Q4 provides ‘Forward' momentum for Goodyear, Stewart

AKRON—As Goodyear moves forward under the direction of Mark Stewart, the new president and CEO said the company "has incredible momentum" heading into 2024 after facing headwinds over the last year.

"I am just over two weeks into my new role and I could not be more excited to join this iconic company," Stewart said in a Feb. 13 investor call, his first as Goodyear's top executive.

Stewart, who had served as chief operating officer for North America for Stellantis, was appointed Goodyear president and CEO Jan. 29. He replaces Rich Kramer, who announced his retirement in 2023.

Stewart kept his initial comments brief at about five minutes before taking questions.

"As you can imagine, I am working diligently and quickly to gain a deep understanding of the business," he said. "I am meeting with people and visiting our factories, and I am looking forward to engaging with our investment community as well."

Stewart takes over a company that saw net sales for 2023 come in at $20.1 billion, down about $740 million against net sales of $20.8 billion in a more prosperous 2022. The Akron-based tire maker posted a net loss of $689 million for 2023, compared with net earnings of $202 million the prior year.

However, fourth quarter results "were ahead of expectations" outlined during the Nov. 15, 2023, release of Goodyear Forward, the plan to enact cost efficiencies and a streamlined portfolio.

Net sales for the final quarter of 2023 were $5.12 billion, a $258 million decrease year-over-year. Goodyear suffered a net loss of $291 million on the quarter, compared with a $104 million loss in the final three months of 2022.

This is relative to a 2022 that was driven by high tire volumes in nearly every major market.

"Q4 was driven by strong operating results in the Americas and Asia-Pacific," said Christina Zamarro, chief financial officer with Goodyear. "Additionally, we generated the strongest fourth quarter in operating cash flow since the pandemic.

"Our quarter results position us well as we execute on the Goodyear Forward plan."

However, year-over-year volume declined, especially in the Americas region at 8.8 percent, according to Zamarro.

"There was volatility in imports in 2022, even at the tail end of 2021," she said Feb. 13.

Goodyear's overall tire volume was down 1.8 million units, or 3.8 percent below fourth quarter 2022 levels. Replacement volume was down 6.7 percent year-over-year (2.3 million units), while OE volume was 6 percent higher (up 500,000 units).

"The decline in Goodyear's replacement volume during the fourth quarter reflects continued channel destocking for consumer and commercial," Zamarro said. "Industry growth in the fourth quarter was driven by low-end imports.

"Goodyear's consumer replacement volume result was more in line with that of other European domestic producers."

Zamarro also said the overall OE volume was indicative of "stable industry growth."

Raw material cost decreases provided a $329 million overall tailwind in the fourth quarter of 2023—more than offsetting a price/mix loss of $80 million for the quarter.

The raw material cost decreases were driven by $188 million saved in the Americas, against a $126 million price/mix loss; and $108 million saved in EMEA, buoyed further by a $62 million price/mix benefit.

The net price/mix ratio versus raw materials of $249 million "was the highest since the fourth quarter of 2012," according to Goodyear.

Also highlighted in the 2023 fourth quarter financials was a 62.3-percent jump in segment operating income, which registered $383 million, or about $147 million more than the fourth quarter of 2022.

Taking out the Aug. 20, 2023, fire at Goodyear's Debica, Poland, facility, and fourth quarter segment operating revenue was closer to $395 million, Zamarro said.

The fire, which occurred in the curing area of the plant, is expected to cost Goodyear about $15 million in operating income in the EMEA region in the first quarter of 2024.

The facility is expected to be fully operational by the second half of this year, Stewart said.

Operating income increased in each of the geographic business units, at 11 percent year-over-year for the Americas ($309 million in Q4 2023); 107.5 percent year-over-year ($6 million in Q4 2023); and 83.8 percent year-over-year in Asia-Pacific ($68 million in Q4 2023).

Asia-Pacific also led the three regions in net sales growth at 6.6 percent higher and $40 million more year-over-year ($850 million total in Q4 2023).

EMEA net sales were up 2.6 percent year-over-year ($1.4 billion total in Q4 2023); while net sales in the Americas dropped about 10 percent year-over-year ($3.1 billion total in Q4 2023).

Goodyear's net debt to conclude 2023 was about $6.72 billion, compared to a similar net debt of about $6.7 billion at the end of 2022.

In the first quarter of this year, Goodyear expects capital expenditures of between $1.2 billion and $1.3 billion, excluding repairs to the tire maker's plant in Tupelo, Miss., and the facility in Debica. Those costs are estimated at about $50 million and will be funded through insurance.

Goodyear Forward, the transformational plan to move Goodyear into greater profitability and financial flexibility, was released in November 2023—and Stewart said he is still doing "deep dives" into the framework.

"I will bring a perspective from an automotive OEM, automotive supplier background ... and the understanding that we need to lead with a clear focus on manufacturing, purchasing, engineering and logistics for us to achieve our financial goals," Stewart said. "You can expect me to focus heavily on manufacturing and distribution to enhance our capabilities and cost effectiveness."

Stewart said the entirety of his focus will be on Goodyear Forward in the coming months.

"I have been a part of leading transformational efforts in past roles," he said. "For Goodyear, for us, it's about maximizing our strengths in our market position in North America, improving our cost structure and de-risking our balance sheet."

A streamlined portfolio; margins of about 10 percent across the Americas, Asia-Pacific and EMEA; net leverage of 2 to 2.5 times; and increased financial flexibility and "sustainable free cash flow" are the main goals enumerated in the plan.

The plan is seeking cost reductions (per year) of about $1 billion by the fourth quarter of 2025, according to Goodyear.

"We expect this program to benefit segment operating income by approximately $350 million in 2024, with $50 million in the first quarter alone," Zamarro said during the Feb. 13 call. "And we are looking at $750 million in savings in year two."

Specifically, the plan is eyeing incremental cost reductions of about $300 million—a recapture of operating income through a better price/mix.

Goodyear's stated portfolio updates also include divesting the off-the-road tire; chemicals and synthetic rubber; and Dunlop divisions.

Goodyear hopes to see $2 billion in gross proceeds from the sale of these divisions (in aggregate).

"The plan for these assets is underway and progressing as planned," Zamarro said.

Going back a year, Goodyear in January 2023 said it planned to trim its global salaried work force by about 5 percent, or 500 jobs, by mid-year, citing an uncertain near-term economic outlook and weaker industry conditions.

As the financial outlook continued to decline in 2023, Elliott Investment Management L.P., a Florida-based investment firm with $55 billion in assets, sent a letter on May 11 to Kramer and the company's board of directors.

The owner of 10 percent of Goodyear's publicly traded stock detailed reasons for what it called the tire maker's poor stock performance while outlining steps it said the company should take to "reverse a period of negative performance."

Those original recommendations included appointing five new "highly qualified" individuals to its board to improve governance and spearhead change; divesting its corporate retail stores and use the proceeds to pay down its debt and improve its financial flexibility; and forming an operational review committee to develop an operational and development plan.

As a result, the company at the end of last year announced its Goodyear Forward plan.