The Goodyear Tire & Rubber Company · NASDAQ:GT
The Goodyear Tire & Rubber — Q4 2018 Earnings Presentation
44 slides from The Goodyear Tire & Rubber's earnings presentation, Feb 8, 2019
Slide 1: Fourth Quarter 2018 Conference Call
GOODSYEAR Fourth Quarter 2018 Conference Call February 8, 2019 4 i
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: Our Goal
OURSGOAL WTH WHILE INCRI DELIVER SUSTAINABI UEAND PROFIT GRO} G THE VALUE OF OUR BRAND INNOVATION SALES & MARKETING EXCELLENCE EXCELLENCE | HOW WE'LL WORK | ACTWITH = E ( ce of others thr INTEGRITY y Our Good Na ENERGIZE THE TEAM PROMOTE COLLABORATION i Cc OPERATIONAL EXCELLENCE BE AGILE Embra DELIV
Slide 4: Reflecting on 2018 Results
Reflecting on 2018 Results GOODFYEAR. Positives Negatives Volume recovery in mature markets Escalating raw material costs, particularly Outperformed industry in 217” in U.S. and butadiene and carbon black Europe Non-feedstock raw material cost headwinds from stricter enforcement of Commercial truck
Slide 5: Industry Fundamentals: 17"+ 2018 Results
Industry Fundamentals: 217” 2018 Results GOODFYEAR U.S. Consumer Replacement Industry Europool & Turkey Replacement Industry 2018 vs. 2017 Growth Rate®) 2018 vs. 2017 Growth Rate) USTMA Members (<17”) Total ETRMA Members (<17”) -2% Total Non-Members Non-Members Total U.S. Total EU + Turkey (a) Sourc
Slide 6: U.S. Market Share Recovery
U.S. Market Share Recovery GOODSYEAR U.S. Consumer Replacement Volume Trailing 4 Quarters Impact of relative pricing in 2017 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Industry ° =Goodyear” Strong execution drove market share recovery in the U.S.
Slide 7: Moving Closer to the Customer in 2018
Moving Closer to the Customer in 2018 GOODFYEAR TireHub Si eee a J znvocesrone J Firestone 3 Roll e New national distributor launched in 2018 e New tire installation option launched e New retail pilot launched in 2018 « Designed to deliver best-in-class service in 2018 Reduces complexity in the tire
Slide 8: Strengthening the Business for the Future
Strengthening the Business for the Future GOODFYEAR. e Advancing distribution and retail - Leverage TireHub to fully capture the value of the Goodyear brand - Enhance distributor alignment in key markets outside of the U.S. - Challenging traditional retail tire business with innovative new concepts
Slide 9: Enriching the Product Portfolio
Enriching the Product Portfolio GOODSYEAR WINTERCOMMAND | EAGLE EXHILARATE FORTITUDE HT ENDURANCE LHS SRST SSR ———— _——— Three-peak mountain snowflake Ultra-high-performance tire Rugged tire delivering strong Premi ter ti hievi designation offering enhanced delivering superior wet performance for th
Slide 10: Financial Review
Financial Review avisgaooD
Slide 11: Q4 2018 Results
Q4 2018 Results GOODFZYEAR. ¢ Volume declined 3%, versus prior forecast of ~flat... - OE environment continued to weaken in China and India - EMEA winter market declined late in the quarter (still up year-over-year) - U.S. supply issues constrained volume of high-value-added consumer and commercial
Slide 12: Fourth Quarter 2018 Income Statement
Fourth Quarter 2018 Income Statemen GOODZYEAR. Terms: US$ millions (except EPS) Three Months Ended December 31, December 31, 2018 2017 Change Units 40.7 42.0 (3)% Net Sales 3,876 4,071 (5)% Gross Margin 22.4% 24.3% (1.9) pts SAG 580 579 0% Segment Operating Income” 307 430 (29)% Segment Operating Ma
Slide 13: Segment Operating Income Variance Drivers
($27) Volume Unabsorbed Fixed Cost ($128) $80 ($46) —.. Price/Mix winhaa Savings ($3) Total Volume Impact Y ($93) Net P/M vs Raws $34 Net Cost Savings Currency a os inflation) <i ($37) Other'*) Lower than expected earnings from third-party chemical sales
Slide 14: Balance Sheet Summary
Terms: US$ millions Cash and Cash equivalents Accounts receivable Inventories Accounts payable - trade Working capital Total debt” Net debt” Memo: Net Global Unfunded Pension Liability December 31, September 30, 2018 2018 December 31, 2017 $ 801 $ 896 2,030 2,670 2,856 2,938 (2,920) (2,819) 1,043 2,
Slide 15: Fourth Quarter 2018 Free Cash Flow
Fourth Quarter 2018 Free Cash Flow GOODFYEAR Terms: US$ millions Three Months Ended Trailing Twelve December 31, Months Ended 2018 2017 December 31, 2018 $ 708 778 (120) 110 (74) 131 Includes impact of Net Income Depreciation and Amortization Change in Working Capital Pension Expense Pension Contrib
Slide 16: Fourth Quarter 2018 - Segment Results: Americas
Fourth Quarter 2018 - Segment Results Americas Terms: US$ millions Units in millions Fourth Quarter 2018 2017 Change Units 1914 19.5 Net Sales $2,114 $2,184 Operating ean $179 $217 Margin 8.5% 9.9% (2.0%) (3.2%) (17.5%) GOODFYEAR. Stable U.S. consumer replacement volume following 8% increase in year
Slide 17: Fourth Quarter 2018 - Segment Results: EMEA
Fourth Quarter 2018 - Segment Results Europe, Middle East & Africa GOODFYEAR. Terms: US$ millions Units in millions Fourth Quarter 2018 2017 Change * Volume flat with growth in consumer replacement and commercial, offset by weakness in consumer OE Units 1357 we - Net Sales $1,210 $1,264 (4.3%) ¢ SOI
Slide 18: Fourth Quarter 2018 - Segment Results: Asia Pacific
Fourth Quarter 2018 - Segment Results Asia Pacific Terms: US$ millions Units in millions GOODFYEAR. Fourth Quarter 2018 2017 Change ¢ Consumer replacement volume up 5% outside China, driven by double-digit growth in India Units 7.9 8.8 (10.2%) ¢ Lower overall volume driven by continued weakness in C
Slide 19: 2019 Segment Operating Income Outlook
2019 Segment Operating Income Outlook Positives Negatives — Raw Materials - Cost increases will + New Americas Plant - At full capacity continue at least into 04 by year end (High-value/low-cost capacity) : — FX - Continued negative impact at + TireHub - Reversal of 2018 volume loss current spot rat
Slide 20: 2019 Segment Outlook by Region
tar D Ln ane Tealeann Americas EMEA Asia Pacific ai (-) Price/Mix < Raw Materials (-) Price/Mix < Raw Materials (-) Price/Mix < Raw Materials | (-) Foreign Exchange (-) Foreign Exchange (-) China Volume (+) Overhead Absorption (-) Higher Inflation (-) Overhead Absorption (+) Overhead Absorption
Slide 21: Raw Material Costs
Raw Material Costs®) $300 qi Q2 Q3 a4 qi Q2 Q3 a4 Qi Full Year = $725 \ Full Year = $266 Y Y 2017 2018
Slide 22: Raw Materials
Raw Materials v Raw materials are ~45% of tire COGS v¥ ~70% of raw materials are influenced by oil prices - P&L impact lags spot rates by 1-2 quarters depending on commodity v¥ ~60% of raw materials are purchased in USD Y Customer agreements indexed to raw materials - OE customers - Certain large co
Slide 23: Industry Volume Outlook by Region
Americas 45% 55% +5% YOY +5% YOY 30% +5% YOY Asia Pacific Total Company
Slide 24: 2019 Full-Year Industry Outlook
2019 Full-Year Industry Outlook af r 201 Guidance — Western Europe (2) For replacement, Western Europe is Europol and Turkey. for OE. Western Europe is total EMEA ~(2) - 3%
Slide 25: Modeling Assumptions
Modeling Assumptions Volume Senstivities (Impact on Goodyear's Annual Units in 000s) * 1% Ain U.S. Consumer OE Industry * 1% Ain U.S. Consumer Replacement Industry * 1% Ain U.S. Commercial OE Industry * 1% A in U.S. Commercial Replacement Industry * 1% A in European Consumer OE Industry * 1% A in Eu
Slide 26: 2019 Outlook - Other Financial Assumptions
2019 Outlook - Other Financial Assumption urrent 2019 FY Assumpti Interest Expense $325 - $350 million Financing fees: ~$40 million Cone pcome) Expense Global pension related (excluded from SOl)): $95 - $120 million Expense: ~25% of global pre-tax operating income; Cash: ~20% - 25% of global pre-tax
Slide 27: Looking Beyond the Cyclicality
Looking Beyond the Cyclicality® $ in Billions Current Raw Mat Cycle 2014 - 2016 2017 - 2018 * Average SOI $0.6 |}° Average SOI $1.9 + Average SOI $1.4 * Average SOI margin 3% |j* Average SOI margin 12% j}- Average SOI margin 9% ¢ Average Adj EBITDA $1.1 |}* Average Adj EBITDA $2.3 |}. Average Adj EB
Slide 28: Appendix
Appendix avisgaooD
Slide 29: Foundation
Foundation Industry Leader® Largest tire company in North America $15.5B in revenue 159M units 47 manufacturing facilities in 21 countries 64K employees worldwide Innovation®) 2 world-class innovation centers Innovation lab in Silicon Valley 7 tire proving grounds 5,200 patents 1,600 patents pending
Slide 30: Strategy Delivering Strong Results
Strategy Delivering Strong Results Segment Operating Income!) (in billions) 2011 +2012 2013 2014 2015 2016 2017 2018 2003 2004 2005 2006 2007 2008 2009 2010 m Americas mm EMEA om Asia Pacific ~—-SOl Margin Generating stronger earnings throughout the earnings cycle (a) See Segment Operating Income an
Slide 31: Price vs Raws Over Time
Price vs Raws Over Time: Comparing Current Cycle to Prior Cycle GOODFYEAR Price vs Raw Materials‘) from price in 2011 Full recovery by 2013 2010-2012 Cycle 2H'18 Announced Pricing Current * U.S. Consumer Raw materials + US. Commercial flattened out Cycle + EMEA Commercial + Emerging Markets a c 2 a
Slide 32: Learnings from Previous U.S. Cycles
Learnings from Previous U.S. Cycles Early 2000s Recession” Great Recession” Typical Expansionary Year” * OE -11% * OE -26% ¢ OE 3% ¢ Replacement -3% * Replacement -3% ¢ Replacement 2% * Total Consumer -5% * Total Consumer -8% * Total Consumer 2% (a) Change in USTMA shipments in 2004 (% change in uni
Slide 33: Price vs Raw Materials During the Great Recession
Price vs Raw Materials During the Great Recession GOOD#YEAR. Price and Raw Materials‘) Net Price vs Raw Materials) $354 im my a a 2 2 ES = le # H g a a E — = A @ 7] ic] S 2 = $(200) ($200) ($162) m@ Raw Materials Price $1400) [a ($400) 2009 2009 Pricing relative to raws resilient in economic downtur
Slide 34: Structural Cost Improvements
Structural Cost Improvements Restructuring Pension Actions Cumulative Impact * 2010 - 2018 savings of over $450M * High cost plant closures since 2010 * Closed, fully funded and de-risked U.S.|§}_ from footprint & pension actions > Union City - 2014 pension plans in 2013 & 2014 > Amiens - 2014 paiol
Slide 35: Fourth Quarter 2018 - Liquidity Profile
Fourth Quarter 2018 - Liquidity Profile Terms: US$ billions $4.0 Available Credit Lines BE Cash & Equivalents 1G December 31, 2018 GOODZYEAR.
Slide 36: Fourth Quarter 2018 - Maturity Schedule
Fourth Quarter 2018 - Maturity Schedule cGoop#Year Terms: US$ millions 1_1 Undrawn Credit Lines I Funded Debt $2,000) $31 2019 2020 2021 2022 2023 2024 22025
Slide 37: Pension Contributions and Expense
$89 $90 $74 $25-$50 $25-$50 2016 2017 2019E 2020E $25-$50 $125-$150 $125-$150 $125 -$150 $550 Fr E y $525 $110 $ss = - = $71 | = = = [ i 2016 2018-20 2020E 2021 2016 2017 2018 2019E = 2020E-= 2021 . . s aus Non-US Plan:
Slide 38: Use of Historical and Forward-Looking Non-GAAP Financial Measures
Use of Historical and Forward-Looking Non-GAAP Financial Measures This presentation contains historical and forward-looking non-GAAP financial measures, including Total Segment Operating Income and Margin, Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and Adjusted Diluted Earnings Per Share (
Slide 39: Reconciliation for Segment Operating Income/Margin
Reconciliation for Segment Operating - Income/Margin®) GOODy YEAR. Terms: US$ millions ‘Three Months Ended ‘Twelve Months Ended December 31, December 31, 2018 2017 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007, 2006 2005 2004 2003 Total Segment Operating Income $ ws 430 $ 1,274 $ 1,556
Slide 40: Fourth Quarter 2018 Significant Items
Fourth Quarter 2018 Significant Items GOODJVEAR. (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Rationalizations, Indirect Tax Asset Write-offs, f Settlements and Pension and Accelerated iscrete Tax Settlements Depreciation Items As Adjusted Net Sales Cost of Goods Sold Gross Ma
Slide 41: Fourth Quarter 2017 Significant Items
Fourth Quarter 2017 Significant Items®) GoopsVEAR (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Rationalizations, Asset Write-offs, on and Aci rated Settlements Depreciation Net Sales Cost of Goods Sold Gross Margin SAG Rationalizations Interest Expense Other (Income) Expense P
Slide 42: Reconciliation for Adjusted EBITDA
Reconciliation for Adjusted EBITDA GOODFZYEAR. ($ in millions) Year Ended December 31, 2018 2017 2016 2015") 2014') 2009!) 2008") Goodyear Net Income (Loss) $693 $ 346 §$ 1,264 $307 $2,452 ($375) ($77) Interest Expense 321 335 372 438 444 311 320 Income Tax Expense (Benefit) 303 513 (77) 232 (1,834)
Slide 43: Reconciliation for Total Debt and Net Debt
Reconciliation for Total Debt and Net Debt cGoop#vear Terms: US$ millions December 31, September 30, December 31, 2018 2018 2017 Long-Term Debt and Capital Leases 5,110 5,604 5,076 Notes Payable and Overdrafts 410 445 262 Long-Term Debt and Capital Leases Due Within One Year 243 471 391 Total Debt 5
Slide 44: GOODFYEAR.
GOODFYEAR.
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