The Goodyear Tire & Rubber Company · NASDAQ:GT
The Goodyear Tire & Rubber — Q2 2018 Earnings Presentation
39 slides from The Goodyear Tire & Rubber's earnings presentation, Jul 27, 2018
Slide 1: Second Quarter 2018 Conference Call
GOODFSYEAR. Second Quarter 2018 Conference Call July 27, 2018 4 \
Slide 2: Forward-Looking Statements
Forward-Looking Statements GOODFYEAR Certain information contained in this presentation 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, tha
Slide 3: Second Quarter Highlights
Second Quarter Highlights GOODFYEAR ¢ Global tire unit shipments increased 4%, driven by growth in replacement e U.S. & European 217” consumer replacement volumes significantly outpaced industry growth ¢ TireHub launch on track; transition ahead of plan ¢ Segment operating income (SOI) of $324 milli
Slide 4: Business Operations and Macro Environment
Business Operations and Macro Environment Core Operations Performing Macro Conditions Robust Q2 volume growth and 217” mixin [] - Escalating raw material costs, particularly U.S. and Europe butadiene and carbon black TireHub wholesale shipments ahead of transition plans; no significant impacts in +
Slide 5: New national distributor
New national distributor performing exceptionally well Successfully launched on July 1st Shipments in wholesale channel running ahead of transition plans No significant impact to customer base; strong loyalty to the brand
Slide 6: U.S. Industry Fundamentals: 17"+
U.S. Industry Fundamentals: 217” GOODZYEAR U.S. Consumer Replacement Industry 2018 vs 2017 Growth Rate®) U.S. volume up 2% (8% excluding impact of TireHub transition) USTMA Members (<17”) -10% -13% Goodyear sell-out up 6% in Q2 Total ¢ Back-to-back quarters of mid-single digit year-over-year growth
Slide 7: U.S. Market Share Recovery
U.S. Market Share Recovery GOODFYEA U.S. Consumer Replacement Volume Trailing 4 Quarters Impact of relative pricing in 2017 Q42014 922015 = Q4 2015S Q2 2016 )= 4 2016) Q2 2017) Ss 42017 = Q2. 2018 Industry” =Goodyear” Strong recovery of market share with aligned customers and consumers (a) Source: U
Slide 8: U.S. Consumer Tire Imports
U.S. Consumer Tire Imports GOODFYEAR. Total Imports Qt Q2 O38 24 Qt Q2 Q3 B24 QL Q2 QB A QL Q2 QB Q4 QL Q2 2014 2015 2016 2017 2018 Negligible share change among tire imports over the last 5 years Source: U.S. Tire Manufacturers Association data as a percent of total shipments
Slide 9: EMEA Industry Fundamentals: 17"+
EMEA Industry Fundamentals: 217” GOODJYEAR Europool & Turkey Replacement Industry 2018 vs 2017 Growth Rate®) Consumer replacement volume up over 10% Outstanding performance in = 17” segment, Q2 & YTD ¢ Almost double the industry in both ETRMA Members (<17”) Total Non-Members Total EU + Turkey Summer
Slide 10: Macro Headwinds Impacting 2018 SOI
Macro Headwinds Impacting 2018 SOI Escalating raw material costs ~($130)M (includes transactional component of foreign currency) Strengthening U.S. Dollar ~($60)M (translation) Softening Chinese markets ~($70)M (impacting volume, overhead absorption and mix) Second half impact of $260M, expect to mi
Slide 11: Development of Raw Material Headwinds
Development of Raw Material Headwinds Goodyear P/L Impact of Raws in 2018 * Significant raw material increases miiomnmodityBiibe Stance ~$190M since the end of April WiTransactional FX ¢ Main drivers are oil-based derivatives: * Butadiene * Carbon black ¢ Impact since Q1 * Commodity price ~($65) mil
Slide 12: Currency Charts: USD/TRY, USD/BRL, EUR/USD, USD/CNY
USD / Turkish Lira Jan-18_Feb-18 Mar-18 Apr-18_May-18 Jun-18 _Jul-18 USD / Brazilian Real Jan-18__Feb-18_Mar-18_ Apr-18_ May-18 _Jun-18 _ Jul-18 Euro / USD Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 USD / Chinese Yuan Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
Slide 13: China Near-Term Macro Headwinds
China Near-Term Macro Headwinds China Liquidity Environment ¢ Tightening credit environment impacting consumer OE and replacement demand ¢ Western OEs underperforming * OE auto dealer inventories rose to nearly 2 months e Anticipating transitory cycle similar to 2015 with recent central bank easing
Slide 14: China Long-Term Opportunities
China Long-Term Opportunities GOODJYEAR. 2017 Replacement Tire Market Size Millions of Tires ¢ Substantial replacement growth as car parc matures ¢ Average vehicle age in China 4 yrs vs 12 yrs in U.S. * Growing middle class leading to higher vehicle ownership Goodyear China Retail Network Number of
Slide 15: Fitments for the Future
Fitments for the Future GOODZYEAR. ¢ Driving innovation to support EV needs ¢ Higher load rating for heavier weight ¢ Better grip for higher torque ¢ Lower rolling resistance to improve range ¢ Partnerships help accelerate the development of technology ¢ Mcity ensures we are a driving force in manag
Slide 16: Second Quarter 2018 Income Statement
Second Quarter 2018 Income Statement GOODZYEAR. Terms: US$ millions Three Months Ended (except EPS) June 30, June 30, 2018 2017 _Chanae _ Units 39.0 37.4 4% Net Sales 3,841 3,686 4% Gross Margin 23.2% 24.4% (1.2) pts SAG 588 579 2% Segment Operating Income 324 369 (12)% Segment Operating Margin” 8.4
Slide 17: Second Quarter 2018 Operating Results
Second Quarter 2018 perating Results Terms: US$ millions $35 eal 96). ($43) Ea HN onabsorbec Unabsorbed = a coo $o = Currency Volume Fixed Cost 7 Materais* ——— Cost Savings $29 ($73) $33 Total Volume Impact Net P/M vs Raws Net Cost Savings GOODZYEAR. ($34) | a | Other) (2) Raw material variance of (
Slide 18: Second Quarter 2018 Balance Sheet
Second Quarter 2018 Balance Sheet GOODZYEAR. Terms: US$ millions June 30, March 31, December 31, 2018 2018 2017 Cash and Cash equivalents 975 837 §$ 1,043 Accounts receivable 2,388 2,509 2,025 Inventories 2,941 2,895 2,787 Accounts payable - trade (2,880) (2,850) (2,807) Working capital 2,449 2,554
Slide 19: Second Quarter 2018 Free Cash Flow
Second Quarter 2018 Free Cash Flow GOODZYEAR. Terms: US$ millions Three Months Ended Trailing Twelve June 30, Months Ended 2018 2017 June 30, 2018 Net Income Depreciation and Amortization Change in Working Capital Pension Expense Pension Contributions and Direct Payments Provision for Deferred Incom
Slide 20: Second Quarter 2018 Segment Results: Americas
Second Quarter 2018 - Segment Results Americas Terms: US$ millions Units in millions Second Quarter 2018 2017 Change Units Al7(.ss} algal 1.5% Net Sales $2,018 $2,029 (0.5%) Operating necine $154 $218 (29.4%) Margin 7.6% 10.7% (a) Excludes all national distributors GOODFYEAR. U.S. replacement volume
Slide 21: Second Quarter 2018 Segment Results: EMEA
Second Quarter 2018 - Segment Results GOoDfVEAR Europe, Middle East & Africa Terms: US$ millions Units in millions Second Quarter 2018 20T7 Change * 25% increase in SOI driven by outstanding volume performance Units 14.2 13.0 9.3% ¢ Strong volume growth in both Net Sales $1,260 $1,114 13.1% consumer
Slide 22: Second Quarter 2018 Segment Results: Asia Pacific
Second Quarter 2018 - Segment Results Asia Pacific Terms: US$ millions Units in millions GOODFYEAR. Second Quarter 2018 2017 ¢ Growth slower than expected due to softening market conditions Units 7.5 a3 ¢ Volume growth in OE of 9% partially Resales offset by declines in replacement (3)% Operating In
Slide 23: 2018 Key Segment Operating Income Drivers
2018 Key Segment Operating Income Drivers GOODFYEAR April Outlook Goniient 2018 vs 2017 | 2018 vs 2017 omiments Global Volume ~1.0% - 1.5% Driven by softening market in China Expecting ~($10)M headwind in Q3; versus previous guide, positive price effect of actions taken before 7/27, offset by lower
Slide 24: 2018 Outlook - Other Financial Assumptions
2018 Outlook - Other Financial Assumption urrent 2018 FY Assumpti Interest Expense $325 - $350 million Financing fees: ~$30 million Cdl neslne) Etec Global pension related (excluded from SOI): ~$90 million Expense: 20% - 25% of global pre-tax operating income; Cash"): ~15% of global pre-tax operatin
Slide 25: Our Goal
OURSGOAL G THE VALUE OF OUR BRAND DELIVER SUSTAINABI AND PROFIT GROWTH WHILEINCRI INNOVATION SALES & MARKETING EXCELLENCE EXCELLENCE HOW WE'LL WORK | ACTWITH ponfidencect others tht INTEGRITY y Our Good Na ENERGIZE THE TEAM PROMOTE COLLABORATION OPERATIONAL EXCELLENCE A DELIVER RESULTS Winning at th
Slide 26: Appendix
Appendix avisgaoo?
Slide 27: Raw Material Modeling
Raw Material Modeling Terms: US$ billions ' 2017 Total Consolidated COGS Raw Materials: Tire Raw Tire Other (a) 5 i Materials COGS coGS ~45% of Tire Business COGS ~$4.5 ~$5.4 Raw Materials Purchased in USD: USD-Based Non-USD USD-Based ~$1.8 ~$1.2 ~$0.9 ~60% of Commodities Commodity Price Change’ FX
Slide 28: Currency Modeling
Currency Modeling Terms: US$ millions Rule of Thumb Sensitivity Annual impact of every 0.01 unit change in local currency Change from Spot Rates Headwinds Tailwinds -10% -5% 0% 5% 10% Depreciating Local Appreciating Local Currency Currency USD/BRL ($46) ($23) $o $23 $46 Translation Transaction” USD/
Slide 29: 2018 Raw Materials
2018 Raw Materials GOODSYEAR. Terms: US$ millions Raw Material Cost) 2018 vs 2017 Full Year Est Now expecting raw materials to be up ~ 0 million for the year (a) Impact to cost of goods sold before raw material cost saving measures. Based on raw material input costs holding at July 20, 2018 spot rat
Slide 30: Deliveries
Deliveries for GT Retail, Big Box, National Accounts Sales to G3X) and associate dealers Deliveries for GT (~3M units) Retail, Big Box, National Accounts s \ ! ! ! Sales to G3X and | associate dealers} ! (~2M units) «. ~5M units to <—~ TireHub & regional distributors ~50% G3X
Slide 31: 2018 Full-Year Industry Outlook
2018 Full-Year Industry Outlook (a) For replacement, Western Europe is Europool and Turkey. For OE, Western Europe is total EMEA. =]
Slide 32: Second Quarter 2018 Liquidity Profile
Second Quarter 2018 - Liquidity Profile GOODSYEAR. Terms: US$ billions $3.2() Available Credit Lines Cash & Equivalents June 30, 2018 (a) Total liquidity comprised of $975 million of cash and cash equivalents. as well as $2.248 million of unused availability under various credit agreements.
Slide 33: Second Quarter 2018 Maturity Schedule
Second Quarter 2018 - Maturity Schedule cGoopfYear Terms: US$ millions c- 1_ |! Undrawn Credit Lines | | Funded Debt $587 2018 2019 2020 2021 2022 2023 2 2024 Note: Based on June 30, 2018 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. (a) At June
Slide 34: Use of Historical and Forward-Looking Non-GAAP Financial Measures
Use of Historical and Forward-Looking Non-GAAP Financial Measures This presentation contains historical and forward-looking non-GAAP financial measures, including Total Segment Operating Income and Margin, Free Cash Flow, Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS), which are i
Slide 35: Second Quarter 2018 Significant Items
Second Quarter 2018 Significant Items GoopZVEAR (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Insurance screte Tax on If Disco n Transportation Pension Items a ; Strike Re Cucuaal | As Adjusted Net Sales Cost of Goods Sold Gross Margin SAG Rationalizations Interest Expense Othe
Slide 36: Second Quarter 2017 Significant Items
Second Quarter 2017 Significant Items® coongvear (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Rationalizations, Asset Write-offs, and Debt Accelerated Redemption Net Gains on Discrete Tax Depreciation Charges et Sales Items As Adjusted Net Sales Cost of Goods Sold Gross Margin
Slide 37: Reconciliation for Segment Operating Income/Margin
Reconciliation for Segment Operating io Income/Margin GOODFYEAR. Three Months Ended Terms: US$ millions June 30. 2018 2017" Total Segment Operating Income $ 324. § 369 Rationalizations 2: (27) Interest expense (78) (89) Other expense (45) (16) Asset write-offs and accelerated depreciation (1) (21) C
Slide 38: Reconciliation for Total Debt and Net Debt
Reconciliation for Total Debt and Net Debt coop#vear Terms: US$ millions June 30, March 31, December 31, 2018 2018 2017 Long-Term Debt and Capital Leases 5,726 5,600 5,076 Notes Payable and Overdrafts 335 332 262 Long-Term Debt and Capital Leases Due Within One Year 286 327 391 Total Debt 6,347 6,25
Slide 39: GOODFYEAR
GOODFYEAR
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