERICAS
Third Quarter Summary
Americas third quarter segment operating margin of 8.3% represents a meaningful inflection from first half operating margin of approximately 3%.
Overall volume in Americas was down 4.9%, driven by the impact of increased low-cost imports in Latin America, the continuing effects of the
storm on our facility in Tupelo, MS (0.4 million units) and commercial truck industry conditions.
Before the effects of the storm, our consumer replacement
volumes in the U.S. were up 3%, signaling a reversal of recent industry destocking trends. This result was below the industry, reflecting a strategy focused on high-value segments of the market. While the Americas consumer replacement industry
forecast for the fourth quarter has been lowered based on stronger than expected U.S. growth in the third quarter, we expect our fourth quarter volume to be the highest of any quarter this year.
Our commercial truck replacement volumes declined 10% on continued industry destocking better than the industry, which declined 16%. We expect destocking to be largely
complete in the fourth quarter.
Net Sales
Net sales in Americas of
$3.1 billion decreased by $184 million, or 5.6%, compared with the third quarter of 2022.
Commercial weakness impacted sales by ($93) million, or 2.8%,
while lower sales in our other-tire related businessesmainly third-party chemical salesimpacted sales by ($67) million, or 2%.
NET
SALES
($184)m $3,304$3,120
YoY
-5.6% 20222023
SEGMENT OPERATING INCOME
$306
($ 48)m $258
YoY
-15.7% 2022 2023
SOI MARGIN 9.3 %
8.3 %
Terms: $ in millions
Terms: $ in millions
Letter to Investors Financial
Results SBU
Results Outlook End Notes
Disclosures Reference Tables
Q3 20237
SBU RESULTSAMERICAS
Tire Volumes
Overall volume in Americas was down 1.2 million units, or 4.9% below third quarter 2022 levels. Replacement volume was 5.0% lower (1.1 million units), while OE volume was
4.3% lower (0.1 million units).
The decrease in replacement volume reflects declines in Latin America and the continuing effects of the storm on our
facility in Tupelo, partly offset by strong growth in premium segments of the U.S. market. The decrease also reflects weak commercial truck industry conditions.
Year-to-date consumer replacement share in the U.S. was flat with last year,
before the effects of the storm.
The OE result primarily reflects weaker commercial truck build rates (0.1 million units) given softer trucking
industry conditions.
TIRE UNITS
24.1 22.9
(1.2)m YoY
-4.9% 2022 2023
(1.1)m REPLACEMENT (0.1)mOE
UNITS -5.0% YoY
UNITS-4.3% YoY
Terms: Units in millions
Sell-Out Activity
U.S. industry
retail sales to end consumers (i.e., sell out) were up slightly compared to prior year. Goodyear-branded sell-out volumes outperformed in the premium segment.
At the end of the third quarter, Goodyears U.S. consumer replacement channel inventories were about 10% below 2022 year-end levels.
Letter to Investors Financial Results SBU ResultsOutlookEnd NotesDisclosuresReference Tables
Q3 20238
SBU RESULTSEMEA
Third Quarter Summary
EMEAs earnings remained below historical levels due to continued
industry volume weakness and elevated inflation. At the same time, results also reflect strong price/ mix performance and the benefit of lower raw material costs which helped drive a sequential improvement in earnings. While consumer
replacement industry volumes remained soft on continued destocking (down approximately 5% in the quarter), our market share remained flat versus prior year, including strong Tier 1 performance. Our commercial truck volumes declined 11%, also
reflecting weak industry conditions and increased competition from low-cost imports.
Net Sales
Net sales in EMEA of $1.4 billion increased $16 million, or 1.2%, compared with the third quarter of 2022.
The increase in sales was driven by an increase in revenue per tire of 10%, before the effect of foreign currency, and positive foreign currency translation, partly offset by lower
unit volumes of 4.9%.
Segment Operating Income
Segment operating income in
EMEA was $22 million compared with $30 million a year ago a decrease of $8 million.
This result reflects the impact of lower volume,
including ($12) million of lower sales and ($23) million of unabsorbed overhead from lower production in the second quarter.
The benefit of price/mix in the
quarter was $59 million, driven by previously announced price increases in the region. Lower raw material costs impacted the quarter favorably by $34 million. These benefits more than offset ($45) million of higher costs. Additionally,
industry weakness in other tire-related businesses of
($7) million and ($6) million resulting from a fire in our factory in Debica, Poland impacted our results.
NET SALES
+ $ 16m
$1,358$1,374
YoY
+1.2%
20222023
Letter to Investors Financial Results SBU Results Outlook End Notes Disclosures Reference Tables
Q3 20239
SBU RESULTSEMEA
Tire Volumes
Overall volume in EMEA was down
0.8 million units, or 4.9% below third quarter 2022 levels. Replacement volume was 6.8% lower
(0.8 million units), while OE volume was approximately
flat.
The decline in replacement volume (for both Goodyear and the industry) during the third quarter reflects continued channel destocking.
OE volume reflects growth in consumer offset by declines in commercial.
Update On
Debica, Poland Operations
We previously shared that a fire at our Debica, Poland manufacturing facility on August 20, 2023 significantly damaged a portion of
the curing area and caused a temporary shutdown. Tire production is currently at approximately 70% of capacity.
We estimate the negative earnings impact related to
the fire during the quarter was $14 million, consisting of $8 million in corporate expense for an insurance deductible and $6 million in EMEAs segment operating income. We expect an approximately $15 million negative impact
to segment operating income in the fourth quarter and approximately $5 million of additional corporate expense.
We expect a full ramp-up by the fourth quarter of 2024 given the lead time to replace the damaged equipment. We will provide an estimated impact to 2024 after we have confirmed the restoration schedule.
We expect that a significant portion of the total business interruption impacts will ultimately be reimbursed by our insurance after the claim is complete.
Update on European Cost Structure Review
In addition to manufacturing footprint actions shared
in the second quarter, we announced a plan during the third quarter to streamline our operating structure in EMEA, improve our competitive position and drive growth.
The most recently announced plan includes streamlining the EMEA segment around two product business units, simplifying customer-facing teams, centralizing corporate functions,
better utilizing our shared services organization and consolidating R&D across EMEA.
The actions, which remain subject to required
consultation with relevant stakeholders, are expected to result in $30 million to $35 million of year-over-year savings in 2024 and approximately $100 million of run-rate savings by 2025 (from a
2022 baseline).
TIRE UNITS
(0.8)m 13.3 12.5
-4.9% YoY
20222023
(0.8)m REPLACEMENT ~ 0.0mOE
UNITS -6.8% YoY UNITS+1.7% YoY
Terms: Units in
millions
Sell-Out Activity
Industry
retail sales to end consumers (i.e., sell out) were approximately flat during the quarter. Goodyear-branded sell-out volumes outperformed in the premium segment.
At the end of the third quarter, Goodyears European consumer replacement channel inventories were down 7% compared with a year ago, continuing the trend of industry
destocking weve seen throughout the year. We expect continued destocking in the fourth quarter.
Letter to Investors Financial Results
SBU ResultsOutlookEnd NotesDisclosuresReference Tables
Q3 202310
SBU RESULTSASIA PACIFIC
Third Quarter
Summary
Asia Pacific results reflect continued growth in volume and segment
operating income, driven by China. Strong volume and continued
benefits from
price/mix versus raw material and other cost increases
drove operating margin to 8.6% in the quarter the highest level since
before the pandemic.
OE fitment wins geared toward premium vehicles, including EVs,
drove the strong volume performance. Our overall product positioning,
together with our aligned distribution model in consumer replacement,
will
enable us to continue our growth momentum.
NET SALES
($1.0)m
-0.2% YoY
2022 2023
$649 $648
SBUAP NET SALES
Net Sales
Net sales in Asia Pacific of $648 million were approximately flat
compared to the third quarter of 2022.
The sales result reflects a 5.4% increase in tire
volume, offset
by the impact of currency devaluation.
Segment Operating
Income
Segment operating income in Asia Pacific was $56 million compared
with $37 million a year ago an increase of $19 million.
This
result reflects a $7 million benefit of increased sales volume.
The benefit of price/mix in the quarter was $7 million, driven by
previously announced price increases in the region. Lower raw
material costs impacted the
quarter favorably by $11 million.
These benefits more than offset ($6) million of inflation.
SEGMENT OPERATING INCOME
SOI MARGIN 5.7% 8.6%
+$19m
+51.4% YoY
2022 2023
$37
$56
SBUAP Segment Operating Income
Terms: $ in millions
Q3 202311
SBU RESULTSASIA PACIFIC
Letter to Investors
Financial Results SBU Results Outlook End Notes D i sclosures Reference Tables
SBU RESULTSASIA PACIFIC
Terms: Units in millions
TIRE UNITS
+0.6m
+5.4%
OE
+18.5% YoY
0.7m
UNITS
REPLACEMENT
-3.5% YoY
(0.1)m
UNITS
YoY
2022 2023
9.3 9.9
SBUAP Segment Tire Units
Tire Volumes
Overall volume in Asia Pacific was up 0.6 million units in the quarter,
or 5.4% above 2022 levels. Replacement volume decreased 3.5%
(0.1 million units), while OE volume increased 18.5% (0.7 million units).
Replacement volume followed industry trends while the OE result
reflects the ramp-up of new EV fitment wins in the quarter.
Go-to-Market Strategy Update
Earlier in the quarter, we shared a plan to simplify our
go-to-market strategy and improve the profitability of our
business in Australia and New Zealand. The proposed plan
will change the Companys operating model in these
countries to a
third-party distribution and retail sales
model instead of a company-owned approach. These
changes will allow us to better serve our customers while
improving our cost structure in
those markets.
The proposed plan will lead to the exit of 9 warehouse
locations and the sale or exit of approximately 100 retail
and fleet store
locations.
This action is expected to deliver $50 million to $55 million
of improved segment operating income in 2025 and
annually thereafter, primarily through a
reduction of
selling, administrative and general expenses.
Q3 202312
Letter to Investors Financial Results SBU Results Outlook End Notes D i sclosures Reference Tables
Fourth Quarter 2023
Since our last update, our fourth quarter results are expected to be
negatively impacted by a fire in our factory in Poland (~$20 million
discrete impact). Despite this development, we expect our fourth
quarter
volume to be the highest of any quarter this year and we
continue to expect sequential margin expansion, reflecting strong
price / mix benefits from our strategic focus on more premium,
high-value segments of the
market.
Volume
Global replacement unit volumes are expected to be 3 to
4%
lower than prior year levels. OE volumes are expected to be up
approximately 5%.
Lower production in the third quarter
(4.4 million units below
the third quarter 2022), excluding the impact of the Debica fire,
will negatively impact fourth quarter unabsorbed overhead by
approximately $40 million.
Raw Materials
We expect raw material costs to be lower than prior year
by
approximately $300 million.
Price/Mix vs Raws
We expect the net benefit of price/mix vs raw materials to be
approximately
$250 million. Price/mix is expected to include
the negative price impact from contractual agreements tied to
lower raw material costs, as well as the continuing negative
mix from commercial truck
industry weakness.
Net Cost Savings
We estimate the impact of net cost
savings to be approximately
($65) million compared with the fourth quarter of 2022.
Debica Fire Impact
The fire that impacted our operations in Debica, Poland is
expected to negatively impact fourth quarter segment operating
income by
approximately $15 million and corporate expense by
approximately $5 million. While these amounts will be reflected
in operating earnings, the effect will be called out as a
significant item for purposes of our
calculation of adjusted EPS.
Tax Rate
We expect our tax rate to remain
elevated for the fourth
quarter, similar to the third quarter, although it will remain
sensitive to movements in income across geographies.
Cash Flow
Fourth quarter free cash flow is expected to be a significant
source of cash, in line
with historical seasonality.
Volume Considerations for the Fourth Quarter
Expect consumer replacement industry to be down
mid-single digits, with the U.S. down about 1 to 2% and
double-digit declines in Latin America.
Commercial replacement industry expected to be down
slightly, with destocking trends
easing.
AMERICAS
Consumer and commercial replacement markets reflect
different
regional dynamics.
Expect consumer replacement industry in
the fourth quarter
to be down low- to mid-single digits compared to prior year.
Commercial replacement industry expected to be flat to
down slightly,
with destocking trends easing.
EMEA
Expect high single-digit industry
growth in consumer
replacement.
Expect consumer OE growth on industry
recovery and
the continuing benefit of new fitment wins.
ASIA PACIFIC
Q3 202313
OUTLOOK
Letter to Investors Financial Results SBU
Results Outlook End Notes D i sclosures Reference Tables
Current Assumption Prior Assumption
Raw Materials 3(a) Based on current spot rates, FY ~$40 million lower
(Q4
~$300 million lower)
Based on current spot rates, FY ~$25
million higher
(Q3 ~$125 million lower and
Q4 ~$250 million lower)
Interest
Expense 3(b) ~$540 million Same
Other (Income) Expense Interest income: $60 to $70 million (~$35 million H2) Same
Financing fees: ~$50 million 3(b) Financing fees: ~$40 million 3(b)
Global pension
related (excluded from SOI): $90 to
$110 million 3(c) Same
Cash Taxes
3(d) ~$200 million Same
Depreciation & Amortization ~$1 billion Same
Global Pension Cash
Contributions 3(e) $25 to $50 million Same
Working Capital Source of ~$150 million Source of ~$100 million
Capital Expenditures
~$1.05 billion ~$1.0 billion
Rationalization Payments ~$100 million Same
Corporate Other $150 to $175 million Same
Other Considerations Expect insurance
recoveries of approximately $75 million from recent business interruption
events (~$55 million likely in 2024 and ~$20 million in 2025).
Expect benefit of real estate sale and leaseback transactions of $75 to $100 million in 2023
2023Other Financial Assumptions
Additional financial assumptions for 2023 follow.
Q3 202314
OUTLOOK
Letter to Investors Financial Results SBU
Results Outlook End Notes D i sclosures Reference Tables
1 Segment Operating Income (SOI) results third quarter 2023 versus 2022: (a) Raw materials variance
includes raw material cost saving
measures; (b) Estimated impact of general inflation (wages, utilities, energy, transportation and other); (c) Includes the
impacts of other
tire-related businesses, advertising and R&D
2 Debt
Maturity Schedule based on September 30, 2023 balance sheet values and excludes notes payable, finance and operating leases and
other domestic and foreign
debt: (a) At September 30, 2023, our borrowing base was above the U.S. revolving credit facilitys stated
amount of $2.75 billion; At
September 30, 2023, there were $790 million of borrowings and $1 million of letters of credit issued; (b) At
September 30, 2023, the
amounts available and utilized under the Pan-European securitization program totaled $260 million (€245
million);
(c) At September 30, 2023, there were $191 million (€180 million) of borrowings outstanding under the German tranche, $339 million
(€320
million) of borrowings outstanding under the all-borrower tranche and no letters of credit issued under the €800 million European
revolving credit facility
3 2023 Other Financial Assumptions: (a) Includes commodity and
foreign exchange spot rates; (b) Assumes no refinancing activity; (c)
Excludes one-time charges and benefits from
pension settlements and curtailments; (d) Excludes one-time items; (e) Excludes direct
benefit payments
Conference Call
The Company will host an investor call on Tuesday, Nov. 7 at
8:30 a.m. EST that will focus on questions and answers. Participating in the
conference call will be Richard J. Kramer, chairman, chief executive officer and
president; and Christina L. Zamarro, executive vice president
and chief financial officer.
The investor call can be accessed on the website or via telephone by calling either (800) 225-9448 or (203)
518-9708 before 8:25 a.m. and
providing the conference ID Goodyear. A replay will be available by calling (800)
753-4606 or (402) 220-2103. The replay will also remain
available on the website.
About Goodyear
Goodyear is one of the worlds largest tire companies. It
employs about 74,000 people and manufactures its products in 57 facilities in 23
countries around the world. Its two Innovation Centers in Akron, Ohio, and
Colmar-Berg, Luxembourg, strive to develop state-of-the-art
products and services that set the technology and performance standard for the industry. For more information about Goodyear and its
products, go to www.goodyear.com/corporate.
Q3 202315
END NOTES
Letter to Investors Financial Results
SBU Results Outlook End Notes D i sclosures Reference Tables
Forward-Looking Statements
Certain information contained in this Investor Letter constitutes forward looking
statements
for purposes of the safe harbor provisions of The Private
Securities Litigation Reform Act of 1995. There are a variety of factors,
many of which are beyond our control, that affect our operations,
performance, business
strategy and results and could cause our actual
results and experience to differ materially from the assumptions,
expectations and objectives expressed in any forward-looking statements.
These factors
include, but are not limited to: our ability to implement
successfully our cost reduction and rationalization actions and other
strategic initiatives, including any initiatives resulting from the strategic
and operational
review of our business that we announced in July 2023; a
prolonged economic downturn or period of economic uncertainty; increases
in the prices paid for raw materials and energy; inflationary cost pressures;
delays or
disruptions in our supply chain or the provision of services to us;
changes in tariffs, trade agreements or trade restrictions; actions and
initiatives taken by both current and potential competitors; deteriorating
economic conditions
or an inability to access capital markets; a labor strike,
work stoppage, labor shortage or other similar event; financial difficulties,
work stoppages, labor shortages or supply disruptions at our suppliers or
customers; the
adequacy of our capital expenditures; foreign currency
translation and transaction risks; our failure to comply with a material
covenant in our debt obligations; potential adverse consequences of
litigation involving the
company; as well as the effects of more general
factors such as changes in general market, economic or political conditions
or in legislation, regulation or public policy. Additional factors are discussed
in our
filings with the Securities and Exchange Commission, including our
annual report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K. In addition, any forward-looking statements
represent
our estimates only as of today and should not be relied upon as representing
our estimates as of any subsequent date. While we may elect to update
forward-looking
statements at some point in the future, we specifically
disclaim any obligation to do so, even if our estimates change.
Non-GAAP Financial Measures (unaudited)
This Investor
Letter presents non-GAAP financial measures, including Total
Segment Operating Income and Margin, Free Cash Flow, Adjusted
Net Income
(Loss) and Adjusted Diluted Earnings Per Share (EPS), which are important
financial measures for the company but are not financial measures defined
by U.S. GAAP, and
should not be construed as alternatives to corresponding
financial measures presented in accordance with U.S. GAAP.
Total Segment Operating Income is the sum of the individual strategic
business units
(SBUs) Segment Operating Income as determined in
accordance with U.S. GAAP. Total Segment Operating Margin is Total Segment
Operating Income divided by Net Sales as determined in accordance with
U.S. GAAP. Management
believes that Total Segment Operating Income and
Margin are useful because they represent the aggregate value of income
created by the companys SBUs and exclude items not directly related to the
SBUs for
performance evaluation purposes. The most directly comparable
U.S. GAAP financial measures to Total Segment Operating Income and Margin
are Goodyear Net Income (Loss) and Return on Net Sales (which is calculated
by dividing
Goodyear Net Income (Loss) by Net Sales).
Free Cash Flow is the companys Cash Flows from Operating Activities as
determined in accordance with U.S. GAAP, less capital expenditures.
Management believes that
Free Cash Flow is useful because it represents the
cash generating capability of the companys ongoing operations, after taking
into consideration capital expenditures necessary to maintain its business
and pursue growth
opportunities. The most directly comparable U.S. GAAP
financial measure is Cash Flows from Operating Activities.
Adjusted Net Income (Loss) is Goodyear Net Income (Loss) as determined in
accordance with U.S.
GAAP adjusted for certain significant items. Adjusted
Diluted Earnings Per Share (EPS) is the companys Adjusted Net Income
(Loss) divided by Weighted Average Shares Outstanding-Diluted as
determined in accordance with
U.S. GAAP. Management believes that
Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share (EPS)
are useful because they represent how management reviews the operating
results of the company
excluding the impacts of non-cash impairment
charges, rationalizations, asset write-offs, accelerated depreciation, asset
sales and certain other significant items.
It should be noted that other
companies may calculate similarly-titled
non-GAAP financial measures differently and, as a result, the measures
presented herein may not be comparable to such similarly-titled measures
reported by other
companies. See the following tables for reconciliations of
historical Total Segment Operating Income and Margin, Free Cash Flow,
Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share
to the most directly
comparable U.S. GAAP financial measures.
Use of Hyperlinks
The information
that can be accessed by clicking on hyperlinks included in
this Investor Letter is not incorporated by reference in, or considered to be a
part of, this Investor Letter.
Q3 202316
IMPORTANT DISCLOSURES
Letter to Investors
Financial Results SBU Results Outlook End Notes D i sclosures Reference Tables
TABLE OF CONTENTS
Financial Tables (Unaudited)
Table 1 Consolidated Statements of
Operations..................................................................................................................................................18
Table 2 Consolidated Balance
Sheets..................................................................................................................................................................19
Table 3 Consolidated Statements of Cash
Flows................................................................................................................................................20
Table 4
Reconciliation of Segment Operating Income & Margin...........................................................................................................................21
Table 5 Reconciliation of Free Cash
Flows..........................................................................................................................................................22
Table 6 Reconciliation of Total Debt and Net
Debt...............................................................................................................................................23
Table 7
Reconciliation of Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share....................................................................... 24
Other Data Tables
Table 8 Industry and Goodyear Growth
Rates.....................................................................................................................................................28
Table
9 Foreign Currency Rate Assumptions......................................................................................................................................................29
Table 10 Commodity Spot Rate
Assumptions.......................................................................................................................................................30
Q3 202317
REFERENCE TABLES
Letter to Investors Financial Results SBU Results Outlook End Notes D i sclosures Reference Tables
(In millions, except per share amounts) 2023 2022 2023 2022
Net Sales $ 5 ,142 $ 5 ,311 $
14,950 $ 1 5,431
Cost of Goods Sold 4 ,171 4 ,305 1 2,487 1 2,443
Selling,
Administrative and General Expense 6 73 6 96 2 ,045 2 ,101
Rationalizations 1 98 4 5 3 02 8 2
Interest Expense 1 38 1 17 4 03 3 31
Other (Income) Expense 2 1 4 2 8 2 ( 18)
Income (Loss) before Income Taxes ( 59) 1 06 ( 369) 4 92
United States and Foreign Tax Expense
2 5 5 8 2 2 1 78
Net Income (Loss) ( 84) 4 8 ( 391) 3 14
Less: Minority
Shareholders Net Income 5 4 7 8
Goodyear Net Income (Loss) $ ( 89) $ 4 4 $ ( 398) $ 3 06
Goodyear Net Income (Loss) Per Share of Common Stock
Basic $ ( 0.31) $ 0 .16 $ ( 1.40)
$ 1 .08
Weighted Average Shares Outstanding 2 85 2 84 2 85 2 84
Diluted $ (
0.31) $ 0 .16 $ ( 1.40) $ 1 .07
Weighted Average Shares Outstanding 2 85 2 86 2 85 2 86
Nine Months Ended
September 30,
Three Months Ended
September 30,
Table 1 Consolidated Statements of Operations
Q3 202318
FINANCIAL TABLES (UNAUDITED)
September 30,
December 31,
(In millions, except share data) 2023 2022
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,002 $ 1,227
Accounts Receivable, less Allowance $104 ($112 in 2022) 3,379 2,610
Inventories:
Raw Materials 822 1,191
Work in Process 223 187
Finished Products 2,919 3,193
3,964 4,571
Prepaid Expenses and Other Current Assets 332 257
Total Current Assets 8,677 8,665
Goodwill 1,010 1,014
Intangible Assets 975 1,004
Deferred Income Taxes 1,526 1,443
Other Assets 1,136 1,035
Operating Lease Right-of-Use Assets 961 976
Property, Plant and Equipment, less Accumulated Depreciation $12,146 ($11,377 in 2022) 8,214 8,294
Total Assets $ 22,499 $ 22,431
Liabilities:
Current Liabilities:
Accounts Payable Trade $ 4,110 $ 4,803
Compensation and Benefits 631 643
Other Current Liabilities 1,154 872
Notes Payable and Overdrafts 322 395
Operating Lease Liabilities due Within One Year 200 199
Long Term Debt and Finance Leases due Within One Year 277 228
Total Current
Liabilities 6,694 7,140
Operating Lease Liabilities 804 821
Long Term Debt
and Finance Leases 8,067 7,267
Compensation and Benefits 968 998
Deferred
Income Taxes 107 134
Other Long Term Liabilities 698 605
Total Liabilities
17,338 16,965
Commitments and Contingent Liabilities
Shareholders
Equity:
Goodyear Shareholders Equity:
Common Stock, no par value:
Authorized, 450 million shares, Outstanding shares 284 million in 2023 (283 million in 2022) 284 283
Capital Surplus 3,126 3,117
Retained Earnings 5,377 5,775
Accumulated Other Comprehensive Loss (3,794) (3,875)
Goodyear Shareholders Equity 4,993
5,300
Minority Shareholders Equity Nonredeemable 168 166
Total
Shareholders Equity 5,161 5,466
Total Liabilities and Shareholders Equity $ 22,499 $ 22,431
Table 2 Consolidated Balance Sheets
Q3 202319
FINANCIAL TABLES (UNAUDITED)
(In millions) 2023
2022
Cash Flows from Operating Activities:
Net Income (Loss) $ (391) $ 314
Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating Activities:
Depreciation and Amortization 751 718
Amortization and
Write-Off of Debt Issuance Costs 11 11
Provision for Deferred Income Taxes (138) 42
Net Pension Curtailments and Settlements 40 28
Net Rationalization Charges 302 82
Rationalization Payments (72) (72)
Net (Gains) Losses on Asset Sales (68) (98)
Operating Lease Expense 224 225
Operating Lease Payments (207) (208)
Pension Contributions and Direct Payments (54) (45)
Changes in Operating Assets and
Liabilities, Net of Asset Acquisitions and Dispositions:
Accounts Receivable (816) (1,380)
Inventories 590 (1,453)
Accounts Payable Trade (585) 1,053
Compensation and Benefits 45 12
Other Current Liabilities 222 102
Other Assets and Liabilities (58) 42
Total Cash Flows from Operating Activities (204) (627)
Cash Flows from Investing Activities:
Capital Expenditures (807) (765)
Cash Proceeds from Sale and Leaseback Transaction 73 108
Asset Dispositions 3
24
Short Term Securities Acquired (96) (72)
Short Term Securities Redeemed 88
98
Long Term Securities Acquired (11)
Long Term Securities Redeemed 6
Notes Receivable (61) (15)
Other Transactions (13) (26)
Total Cash Flows from Investing Activities (818) (648)
Cash Flows from Financing Activities:
Short Term Debt and Overdrafts Incurred 793 1,183
Short Term Debt and
Overdrafts Paid (863) (991)
Long Term Debt Incurred 7,321 8,102
Long Term
Debt Paid (6,464) (6,794)
Common Stock Issued (2) (5)
Transactions with
Minority Interests in Subsidiaries (4) (9)
Debt Related Costs and Other Transactions (7) 14
Total Cash Flows from Financing Activities 774 1,500
Effect of Exchange Rate Changes on Cash,
Cash Equivalents and Restricted Cash (5) (67)
Net Change in Cash, Cash Equivalents and Restricted Cash (253) 158
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period 1,311 1,164
Cash, Cash
Equivalents and Restricted Cash at End of the Period $ 1,058 $ 1,322
September 30,
Nine Months Ended
Table 3 Consolidated Statements of Cash Flows
Q3 202320
FINANCIAL TABLES (UNAUDITED)
Table 4
Reconciliation of Segment Operating Income & Margin
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2023202220232022
Total Segment Operating Income $336 $373$585$1,040
Less:
Rationalizations
1984530282
Interest Expense 138117403331
Other
(Income) Expense 214282(18)
Asset Write-Offs and Accelerated Depreciation, Net 86216
Corporate Incentive Compensation Plans 2174357
Retained Expenses of
Divested Operations 231010
Other 26379380
Income (Loss) before Income Taxes $(59) $106$(369)$492
United States
and Foreign Tax Expense 255822178
Less: Minority Shareholders Net Income 5478
Goodyear Net Income (Loss) $(89) $44$(398)$306
Net
Sales $5,142 $5,311$14,950$15,431
Return on Net Sales -1.7%0.8%-2.7%2.0%
Total Segment Operating Margin 6.5%7.0%3.9%6.7%
Q3 202321
FINANCIAL TABLES (UNAUDITED)
Table 5
Reconciliation of Free Cash Flows
Three Months Ended Trailing Twelve
September 30, 2023 Months Ended
(In millions)
20232022September 30, 2023
Net Income (Loss) $(84) $48$(496)
Depreciation and Amortization 245237997
Change in Working
Capital (261)(538)280
Pension Expense 2919112
Pension Contributions and Direct Payments (16)(12)(69)
Provision for
Deferred Income Taxes (30)(152)
Rationalization Payments (22)(13)(95)
Other(a) 369165367
Cash Flows from Operating Activities
(GAAP) $230 $(94)$944
Capital Expenditures (271)(254)(1,103)
Free Cash Flows (non-GAAP) $(41) $(348)$(159)
Cash Flows from Investing Activities (GAAP) $(173) $(245)$(1,084)
Cash
Flows from Financing Activities (GAAP) $(102) $368$(151)
(a) Other includes amortization and
write-off of debt issuance costs, net pension curtailments and settlements, net rationalization charges, net (gains)
losses
on asset sales, operating lease expense and payments, compensation and benefits less pension expense, other current liabilities, and other
assets and
liabilities
Q3 202322
FINANCIAL TABLES (UNAUDITED)
Table 6
Reconciliation of Total Debt and Net Debt
September 30, June 30,December 31,September 30,
(In millions) 2023202320222022
Accounts
Receivable $3,379 $3,033$2,610$3,560
Inventories 3,9644,3604,5714,861
Accounts Payable Trade (4,110)(4,361)(4,803)(4,891)
Working
Capital(a) $3,233 $3,032$2,378$3,530
Notes Payable and Overdrafts $322 $539$395$541
Long Term Debt and Finance Leases due Within One Year 277244228266
Long Term Debt and Finance Leases 8,0678,0277,2677,839
Total Debt $8,666 $8,810$7,890$8,646
Less: Cash and
Cash Equivalents 1,0021,0491,2271,243
Net Debt $7,664 $7,761$6,663$7,403
Working capital represents accounts receivable and inventories, less accounts payable trade
Q3 202323
FINANCIAL TABLES (UNAUDITED)
Table 7
Reconciliation of Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share
Third Quarter 2023
Rationalizations,Indirect TaxPension
As Asset Write-offs,Debica Fire
Settlements andTupelo StormOther LegalAsset andAs
Settlement
Reported and Accelerated ImpactDiscrete TaxImpactClaimsOther SalesAdjusted
Charges
(In millions, except per share amounts) DepreciationItems
Net Sales $5,142 $-$11$-$33$-$-$-$5,186
Cost of Goods
Sold 4,171(8)(3)-28---4,188
Gross Margin 971814-5---998
SAG 673-------673
Rationalizations
198(198)-------
Interest Expense 138-------138
Other
(Income) Expense 21----(4)(4)619
Pre-tax Income (Loss) (59)20614-544(6)168
Taxes 252218111(2)57
Minority
Interest 5-1--1--7
Goodyear Net Income (Loss) $(89) $184$12$(8)$4$2$3$(4)$104
EPS $(0.31) $0.64$0.04$(0.03)$0.01$0.01$0.01$(0.01)$0.36
Q3
202324
FINANCIAL TABLES (UNAUDITED)
Table 7
Reconciliation of Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share
Third Quarter 2022
Rationalizations,Indirect Tax
Pension
As Asset Write-offs,Other LegalSettlements andAs
Settlement
Reported and AcceleratedClaimsDiscrete TaxAdjusted
Charges
(In millions, except per share amounts)
DepreciationItems
Net Sales $5,311 $-$-$-$-$5,311
Cost
of Goods Sold 4,305----4,305
Gross Margin 1,006----1,006
SAG 696(6)---690
Rationalizations 45(45)----
Interest Expense 117----117
Other (Income)
Expense 42-(14)(10)-18
Pre-tax Income 106511410-181
Taxes 58(1)33(2)61
Minority Interest 4----4
Goodyear Net Income $44 $52$11$7$2$116
EPS $0.16 $0.17$0.04$0.02$0.01$0.40
Q3 202325
FINANCIAL TABLES (UNAUDITED)
Table 7
Reconciliation of Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share
First Nine Months of 2023
Rationalizations,Foreign CurrencyIndirect Tax
PensionEnvironmental
As Asset Write-offs,Tupelo StormAsset andDebica Fire TranslationSettlements andOther LegalAs
SettlementRemediation
Reported and Accelerated ImpactOther
SalesImpactAdjustmentDiscrete TaxClaimsAdjusted
ChargesAdjustment
(In
millions, except per share amounts) DepreciationWrite-OffItems
Net Sales $
14,950 $-$110$-$-$11$-$-$-$ -$15,071
Cost of Goods Sold 12,487 (31)41--(3)--3512,502
Gross Margin 2,4633169--14--(3)(5)2,569
SAG
2,04510--------2,055
Rationalizations 302(302)---------
Interest Expense 403---------403
Other (Income)
Expense 82--58(40)-5-(8)-97
Pre-tax Income (Loss)
(369)32369(58)4014(5)-5(5)14
Taxes 224513(17)91-52(1)79
Minority Interest 7---11-1--10
Goodyear Net Income
(Loss) $(398) $278$56$(41)$30$12$(5)$(6)$3$ (4)$(75)
EPS $(1.40) $0.98$0.20$(0.14)$0.10$0.04$(0.02)$(0.02)$0.01$
(0.01)$(0.26)
Q3 202326
FINANCIAL TABLES (UNAUDITED)
Table 7
Reconciliation of Adjusted Net Income (Loss) and Adjusted Diluted Earnings Per Share
First Nine Months of 2022
Rationalizations,Indirect Tax
Pension
As Asset Write-offs,Other LegalSettlements andAssetAs
Settlement
Reported and Accelerated ClaimsDiscrete TaxSalesAdjusted
Charges
(In millions, except per share amounts)
DepreciationItems
Net Sales $ 15,431 $-$-$-$-$-$15,431
Cost of Goods Sold 12,443 ----12,443
Gross
Margin 2,988 -----2,988
SAG 2,101(6)----2,095
Rationalizations 82(82)-----
Interest Expense
331-----331
Other (Income) Expense (18)-(28)(15)-9837
Pre-tax Income 492882815-(98)525
Taxes 178874(20)(23)154
Minority Interest
8-----8
Goodyear Net Income $306 $80$21$11$20$ (75)$363
EPS $1.07 $0.28$0.07$0.04$0.07$ (0.26)$1.27
Note:
Certain items previously reported in adjusted diluted EPS have been reclassified to conform to the current presentation
Q3 202327
OTHER DATA TABLES
Table 8 Industry and Goodyear
Growth Rates
Industry & Goodyear Growth 2023 vs. 2022 Three Months Ended Nine Months Ended
September 30, 2023 September 30, 2023
Industry GoodyearIndustryGoodyear
Americas Consumer Replacement 3.8%-4.6%-3.5%-8.9%
Consumer
OE 1.7% -0.9%8.8%1.7%
Commercial Replacement -16.0% -10.3%-18.7%-12.9%
Commercial OE -12.6% -28.3%-5.2%-13.8%
EMEA Consumer Replacement -5.1%-6.3%-5.6%-16.6%
Consumer OE 6.1% 2.6%15.1%10.3%
Commercial
Replacement -5.7% -11.7%-9.0%-19.7%
Commercial OE 1.6% -5.0%6.5%8.0%
Asia Pacific Consumer Replacement -0.3%-4.4%0.9%-1.8%
Consumer
OE 2.6% 21.8%7.6%12.3%
Commercial Replacement 6.6% 4.2%6.4%-1.9%
Commercial OE 13.8% 29.8%27.8%20.2%
Total
Company Consumer Replacement -0.8%-5.1%-3.3%-10.3%
Consumer OE 2.9% 8.5%9.3%7.8%
Commercial Replacement -4.5% -8.7%-6.3%-13.6%
Commercial
OE 1.6% -15.6%11.8%-2.9%
Total Company Replacement -1.2%-5.3%-3.7%-10.5%
OE 2.8% 5.7%9.5%6.4%
Note: Goodyears Americas consumer
replacement results were negatively impacted by a storm at our Tupelo, MS facility. Excluding this impact, our U.S. consumer replacement growth rate for the nine months ended September 30, 2023 was in line with the industry.
Q3 202328
Industry Growth 2023 vs. 2019 Three Months Nine Months
Ended Ended
September 30, September 30,
2023 2023
Americas Consumer Replacement 1.4%2.3%
Consumer OE -8.4% -7.0%
Commercial
Replacement 6.4% 4.2%
Commercial OE -7.1% -0.6%
EMEA Consumer Replacement -15.3%-10.2%
Consumer
OE -13.5% -14.7%
Commercial Replacement -21.6% -15.4%
Commercial OE 3.6% 0.1%
Asia Pacific Consumer
Replacement -13.9%-8.0%
Consumer OE 14.1% 7.2%
Commercial Replacement -18.8% -15.5%
Commercial
OE -25.5% -17.7%
Total Company Consumer Replacement -9.3%-5.4%
Consumer OE 2.5% -1.4%
Commercial
Replacement -12.9% -10.2%
Commercial OE -15.8% -10.1%
Total Company Replacement -9.8%-6.0%
OE 0.8%
-2.2%
Note: Industry growth data as reported at time of this Investor Letter
OTHER DATA TABLES
Table 9 Foreign Currency Rate
Assumptions
October 27,
FX Spot
Rates 2023 2022
USD / BRL 5.015 5.341
USD / CNY 7.317 7.229
USD / EUR 0.945 1.003
USD / TRY 28.139 18.614
EUR /
TRY 29.768 18.553
OTHER DATA TABLES
Table 10 Commodity Spot Rate
Assumptions
October 27,
Commodity
Rates 2023 2022Modeling Assumption Comments
Butadiene ($ / LB) $ 0.38 $0.56Key driver of synthetic rubber prices
Natural Rubber ($ / LB) 0.66 0.55Driver of natural rubber prices
Crude Oil ($ / BBL) 90.48 96.96Proxy for pigments, chemicals, oils
Steel ($ / Tonne) 944.79 1,142.04Key driver of wire prices
NA HSFO ($ / BBL) 73.88 56.19Key driver of carbon black prices
Polyester ($ / LB) 0.47 0.48Key driver of fabric prices