The Goodyear Tire & Rubber Company
Q1 2016 Earnings Call Transcript

Published: 27 Apr 2016

[Operator:]

Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to The Goodyear Tire & Rubber Company First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to hand the program over to Christina Zamarro, Goodyear's Vice President, Investor Relations. Please go ahead.

[Christina Zamarro:]

Thank you, Keith, and thank you everyone for joining us for Goodyear's first quarter 2016 earnings call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Laura Thompson, Executive Vice President and Chief Financial Officer. Before we get started, there are a few items we need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor.goodyear.com. And a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning. If I could now draw your attention to the Safe Harbor statement on Slide two. I would like to remind participants on today's call that our presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Our financial results are presented on a GAAP basis and, in some cases, a non-GAAP basis. The non-GAAP financial measures discussed on our call are reconciled to the U.S. GAAP equivalent as part of the Appendix to the slide presentation. And with that, I will now turn the call over to Rich.

[Rich Kramer:]

Thank you, Christina, and good morning, everyone. I’ll begin today’s call by providing a summary of our first quarter highlights in each of our three regions. Then with an eye on the next stage in our longer-term plan, I’ll share an update to our strategy roadmap which has been the cornerstone of how we operate our business. Laura will follow with a financial review and our 2016 outlook. We delivered strong first quarter performance highlighted by record segment operating income of $419 million, that’s an increase of 14% in our core segment operating income which excludes Venezuela from our 2015 base. On that same basis, our volumes grew 3% in the quarter. Demand for our premium branded high-value added products is robust and our product mix continues to grow richer. Our results are not only consistent with our expectations for the quarter but also with our long-term strategy and reflect the continued strong execution of our teams. As you know, this is our first quarter of results for combined Americas business and I’m extremely pleased with the team’s performance. While we’ll talk in some detail about how the U.S. and certain other countries are performing as part of our quarterly updates, I want to reinforce the long-term benefits we anticipate in managing the business internally as one consolidated unit. After adjusting for the loss of Venezuela’s income, Americas segment operating income grew 15% in the quarter driven by strong demand for our premium branded HVA products. In the U.S. favorable demand is being created by lower fuel prices, higher miles driven and growing consumer OE needs particularly in SUV and light truck. We are growing our OE profitability by winning shipments on many of the most popular vehicles and responding to the increasing complexity of OEM requirements. Our success in OE gives us a favorable position in the subsequent replacement market. Our consumer volumes in the U.S. were essentially flat in the first quarter. Customers want more premium Goodyear branded products and increasing our supply is both our biggest challenge and our greatest opportunity. We’re just about one year away from when we expect our new factory in San Luis Potosi, Mexico to come online and we’re very excited about the opportunity to begin increasing our supply for our most complex tires with this incremental capacity. In the interim, we’re working to maximize our footprint in the Americas to get the tires where they are needed most in the region. Conditions in Brazil remain challenging during the quarter, the ongoing recession and political uncertainty contributed to the overall economic stress in the country. Although our replacement in OE segments both weakened in Brazil, its profit contribution was positive in the first quarter. We feel very good about our ability to drive growth and mix in HVA segments in Brazil and about how we managed our value proposition in this difficult recessionary environment. In summary, we had a very strong first quarter in the Americas and we’re looking forward to opportunities across our markets in 2016 and in the longer-term as well. Our Europe, Middle East, and Africa business delivered 10% growth in segment operating income. We had a good overall performance in a relatively solid industry environment with strong demand for our HVA products from many of our OE and replacement customers. Earlier this month, I spent time with several of our customers in Europe. I came back encouraged by their confidence in Goodyear and their preference for our products. At the same time, they made it clear that they want even more of our HVA products particularly in the performance in SUV categories. The growth in more complex HVA tires is as healthy in Europe as it is here in the U.S. The industry’s evolution to high-value added tires has been accelerated by many European car companies. Their preferences are driving mix up both in OE and replacement across the entire region. While our EMEA business delivered good results in the first quarter, we are continuing to look at our cost structure and working to strengthen and further differentiate our value proposition to our distribution and service network. We see opportunities to grow profitably and remain positive on EMEA’s longer-term potential. Our Asia-Pacific business delivered another strong quarter fueled by robust volume growth in China and India and because of the acquisition of Nippon Goodyear in Japan. Segment operating income grew 18% from last year’s first quarter. I would like to take a minute to touch on our business in China where we had another strong quarter as volume increased more than 20% versus the prior year. Our growth was broad based as OE was up nearly 30% and replacement volume increased nearly 20%. OE continues to benefit from strong car sales growth while replacement was driven by our team’s strong execution of sell-through programs. We remain confident in the long-term market outlook with continued expansion of the middleclass spring growth in Asia-Pacific. We are well-positioned to benefit from this market growth given our award winning product lines and strong position in OE again creating a replacement market pool. Overall, I’m very pleased with our strong first quarter performance. Even though we are running our business to create long-term shareholder value, a strong first quarter provides a good foundation for the remainder of the year. I would like to spend the rest of my time this morning reviewing our updated strategy roadmap. As some of you may recall, we unveiled our original roadmap at the Investor Meeting in March 2011 and since then it has served as our guide to win in a rapidly changing and competitive tire industry. So the original roadmap served us well, we believe that an update was needed to more accurately reflect how we’ll win, how we’ll work, and where we’ll focus in an increasingly complex and competitive market. As I take you through it, there is one important thing to keep in mind, the updated roadmap does not represent a change in strategy, the roadmap is more specific about our goals and expectations and ties our overall strategy to driving performance for our customers and consumers. Starting right at the top, we begin with a clear and direct expression of our goal to deliver sustainable revenue and profit growth over the long-term while increasing the value of our brand. Our emphasis is on the end; our goal is sustainable revenue and profit growth. Top-line growth and margin expansion remain our objective amidst global economic headwinds. When we do both, we increase the value Goodyear creates for all our stakeholders, associates, customers, consumers, suppliers, and of course investors. The body of the roadmap comprises three clearly defined and interdependent elements, how we’ll win, how we’ll work, and where we’ll focus. I’ll briefly touch on all three and as I go through them, you’ll see how all the content is integrated no matter where it appears on the roadmap. First, the how we’ll win section has been distilled to three key elements that you’ve heard us talk about on many of our quarterly calls. Innovation excellence is what we strive for when designing products from the market back. This ensures that we’re creating products and services that respond to the demand of consumers, end users, and our customers. In sales and marketing excellence, we strive to create demand for our brand and for our innovative products driving consumers and end users to our customers. We help them grow their businesses by leveraging the power of our brand and providing industry leading market and sales tools and training. Our insights and research build a value proposition for our customers that goes beyond products alone. The result is that more consumers will ask for Goodyear Tires and our customers will prefer to sell Goodyear Tires. Sales and marketing excellence is about making it easier to do both. The final element in this section is operational excellence. This means efficiently making more of the tires to market demand especially in the phase of increasing complexity. As a result, we’ll be a more reliable supplier by having the right tire at the right time to meet customer and consumer demand. Our operational excellence initiatives around the world are delivering both cost savings and improving efficiency. We certainly had success but we know there is still much more work to be done here. Now it’s important as each of these areas are individually the key concept on this part of the strategy roadmap is winning at the intersection of all three. Our goal is to deliver a value proposition built on innovation, reliability, and quality that wins over price alone by putting our customer at the center of the intersection, and by making this the clear purpose of all our initiatives, we see the opportunity to distinguish ourselves in the rapidly changing tire industry. Moving to the second section of the strategy roadmap, we identified five competencies that define how we’ll work. As you read through the individual items, think of them as behaviors we expect from our associates in order to be successful at the intersection in the how we will section. For example, collaboration and agility are simple words but key competencies mastered only by top-tier companies to help deliver outsized results for customers and for shareholders. The final section of the roadmap is where we’ll focus, these are real world priorities where aim our excellence efforts. Some of these are given quality, consumer experience and customer service have always been priorities and will remain so. Putting them in writing reaffirms our commitment to them. Focusing on high-value segments is something else we’ve talked about frequently. The ability to supply high-value added tires of increasing complexity such as larger room diameters and greater performance specifications is where the growth and profitability are and will increasingly be in the tire industry. That’s why they’re important. The specific segments may differ from region to region but the value proposition is the same. We want to win in the parts of the market where we can capture the full value of our brand, our technology, our distribution, and our products and services. We will not chase volume for volume sake, focusing on high-value segments is critical to creating sustainable value and profit growth. The final priority is mastering complexity. This is a major challenging for every tire company. There is complexity in manufacturing, in OE specs, and supply chain, virtually every step in our end-to-end operations. Complexity in the tire industry is increasing at a pace not seen since the shift to radial tires. It’s being driven by OEMs, by regulators seeking reduced CO2 emission, and by consumers who won’t compromise on performance. It’s affecting tire development, manufacturing, supply chain, consumer experience, and customer service. The complexity of today’s OE tires let alone tomorrow is significantly greater than it was just five years ago. We will embrace this trend by managing the necessary complexity and by eliminating the unneeded complexity in everything we do. There is a lot of detail on the updated strategy roadmap and as I said, this does not reflect a new strategy. Our objective with the updated roadmap was to clarify what’s important to us and create a single page document to reinforce alignment among all our associates throughout the organization. A team that is aligned from top to bottom around a common set of goals as defined in our strategy roadmap is the most important ingredient in our plan for long-term success. Now in closing, I’ll add a final comment, we’ll review with you how our strategy roadmap ties into long-term trends in our industry which we call the megatrends at our Investor Conference in Boston on September 15. Also we will use the conference to discuss our strategic business units and update our long-term performance targets. Further details on the conference will be forthcoming. Now I’ll the turn over to Laura.

[Laura Thompson:]

Thank you, Rich, and good morning everyone. Today, I will cover our first quarter results and provide more detail on key income drivers in the quarter. I’ll also provide an update regarding our full-year outlook for 2016 before we open the call up for your questions. Turning to the income statement on Slide five you will see our results for the first quarter consistent with how we have provided our full-year outlook at our call in February; we have provided callouts that remove the effect of deconsolidating Venezuela in order to provide better transparency to our underlying core business. On that basis, you see we had an outstanding quarter. Volume was up 3%, segment operating income of $419 million was up 14%, and SOI margin of 11.4% increased 2.1 points. Looking at the income statement items as reported for the first quarter, the strengthening of the U.S. dollar against foreign currencies reduced sales by $141 million year-over-year. The sales comparison to prior year was also negatively impacted by the deconsolidation of Venezuela which had $94 million of net sales in the first quarter of 2015. Gross margin improved three full points to 26.8%. Our earnings per share on the diluted basis was $0.68. Our results were influenced by certain significant items and after adjusting for these items, our earnings per share was $0.72, an impressive increase of 33% over first quarter 2015. In addition to our stronger overall segment operating income, interest expense and minority interest were lower by a combined $32 million versus last year primarily driven by refinancing transactions we completed in 2015 and the dissolution of our global alliance with SRI late last year. As you will see on the step chart on Slide six which walks first quarter 2015 segment operating income to first quarter 2016, we have also isolated the effect of deconsolidating Venezuela to provide transparency on the drivers of our core SOI. The benefit of higher volume in the first quarter and higher production levels in the fourth quarter drove an overall improvement of $47 million. Lower raw material costs of $68 million more than offset reduced price mix of $30 million for a net benefit of $38 million during the quarter. Cost saving actions of $47 million driven by our operational excellence initiatives more than offset the $33 million negative impact of inflation. Foreign currency exchange with a headwind of $12 million reflecting the continued strengthening of the U.S. dollar, particularly against the Canadian dollar. Other, a negative of $34 million, includes increased accruals in incentive compensation, higher advertising spend particularly in Asia-Pacific, and a $6 million impact from the divestiture of our North American motorcycle business in October of 2015. Turning to the balance sheet on Slide seven cash and cash equivalents at the end of the quarter were $1.1 billion. Net debt is up versus year-end which reflects the normal working capital seasonality in our business versus the prior-year period; the increase includes the impact of Venezuela’s deconsolidation. Free cash flow from operations is shown on Slide eight. For the quarter we used $585 million of cash, which is in line with the typical first quarter seasonality of our business. Over the last 12 months, our free cash flow performance has been strong at nearly $800 million. Moving now to the business units on Slide nine, I’ll start with our new Americas business unit. The Americas delivered strong segment operating income of $260 million with year-over-year growth of $12 million. Excluding the $22 million impact related to the deconsolidation of Venezuela, SOI increased 15%. Americas margin expanded more than 200 basis points in the quarter primarily driven by positive price mix performance coupled with raw material benefit. We saw very strong mix in the U.S. especially from growth in our OE business. The Americas also benefited from improved factory utilization and our operational excellence initiatives. These benefits were partially offset by the impact of lower volume and unfavorable foreign currency exchange. Our volume in the Americas declined 6% year-over-year. When excluding the impact of both, Venezuela, and the sale of GDTNA from our 2015 base, our unit volumes decreased 2%. This decline was primarily driven by lower unit volume in our consumer business in Brazil, where consumer tire sales were down 16% year-over-year in a continuing recessionary environment. We saw declines in Brazil OE as a result of decreased vehicle production versus last year and a decline in replacement in line with the overall industry. Even so, as Rich mentioned, our HVA product mix is growing and Brazil was profitable in the first quarter despite the very difficult economic environment. This is a testament to the strength of our brand and our team. As Rich mentioned, demand remains strong in the U.S. However in our consumer business, unit volumes were essentially flat as we remain constrained in our ability to satisfy growing market demand for our premium high-value added tires. Our capacity has been impacted by increasing complexity in HVA tires including growth in OE with SUV and light truck fitments that have longer cycle times in our plant. As you are aware, we are making strides to improve our supply within our U.S. and global manufacturing footprint to meet this demand. Separately, I’ll note that first quarter sales in our U.S. commercial business declined almost 15% driven by declines in OE. Overall, we’re very pleased with the strong profit contribution of the Americas in the first quarter as a consolidated unit. We are focused on increasing our supply of high-value added tires to drive profitable long-term volume growth, while maintaining our focus on operational excellence and delivering strong SOI across the region. Turning to Slide 10, Europe, Middle East, and Africa delivered segment operating income of $80 million in the quarter, up 10% driven by the benefit of higher production volumes during the fourth quarter. Volume was up almost 2% compared to last year and was primarily driven by an increase of 5% in consumer OE with strong demand from Goodyear products throughout the region. Consumer replacements summer industry volumes were up 3% during the quarter and in winter tires channel inventories are more normalized following the first quarter sellout. Our commercial truck business also continues to deliver consistent results, growing market share based on the strength of our premium branded products and a relatively stable industry environment. Our EMEA business delivered solid performance in the first quarter of 2016. We are very confident in our team, a product portfolio, and in our ability to grow profitably throughout 2016. Turning to Slide 11, Asia-Pacific delivered first quarter segment operating income of $79 million representing a $12 million increase versus the same period last year. The main driver in income was higher volume, which was partially offset by increased SAG and investments in advertising both related to our recently acquired replacement business in Japan. SOI margin in the region increased to 16.2% from 14.9% a year ago. Asia-Pacific sold 7.3 million tires in the first quarter, representing 28% growth versus last year. Excluding the impact of our acquisition of the replacement tire business in Japan, our volume growth was 11% which was driven by two of our largest and fastest growing markets in China and India. The outstanding first quarter performance of our Asia-Pacific business confirms our confidence and our commitment to targeted growth investments in the region. Turning now to Slide 12, I’ll cover our full-year modeling assumptions for 2016. In summary our full-year outlook remains unchanged from our February call and we continue to target $2.1 billion to $2.2 billion in SOI in 2016. Following increases in underlying raw material costs in February, we now expect raw material cost to be only 2% lower than last year before cost saving actions. In our year-end earnings call in February, we were expecting a 5% decline during 2016. However, we continue to see our full-year price mix versus raw material benefit at around $75 million unchanged from our February outlook. We expect second quarter raw materials to be down 3% and the remaining price mix, net of raw material benefit, to be spread evenly throughout the last three quarters. Our intent is to offset increases in raw materials with price to mix. We could see some volatility related to RMIs in the quarter but as we look at 2016, we still feel very good about the year and the long-term sustainability of our margins. In cost savings versus inflation, we continue to expect a benefit of $135 million for the full year. However I’ll note that we do expect about $35 million in incremental cost in the Americas SOI in the second quarter. This temporary increase in our cost is primarily related to labor and engineering expenses that were incurred toward the end of 2015 and early this year, as we prioritize plant optimization activities and made shift in production to enhance our capabilities to supply more HVA tires. While we do expect some offsets in the quarter across our SBUs, we wanted to highlight this expected increase in the Americas. As a result, we expect our total second quarter cost savings versus inflation to be similar to the first quarter actuals and improving later in the year for full-year savings of $135 million. Regarding foreign currency translation, we are maintaining our full-year impact to segment operating income of approximately $45 million. While current spot rates would imply a more favorable outcome, it’s very early in the year and currencies remain volatile. And as a reminder for the Americas, the divested motorcycle business had its strongest comparable in the second quarter, which corresponds to the seasonality of that business. Additional financial assumptions for 2016 are listed on Slide 13. We have revised our full-year expectation for financing fees to $45 million which is a $15 million lower than our prior forecast. This change is a result of our adoption of new guidance regarding the presentation of debt issuance cost on the income statement, while the offsetting amount is now recorded within interest expense; our interest expense guidance for the full-year remains unchanged at $350 million to $375 million as the increase has been offset by lower interest rate than expected. And finally, we repurchased $50 million in shares during the first quarter; we’ve repurchased $463 million so far under our existing $1.1 billion share repurchase authorization. Consistent with our previous communication, we remain committed to repurchasing additional shares through 2016 and early 2017 with the majority of our plan spend toward the end of the year and aligned with our cash flow generation. Now I will open the line up for your questions.

[Operator:]

[Operator Instructions]. And we’ll go first to Itay Michaeli with Citi. Please go ahead.

[Justin Barell:]

Great, thanks so much. This is actually Justin on for Itay. And so quick question with regards to the $6 million that you took for the motorcycle business this quarter, how should we think about the remaining $24 million throughout the year given the Q2 weighting. Is there a specific cadence that you can help us kind of drilldown for the remainder of the year?

[Laura Thompson:]

Yes, Justin, there is and just it’s actually similar to what we said in February when we gave the guidance and for the full-year, it is $30 million. Yes, we have the $6 million in the first quarter and the second quarter is going to get hit pretty hard as well with really very little than in the third and fourth quarter. I would think of may be close even to $20 million in the second quarter.

[Justin Barell:]

Perfect, excellent. And then I guess can you briefly talk a little bit about pricing trends that you’re noticing in North America and Europe and may be the subsequent migration to HVA as a percent of the unit volume in these regions and how that’s impacting the pricing environment that you’re seeing?

[Rich Kramer:]

Yes, Justin, I’ll jump in for that, I would say the trends that we’re seeing broadly speaking differ from region to region. You almost have to do sort of a tour around the world to really see what’s going on. I will say to your comment on HVA pricing, clearly the part of the market that’s growing where the demand is still outstrips supply as we reviewed many times in the past, I would say a very good demand and supply equation and we are able to certainly capture the value of those products going forward. So as we’ve always said, our high-value segments those targeted market segments, I would say is still very, very robust environment and we’re very pleased with how that’s moving. I think if you look at pricing around the world, again we don’t really comment on pricing specifically, so I won’t do that. But certainly in EMEA it remains a very competitive market there, we’ve seen that in the past and I think we expect that to continue. The industry clearly showing some signs of strengthening particularly in the OE part of the market as we said, and we have many places we do business in Europe, so we manage that value proposition market by market. But we see it as still a very good place for us. The biggest impact that we continue to see is that of the sort of Chinese or Asian tires coming into Eastern Europe and putting pricing pressure on there. In Latin America, we could probably use Brazil as a marker again what we’ve seen there is the impact of the devaluation of the currency against higher raw material prices, so a lot of pressure there. We’ve had already a price increase announced in Q4 2015 and our way to do business there has always been to get the value of our products by recovering the cost of raw materials and dealing with the devaluation impacts there. That’s exactly what we’re continuing to do in that very difficult environment. I will tell you our volumes there as we’ve talked on in the past are increasingly mixing up to HVA tires to sort of 17-inch and above rim diameter tires and that is a part of the market that is still very favorable for us there. And in North America, I would say really pretty stable environment that we’ve seen there not really a whole lot else to talk about there, the higher end of the market is doing very well for us and in Asia-Pacific, what you’re seeing there and continue to see as raw material rises remember that gets through our footprint, our raw material cost quicker because of the cycle time. So again we’ve been very active in the market there recovering those raw material prices as well.

[Laura Thompson:]

And I guess I would add may be another data point especially for the Americas. If you look at revenue per tire in the first quarter and excluding Venezuela right which we deconsolidated at the end of 2015, and excluding I guess as you go, if you look at Americas and granted, it isn’t total for Americas revenue per tire is flat year-over-year really demonstrating that value proposition in the marketplace so.

[Operator:]

And we’ll take our next question from David Tamberrino with Goldman Sachs.

[Rich Kramer:]

Good morning, David.

[David Tamberrino:]

Good morning yes and thank you for taking our questions here. The North America environment remains pretty robust from a demand perspective and the quarter was pretty good albeit some of that’s going to be from import tires coming in and easy comps year-over-year from some of the shipment disruption, but your consumer replacement OE I think together the business was flat in the U.S. against this pretty strong backdrop, you’ve mentioned that you’re still capacity constraint which is probably why we’re still positive price mix at the top-line in the U.S. despite lower raw materials. I guess our question is as you progress through the year, do you see this easing up at all or even against a pretty nice backdrop for volumes in North America given increasing VMTs and a growing vehicle car park whether your consumer business is going to grow or not?

[Rich Kramer:]

And David to be clear, easing up meaning the supply that’s what you’re referring to?

[David Tamberrino:]

Yes it’s less supply constrained in the back half of this year.

[Rich Kramer:]

No, no, no I just wanted to be sure. But listen you I think you’ve actually capitalized it very well, if you look at the market and you look at our overall volume as a company excluding Venezuela, we grew to 3% which is really pretty much in line with what we said strong volumes in Asia and EMEA, when you come back and you look at the Americas and you adjust again for Venezuela and then the GDTNA’s what you see is Brazil was weak spot in the Americas and then you come down to kind of the U.S. if you like, if you want to call that you hit it on the head were about flat. And the way I would frame that up again David you kind of laid it out profitably, if you look at consumer replacement just look at our EMEA numbers, it was up about 6% but as you’ve said very distorted by over 30% increase in sort of non-member Asian imports coming in and that is the long tail whips off terrifying. So you have all the industry being impacted by terrifying really in the first half, the second half of 2014 if you think about this, there is a lot of pre-buy which meant Q1 2015 there wasn’t really any buying going on that buying sort of went back to trend line in Q1 ‘16 this past quarter. So you saw that big increase of over 30%. But if you follow it over the period, it’s about on the normal sort of import purchases that the industries always had, so distorted by quarter not really over the long-term. If you look at members, members are up about 0.6% call it 1% and I think in that environment, what you said we’ve got vehicle miles travels being up about 2%, you’ve got sellout of round about 1% to 2% which for us has always been a good marker of what’s happening in the industry. So good environment, our EMEA members up 0.6% and to your point Goodyear flat. And as you look at us, I would say what we’ve seen is increased demand from our OEM sort of strategy that we’ve laid out over the years with the strong start with the OEM demands, we’re dedicating more capacity to that. In fact demand is up higher than we expected there as well. As we do that as you know those tires are really high specifications, yields are a little bit lower, so that’s having a little bit of an impact on us as well. I would say I’m pleased with that because essentially it says we’re on strategy, we said we wanted to get on the right fitment to bring those fitments through to our dealers as replacement first and second replacements coming through. So the strategy is working exactly as intended, the demand tire therefore we’re having trouble keeping up with those tires and you’re seeing some of that in the replacement markets. But to frame it in the quarter sort of use it as proxy just for a moment, our EMEA members up 0.6%, Goodyear up about flat in replacements, so driven by those things. As we look forward, I think to the question of can we catch up it’s exactly the intent, we’ve got a focused improvement, as Laura mentioned, get more tires out of the factories we have, we have the San Luis Potosi factory coming on in 2016 and we have Imported excuse me 2017 I’m sorry getting ahead of myself. And then we have some of the import tires coming in from some of our factories overseas to try to use that capacity in a period of low demand. So our intent is certainly to get ahead of it. But I would say this notion of being a tire short versus the tire long is helpful to us. I will say we’re executing on plan, we’ve got an excellent environment, we’ve got an excellent demand for our Goodyear Tires, we’re executing on our plan, hey the fact of the matter is it’s what we talk about every day, we need more of the tires that customers want right now and that’s why you hear us talking about it. And the last thing David, I would just say is we always have to keep in mind the tire industry is cyclical, we won’t always be talking about this, but our focus will always be on getting those HVA tires to our customers because even in weaker markets that eventually will come those tires will still outperform the rest of the market. So hopefully that gives you a little bit of perspective.

[David Tamberrino:]

No that’s helpful, I mean it sounds as if there may be towards the back half of the year, you should be seeing some ease of that but really the release now is going to be San Luis Potosi coming online next year.

[Rich Kramer:]

Well we’re going to keep working from today onwards to get more tires out, so that’s our objective and that’s what we’re working towards.

[David Tamberrino:]

That’s fair and then just lastly from me, the Americas segment margin combined looked pretty good year-over-year, I think it was up 120 basis points, I think you commented that you were positive in I guess it would be Latin America ex-Venezuela but that margin was still pretty strong in the first quarter of last year. When you say profitable, how profitable were you in Latin America just -- what I’m trying to get to is what the trajectory of your margin for that legacy North America business look like because the biggest pushback we get here is that the North America segment is at least relative to the rest of its peers at peak margins given the environment that we’re in and may be just if you could give us some of your thoughts on why there is may be a little bit more expansion in the region going forward?

[Laura Thompson:]

Okay. And let me start, maybe I will start with the earlier part of your question on Brazil, so we were profitable in the first quarter as we’ve said we worked hard on cost, good volumes, good product mix, aligned distributions down there, but year-over-year for the first quarter was still down in Brazil and we’re really not expecting that so better than the fourth quarter and the first quarter but again year-over-year Q1 to Q1 was still down, and we frankly, as we look at Brazil, we will continue to take these actions and set ourselves up well for when things do recover. But we’re really not seeing that that in 2016. And then, if you think about okay if that’s Brazil within Americas and you think about the U.S. market for example, as you look then at our guidance, the net price mix versus gross, the cost savings versus inflation, volume so on and so forth, all of that tells you that as we look at the Americas and especially our U.S. business, we see continued improvement as we move through the year. We do not believe we are at peak margins.

[Rich Kramer:]

And I’m just going to jump in, I think if I take a step back and give a view on how we think about the future, its part of the reason that we redid internally our strategy roadmap and frankly shared it with you. As we look to the future, the focus on what’s being demanded from us from the tire industry relative to the OEM requirements, relative to consumer requirements, is frankly only getting more and more difficult and more demanding and we’ve always said we welcome that complexity, it’s actually a good thing for us that part of the market that’s growing both in demand is the toughest part of the market. That’s where we’re headed, that’s where our focus is. And that’s why I think as we look at where our margins will be; we’re not giving a forecast next quarter or three quarters down the road. But as we look down out into the future, I think the opportunities are actually more exciting today than they were let’s say five years ago. And I think that’s true about the auto industry in general in terms of what’s coming and maybe even a simple example you saw some of our domestic OE customers investing in more SUV product. SUV tires and mixing up to SUV tires is really a good business mix for us and so as we look at where the industry is going, I think the mix opportunities still get us very excited and we’d say that I don’t think we look at it and say we’re at peak margins and we’re never going to go from here. I think the opportunities are actually pretty exciting.

[Operator:]

And our next question comes from Ryan Brinkman with JPMorgan.

[Ryan Brinkman:]

Hi good morning. Thanks for taking my questions. First of all --

[Rich Kramer:]

Good morning, Ryan.

[Ryan Brinkman:]

Good morning. I think investors are increasingly trying to gauge the potential impact of any U.S. tariff on Chinese made PVR tires in the broad consensus this would negatively impact Cooper Tire, because many of your tires are made in China but there is more uncertainty out there, what it will mean for Goodyear. So where do you primarily source to PVR tires that you sell in U.S. do you bring them in from China and if you could in the future, could you instead bring them easily from I don’t know Brazil or something, how should we generally think about any possible PVR tires impacting you?

[Rich Kramer:]

So we certainly can’t comment what the impact would be to any competitors. I would say just from a behavior perspective, we see pre-buy ahead when we’ve had the terrorists on passenger tires and you’ve already some have seen some of that pre-buy particularly in the replacement markets for truck tires. So that behavior I think is repeating itself and it’s why you saw the OE side of the OE industry actually have some headwinds in the quarter, where the replacement side was impacted less. That again is some of the pre-buy coming in, in anticipation of what happens. For us most of our truck tires are made right here in the United States. We do import some tires but essentially the bulk of our products are made right here in the U.S. and remember we have very strong products, very strong linkages to the OEMs, when you saw some of the slowdown in the quarter but long-term our technology is valued by the OEMs and is valued by the fleets not only because of the products but because of our entire solution fleet solution model to them as well. So again can’t say how it’s ultimately going to play out. But for us we’ve got a very good I would say an envy of the industry truck business model here and we’re going to continue to execute no matter what happens.

[Ryan Brinkman:]

Okay. That’s great to hear. And then just last question regarding the price mix to raw spread, I’m curious what you’re seeing that allows the full-year outlook to remain plus $75 million year-over-year on Slide 12 and despite you say raw math tracking down may be 2% versus 5% prior, is it that price is longer, is mix longer, are those like spot prices in dollars and Euro was rebounded some versus the dollar? I’m not sure just, what is the initial outlook may be conservative at the then prevailing stock prices or what’s the offset that you’re seeing?

[Rich Kramer:]

So you saw our raw material forecast go from 5% down to 2% so the difference in the benefit that we would get. And I would say as we look at that and then we see less of a benefit, our value proposition as we’ve talked about often really is about getting value for our products in the marketplace through going out and getting rewarded, if you will, for innovation, for technology, for our products, for our brands, for our distribution, for our supply chain, and it’s something that we’ve done very well over time, and even periods of let’s say rising raw material cost, we have a very strong track record of being able to recover our cost in the marketplace because of that. So as we see raw material prices going up which we do, I think today natural rubber as a proxy was like $0.71 a pound, that’s up from $0.59 or $0.60 a pound not too long ago. Our philosophy has always been to recover our costs and get paid for the value proposition in the marketplace, it’s our philosophy, and we execute tactically to go do that and that’s no different when we look at the environment that we’re in right now. And again I would say rather than just saying we’re going to do this, if you look at our track record of offsetting increased raw material cost it is quite substantial we’ve been quite successful at it and we intend to really do it no different at this time. I would tell you though as we’ve spoken in the past in these environments, there can be a lag when we ultimately recover that because of the way the materials flow through our P&Ls goes faster through Asia let’s say than it does in the U.S. But again philosophically our view is that we will cover the value of the value we bring to our customers in the marketplace and it’s no different here as we look at a change in our cost of raw materials.

[Operator:]

And we’ll take our next question from Rod Lache with Deutsche Bank.

[Rich Kramer:]

Good morning, Rod.

[Pat Nolan:]

Good morning, it’s actually Pat Nolan on for Rod.

[Rich Kramer:]

Hey Pat.

[Pat Nolan:]

How are you? Just wanted to just one quick clarification on the price mix versus raw discussion, so when we think about the change of going from the 2% benefit from the 5% benefit and you’ve said pretty clearly that you hope to offset that with improving price mix versus raws, price mix benefit from that. Can you -- and you need a sequential improvement in pricing and mix right, it’s not just a matter of there is less geared back on the OEM business; you actually do need to see an upward movement in pricing and mix from current levels, correct?

[Rich Kramer:]

On mix I think Pat it’s going to vary region by region, country by country. As I mentioned places in Brazil, we’ve announced price increases already that are in place, so that would be an increase year-over-year and other markets it could be simply different how we go about achieving, recovering the raw material prices. I don’t think I can give you -- I don’t think I can give you one answer for that, what I can say is just to reiterate what I said before is that we’ve got a very strong track record of managing price mix versus raw material, that’s through a variety of things getting it back in the marketplace for a value proposition, getting efficiencies through us, through our own internal processes as well and as we’ve done it in the past, our intention is to do that again.

[Pat Nolan:]

Thank you. And on the European business, so replacement on the consumer side was up slightly. Is that a matter the end parts versus the industry is that a matter of just being more disciplined on price because it still remains competitive there or would you expect to be performing in line with the industry going forward?

[Rich Kramer:]

Well you know I think it’s a combination of a lot of things. Again I would go back and say that the European market remains a very, very good market. We do have the sort of the industry headwinds of these low cost Chinese tires remember used to come to the U.S. then they went to Latin America, and now they’re going into Eastern Europe that’s having an impact on the industry there. But really when we look at sort of the mix up that’s going on over there, I’m really very optimistic on where the market is right now. And where it’s going and our opportunities in that market, I would tell you as well as we look at Q1 just to frame it, we do have a seasonal business over there and what we also saw in Q1 as an industry is that winter has stuck around longer which meant the summer change over season didn’t happen until later in the quarter which also had an industry impact in terms of how tires slowed and how tires changed over. So I think as you look at Q1, you got a little bit of seasonal impact in there as well. But long-term in 2016 very good market, our focus is going to remain on driving our mix in both replacement in OE. We are focusing on sort of getting more discipline in our line distribution, improving the alignment between ourselves and the dealers. We continue to introduce industry-leading new products there which will help us. Our focus is growing in those higher parts of the market and really leveraging our Goodyear and Dunlop brands over there and we’re going to continue to drive that and as we’ve mentioned we’ve taken some cost actions on closing some facilities in the UK and Germany. We announced that a while ago, we’re in process of doing that, we’ll see the benefit of that going forward and we’ll continue to focus on getting our costs in line as Europe by definition is a bit of a high cost region.

[Operator:]

And we will take the next question from Emmanuel Rosner with CLSA.

[Rich Kramer:]

Good morning, Emmanuel.

[Emmanuel Rosner:]

Hi good morning everybody. So first question on the volume outlook, so maintaining that at 3% for the full-year obviously you did that in the first quarter, seems like in the first quarter you essentially did it through Asian volume growth, so I just know Americas was essentially flattish as was Europe. Is that way you see it achieving it for the full-year as well or is there any room in the developed markets to get a little more close. And I guess as far as that question, I know you started to import some of your own tires into the U.S. to sort of address this I guess strong demand, lack of capacity. Are you able to import more we see throughout the year some improvement in the -- in sort of like your, your volume I guess in the Americas?

[Rich Kramer:]

Yes I will say in terms of volume growth for the year, we didn’t break it down by region but I would say clearly had growth in Asia by definition and by plan it is a growth region for us and will continue to be more important to us. But we also had growth in certain mature markets as well, EMEA had growth and by definition that is a mature market where we see opportunity and while we don’t break it down for you I can say that by certain segments of our market within North America we had year-over-year growth as well in terms of those high-value segments of the market that we targeted. So we are seeing growth in the places that are very important to us as well. In terms of the impact of imports going forward, I would expect that the amount of imports that we get increases over time and it will help elevate some of the supply problem that we have. I mean that’s kind of what we said in the past and I think that will continue to happen.

[Laura Thompson:]

And then to add on just Emmanuel our normal seasonality right, so Q2 and Q3 are going to be stronger than Q4.

[Emmanuel Rosner:]

Okay. That’s helpful. And then just wanted to turn quickly to your comments around taking cost actions or I guess further cost focus in Europe. Clearly when looking at your margins you felt dramatic improvement but there is still like a pretty decent gap I guess versus some of the other parameters that operate in Europe. What sort of actions that you sort of contemplating and more importantly what sort of timing should we expect to see further benefit to the margin profile from these costs and restructuring?

[Rich Kramer:]

Well again I go back to say some things that we’ve done already you may remember that we closed our Wolverhampton UK mixing and retread facility, we had a reduction of about 400 associates there and I think starting in 2017, we will see about an annual benefit of $30 million for that. So I tell you that just as an indication that we continue to look at our footprint, our efficiencies on how we can make sure that we’re getting our cost in line. We are doing the same thing around our SAG cost and I think it’s something that you will see as continuing to do going forward. We don’t have any other particular announcements to make at this time but Emmanuel what I would say is I agree with you and I think our team agrees with you and one of the focus items of Jean-Claude Kihn who just took over our European business at the beginning of the year is making sure that we have the diligence on cost again on a tactical basis, but then also strategically as we look out to the future to make sure that we’re getting our breakeven point lower and all the things that that would entail both from an operations perspective, from a daily management perspective, and from a structural perspective and that’s what we are going to continue to focus on.

[Operator:]

And ladies and gentlemen, we are at the top of the hour and this will conclude the conference for today. We thank you for your participation. You may now disconnect and have a great day.

[Laura Thompson:]

Thank you.