Goodyear Forward: What goes, what stays and why?

Goodyear has a lot of work ahead as it executes its Goodyear Forward plan. And 2024 is when it all happens.

The initiative was brought on by a letter to Goodyear from Elliott Investment Management L.P., a large shareholder that said it was disappointed with Goodyear's poor stock performance.

First and foremost, Goodyear will be looking for buyers for its chemicals/synthetic rubber, off-the-road tire and Dunlop brand businesses.

That will be key as the world's No. 3 tire firm expects to bring in $2 billion in the sales of these units as it looks to double its profit margin by 2024 and be a far less-leveraged company.

But Goodyear also will be looking to improve the businesses it does keep, including some that were thought to be assets that would land on the selling block, such as its retail and aircraft tire units.

And while this is going on, Goodyear also will be searching for a new chairman, CEO and president, as Richard Kramer plans to retire from those roles, a process he said will happen sooner rather than later.

Kramer and Christina Zamarro, executive vice president and chief financial officer, provided some insight during a Nov. 15 financial analyst call into how the Strategic and Operational Review Committee decided on which businesses would be sold. They said the group looked at every business in Goodyear before deciding on the three that would undergo a "formal and active strategic review."

"For each business, we challenged ourselves on whether we were the best owner of the business in terms of value creation," Kramer said.

The chemicals business brings in roughly $1 billion in annual revenue, with half of that to internal customers within Goodyear and the rest on the open market. It produces polybutadiene rubber, SSBR, ESBR and IR elastomers, along with dicyclopentadiene, antioxidants and other specialty chemicals.

It includes a research and development facility in Akron, three production plants in Texas and one in Niagara Falls, N.Y. Segment operating income generally is in the high single digits.

"As we thought about chemicals, given our sharpest focus on Goodyear Forward and where we want to direct our investment capital in the future, this business may be more likely to thrive under different ownership," Zamarro said.

Goodyear derives about $700 million in annual sales for the Dunlop brand, selling about 7 million units a year. About 5 million of those are sold in its Europe, Middle East and Africa unit, and another 500,000 in commercial truck, according to the CFO.

"The Dunlop brand is very attractive. It has a great history to it," Kramer said. "And I think for us, its something as we went through our strategic asset review was something that we saw that could create a significant amount of proceeds. And I do think there is interest out there (for the brand)."

As for the OTR business, it also produces about $700 million in revenue a year, SOI margins in the mid-teens and has technology closer to Goodyear's core tire business, Zamarro said. It has standalone facilities in Japan and the U.S.

But its largest competitors in the OTR segment are four to five times the size of Goodyear's business, and the tire maker didn't see an easy way to catch up.

"The amount of capital it would take for us to achieve competitive scale is significant, and that's unlikely to be achievable in this foreseeable future," Zamarro said.

When Elliott Investment Management sent its letter, one of its proposals was that Goodyear sell off its retail store operations.

But after the review committee, which included two independent directors appointed in July, finished its work, the Goodyear stores were off the auction block and back in the tire maker's long-term plans.

Zamarro said it was concluded that the retail business has more value with the company than outside of it.

"Our retail presence reinforces our strong brand and bolsters our leading industry position in the U.S. consumer replacement business, our most profitable," the CFO said.

Goodyear said the retail business is an outlet for its premium Goodyear tires and generates marketing visibility for the brand. It also is positioned for future growth with such opportunities as the demand for the firm's products and services from the largest last mile delivery and automotive fleets in the nation, according to Kramer.

"We are rapidly expanding retail service volume with mega-fleet customers who value our national footprint and consistent service, as well as the confidence that comes with the product standing behind the commitment," Zamarro said.

One analyst also asked the Goodyear executives during a Nov. 15 call detailing the Goodyear Forward plan what the reasoning was behind retaining its aircraft tire business.

Kramer said Goodyear is one of the three leading players in that market, which speaks to the tire maker's technological acumen that is necessary to play in that segment.

"Secondly, it's one of probably the highest margin businesses we have," he said. "And thirdly, it's growing, and we're investing in it. And I think as we look at those, that certainly creates shareholder value as we think about our ownership of that asset."

Zamarro added that aviation tires are manufactured in Goodyear plants that produce other consumer and commercial tires in a completely joint process, making it difficult to separate out the aircraft tire business.

Even before the Goodyear Forward plan was made public, Kramer had told the board of his intention to retire during 2024.

He turned 60 on Oct. 30 and will be closing out a 24-year career with the Akron firm, including 14 as chairman, CEO and president.

Kramer led Goodyear's 2021 acquisition of Cooper Tire & Rubber Co., a $2.15 billion deal that combined the world's Nos. 3 and 13 tire makers. He also played a role in keeping the tire maker in Akron, as the company in 2011 launched a project that led to Goodyear's new global headquarters in the city.

"Goodyear is a true American icon, and it's an incredible privilege to lead this great company," Kramer said on a Nov. 15 analyst call. "I spent my years at Goodyear navigating through numerous defining industry changes.

"... However, I can sincerely say I've never been more excited about Goodyear's future than I am today."

Goodyear's board already has hired an executive search firm to look for candidates, both internal and external. And Kramer will stay in his roles until a successor is found.

"I am fully engaged in driving the successful execution of the plan and, with the support and involvement of the board, will assist with the transition when my successor is identified," he said.