First Quarter 2015 Conference Call

Transcription

1 First Quarter 2015 Conference Call April 29, 2015

2 Forward-Looking Statements 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 There are a variety of factors, many of which are beyond our control, that affect our operations, performance, business strategy and results and could cause our actual results and experience to differ materially from the assumptions, expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to: our ability to implement successfully our strategic initiatives; actions and initiatives taken by both current and potential competitors; foreign currency translation and transaction risks; increases in the prices paid for raw materials and energy; a labor strike, work stoppage or other similar event; deteriorating economic conditions or an inability to access capital markets; work stoppages, financial difficulties or supply disruptions at our suppliers or customers; the adequacy of our capital expenditures; our failure to comply with a material covenant in our debt obligations; potential adverse consequences of litigation involving the company; as well as the effects of more general factors such as changes in general market, economic or political conditions or in legislation, regulation or public policy. Additional factors are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. 2

3 Highlights Record first quarter Segment Operating Income of $391 million with 9.7% SOI margin North America sets first quarter earnings record of $198 million, up 27% Global volume growth of 2%; solid growth in three of four business units Strong HVA demand leads to Americas plant location announcement North America ecommerce program successfully launched Company reaffirms 2015 financial targets 3

4 North America Journey Segment Operating Income ($ billions) $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 -$0.2 -$0.4 Q4/09 North America Profitability Terms: Trailing 4 Quarters Q4/10 Q4/11 Q4/12 Q4/13 $1.15B improvement during past 5 years with SOI margin now over 10% for past 4 consecutive quarters Q4/14 Q1/15 Consistent and dramatic performance has turned North America from a turnaround story into a momentum story 4

5 New Americas Consumer Tire Plant terms: Millions of Tires - Replacment & OE - North and Latin America Americas Consumer Tire Industry 53% 58% 62% 65% HVA as % of entire industry 68% 70% 72% Growth Total = +52M (~10M/year, ~2%/year) HVA = +90M (~18M/year, ~6%/year) (a) 74% Low Value Added (LVA) High Value Added (HVA) Goodyear to build previously announced tire plant in San Luis Potosi, Mexico Central location effectively supports strong and growing demand for HVA tires across both North and Latin America Annual capacity at ~6 million tires; first production planned for mid-2017 Total Capex to be $500 to $550 million during , and funded within existing capital allocation plan High return project with IRR of 18%, and generating $100 million of free cash flow per year once fully operational Goodyear building world-class factory to meet growing demand for high-value-added Consumer tires across the Americas (a) Source: LMC International and Goodyear internal analysis 5

6 New Product Highlights North America launches Kelly Edge All Season as a branded line to meet customer needs Latin America launches Goodyear EfficientGrip SUV tire to serve premium SUV customers EMEA launches Goodyear EfficientGrip Performance tire with highest label grade available under EU regulations Asia Pacific launches Goodyear Assurance DuraPlus engineered to go up to 100,000km, providing a long lasting tire New products launched globally to capture consumer demand for high value added tires 6

7 Strategy Roadmap Where We Are Executing Plan Innovation Leader Record Earnings Value Creating Investing for Growth US Pension Fully Funded Key Strategies 1. North America: Grow Profitably 2. Asia: Win in China / Grow Asia 3. EMEA / LA: Return to Historical Profit Industry MegaTrends Key How To s Market-Back Innovation Excellence Sales & Marketing Excellence Operational Excellence Enabling Investments Top Talent / Top Teams Our Destination - Creating Sustainable Value Top Line / Bottom Line Growth First with Customers Innovation Leaders Leader in Targeted Segments Competitively Advantaged Profitable thru Economic Cycle Cash Flow Positive Investment Grade 7

8 First Quarter 2015 Income Statement In millions, except EPS Three Months Ended March 31, March 31, Change Units % Net Sales $ 4,024 $ 4,469 (10)% Gross Margin 23.8% 21.3% 2.5 pts SAG $ 608 $ 667 (9)% Segment Operating Income (a) $ 391 $ 373 5% Segment Operating Margin (a) 9.7% 8.3% 1.4 pts Goodyear Net Income (Loss) $ 224 $ (51) Less: Preferred Stock Dividends $ - $ 7 Goodyear Net Income (Loss) Available to Common Shareholders Goodyear Net Income (Loss) Available to Common Shareholders - Per Share of Common Stock $ 224 $ (58) Basic $ 0.83 $ (0.23) Diluted $ 0.82 $ (0.23) Cash Dividends Declared Per Common Share $ 0.06 $ 0.05 Adjusted Diluted Earnings Per Share (b) $ 0.54 $ 0.56 US Tax Adjusted Diluted Earnings Per Share (b) $ 0.65 $ 0.56 (a) See Segment Operating Income and Margin reconciliation in Appendix on page 23. (b) See Adjusted Diluted Earnings Per Share and US Tax Adjusted Diluted Earnings Per Share reconciliations in Appendix on pages 18 and 19. 8

9 First Quarter 2015 Segment Operating Results ($ in millions) $18 $373 $23 $68 ($62) $46 ($29) ($29) ($40) $41 $391 Volume Unabsorbed Fixed Cost Raw Materials (1) Price/Mix Cost Savings Inflation(2) Currency Other (3) Q ($6) $17 $6 Q Raw material variance of $46 million excludes raw material cost saving measures of $58 million, which is included in Cost Savings above. 2. Estimated impact of inflation (wages, utilities, energy, transportation and other). 3. Amiens savings and certain other non-recurring charges in

10 First Quarter 2015 Balance Sheet $ In millions March 31, December 31, March 31, Cash and cash equivalents $ 1,613 $ 2,161 $ 1,853 Accounts receivable 2,523 2,126 2,913 Inventories 2,538 2,671 3,021 Accounts payable - trade (2,612) (2,878) (3,112) Working capital (a) $ 2,449 $ 1,919 $ 2,822 Total debt (b) $ 6,226 $ 6,394 $ 7,120 Net debt (b) $ 4,613 $ 4,233 $ 5,267 (a) Working capital represents accounts receivable and inventories, less accounts payable trade. (b) See Total Debt and Net Debt reconciliation in Appendix on page

11 Free Cash Flow from Operations $ In millions Three Months Ended March 31, Trailing Twelve Months Ended March 31, 2015 Net Income (Loss) $ 236 $ (38) $ 2,795 Depreciation and Amortization Change in Working Capital (569) (590) 20 Pension Expense Provision for Deferred Income Taxes (a) 91 (21) (1,858) Gain on Recognition of Deferred Royalty Income (b) (155) - (155) Capital Expenditures (204) (229) (898) Other (21) Free Cash Flow from Operations (non-gaap) (c) $ (414) $ (513) $ 1,080 (a) The increase in Provision for Deferred Income Taxes is primarily due to the accrual of US tax expense as a result of the reversal of the valuation allowance on our US deferred tax assets in the fourth quarter (b) Gain on Recognition of Deferred Royalty Income is due to a one-time pre-tax gain of $155 million on the recognition of deferred income resulting from the termination of a licensing agreement associated with the sale of our former Engineered Products business. (c) See Free Cash Flow from Operations reconciliation in Appendix on page

12 First Quarter 2015 Segment Results In millions North America Europe, Middle East and Africa Change Change Units % Units (1.6%) Net Sales $1,858 $1,879 (1.1%) Net Sales $1,331 $1,676 (20.6%) Operating Income $198 $ % Operating Income $73 $110 (33.6%) Margin 10.7% 8.3% Margin 5.5% 6.6% Asia Pacific Latin America Change Change Units % Units % Net Sales $450 $492 (8.5%) Net Sales $385 $422 (8.8%) Operating Income $67 $65 3.1% Operating Income $53 $ % Margin 14.9% 13.2% Margin 13.8% 10.0% 12

13 2015 Key Segment Operating Income Drivers Driver 2015 FY vs 2014 vs Feb Outlook Comments Global Volume +1-2% N/C No change Price/Mix vs. Raw Materials Overhead Absorption Cost Savings vs. Inflation Foreign Exchange Amiens Closure ~$200 million N/C No change Neutral N/C No change ~$160 million N/C No change ~($200) million Based on current spot rates ~$20 million N/C No change Venezuela ~($30) million Assume zero earnings contribution for remainder of year due to deteriorating macro environment; significant uncertainty regarding USD availability and FX rates 13

14 2015 Outlook Other Financial Assumptions 2015 FY Assumption Interest Expense Financing Fees Income Tax Depreciation & Amortization Global Pension Expense Global Pension Cash Contributions Working Capital Capital Expenditures $415 - $440 million ~$80 million Expense: ~30% of global pre-tax operating income Cash: ~15% of global pre-tax operating income ~$725 million $125 - $175 million $50 - $75 million Not a significant source or use ~$1.1 billion Memo 2016: $1.2-$1.3 billion 14

15 Financial Targets Annual 10-15% SOI growth per year through 2016 Annual positive free cash flow from operations Adjusted Debt to EBITDAP (a) ratio of 2.0 to 2.1x by the end of 2016 (a) Total debt plus global pension liability, divided by net income before interest expense, income tax expense, depreciation and amortization expense, net periodic pension cost, rationalization charges and other (income) expense. 15

16 Appendix

17 Price/Mix vs. Raw Materials (a) $ in millions $2,356 $1,822 (c) $689 $549 (b) $1,017 $327 (d) ($321) ($376) ($553) (f) ($29) ($104) (g) ($985) (e) Q1 Price/Mix Raw Materials (a) (b) (c) (d) (e) (f) (g) Reflects impact on Segment Operating Income. Raw materials include the impact of raw material cost savings measures. Raw material variance of $549 million includes raw material cost savings measures of $136 million. Raw material variance of $1,822 million includes raw material cost savings measures of $177 million. Raw material variance of $327 million includes raw material cost savings measures of $249 million. Raw material variance of ($985) million includes raw material cost savings measures of $228 million. Raw material variance of ($553) million includes raw material cost savings measures of $269 million. Raw material variance of ($104) million includes raw material cost savings measures of $58 million. 17

18 First Quarter 2015 Significant Items (After Tax and Minority Interest) $ (except EPS) and shares in millions As Reported Rationalizations, Asset Write-offs, and Accelerated Depreciation Charges Net Income and Other Discrete Tax Items Charges for Labor Claims Related to a Closed Facility in Greece Royalty Income Related to the Termination of a Licensing Agreement As Adjusted Tax Expense in excess of US Cash Tax Payments US Tax Adjusted Diluted Earnings Per Share (a) Net Sales $ 4,024 $ - $ - $ - $ - $ 4,024 $ - $ 4,024 Cost of Goods Sold 3,066 (3) (3) - - 3,060-3,060 Gross Margin SAG Rationalizations 16 (16) Interest Expense Other (Income) Expense (128) - - (4) Pre-tax Income (Loss) (155) Taxes (4) - (56) 64 (29) 35 Minority Interest Goodyear Net Income $ 224 $ 14 $ 5 $ 4 $ (99) $ 148 $ 29 $ 177 EPS $ 0.82 $ 0.05 $ 0.02 $ 0.01 $ (0.36) $ 0.54 $ 0.11 $ 0.65 (a) US Tax Adjusted Diluted Earnings per Share excludes the effect of non-cash US tax expense as a result of the reversal of the valuation allowance on our US deferred tax assets in the fourth quarter The company does not expect to pay significant cash income taxes in the US for about five years. The company believes the presentation of this non-gaap measure is important as it facilitates a consistent comparison of net income and earnings per share versus the prior year. 18

19 First Quarter 2014 Significant Items (After Tax and Minority Interest) $ (except EPS) and shares in millions Rationalizations, Asset Writeoffs, and Accelerated Depreciation Charges for Labor Claims Related to a Closed Facility US Tax Adjusted Diluted Earnings Per As Reported (a) Dilutive Impact of Preferred Shares (b) Net Venezuela Currency Remeasurement Loss Pension Curtailments and Settlements Charges in Greece Net Loss on Asset Sales As Adjusted Tax Expense in excess of US Cash Tax Payments Share Net Sales $ 4,469 $ 4,469 $ - $ - $ - $ - $ - $ 4,469 $ - $ 4,469 Cost of Goods Sold 3,518 3,518 - (38) (1) - - 3,479-3,479 Gross Margin SAG Rationalizations (41) Interest Expense Other Expense (157) - - (7) (2) 2-2 Pre-tax Income (Loss) (30) (30) Taxes Minority Interest Goodyear Net Income (Loss) $ (51) $ (51) $ 132 $ 36 $ 30 $ 7 $ 2 $ 156 $ - $ 156 Preferred Dividends (7) Net Income (Loss) Available to Common Shareholders $ (58) $ (51) $ 132 $ 36 $ 30 $ 7 $ 2 $ 156 $ - $ 156 EPS $ (0.23) $ (0.18) $ 0.47 $ 0.13 $ 0.11 $ 0.02 $ 0.01 $ 0.56 $ - $ 0.56 (a) Weighted average shares outstanding diluted for the three months ended March 31, 2014 excludes the effect of approximately 28 million equivalent shares related to the mandatory convertible preferred stock as their inclusion would have been anti-dilutive. (b) Dilutive impact of preferred shares assumes the conversion of all 10 million shares of mandatory convertible preferred stock as of March 31, The conversion actually occurred on April 1, Also reflects 5 million weighted average shares outstanding for stock options and other securities not included in Diluted EPS-As Reported, as their inclusion was anti-dilutive. 19

20 First Quarter 2015 Liquidity Profile $ In billions Liquidity Profile $3.5 (a) Available Credit Lines $1.9 Cash & Equivalents (b) $1.6 March 31, 2015 (a) Total liquidity comprised of $1,613 million of cash and cash equivalents, as well as $1,888 million of unused availability under various credit agreements. (b) Includes $295 million of cash in Venezuela denominated in bolivares fuertes at 12.0 bolivares fuertes per U.S. dollar at March 31,

21 First Quarter 2015 Maturity Schedule $ In millions $2,000 (b) Undrawn Credit Lines Funded Debt $154 (c) $430 (a) $1,520 $1,266 $900 $700 $194 $ Note: (a) (b) (c) Based on March 31, 2015 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. At March 31, 2015, the total amount outstanding under the European revolving credit facility was $194 million ( 180 million). There were no letters of credit issued at March 31, At March 31, 2015, our borrowing base, and therefore our availability, under the US revolving credit facility was $587 million below the facility s stated amount of $2.0 billion. At March 31, 2015, there were no borrowings outstanding under the first lien revolving credit facility. Letters of credit issued totaled $372 million at March 31, At March 31, 2015, the amounts available and utilized under the Pan-European securitization program of $409 million ( 380 million) totaled $255 million ( 237 million). 21

22 2015 Full-Year Industry Outlook April Full-Year 2015 Guidance February Full-Year 2015 Guidance NA EMEA NA EMEA Consumer Replacement (2)-(3)% ~Flat (2)-(3)% ~Flat Consumer OE +1-2% +1-2% +1-2% +1-2% Commercial Replacement +2-3% +0-1% +0-1% +0-1% Commercial OE +3-4% +1-2% Flat-(1)% ~Flat April full-year guidance unchanged for Consumer Improved Commercial outlook 22

23 Reconciliation for Segment Operating Income / Margin $ In millions Three Months Ended March 31, Total Segment Operating Income $ 391 $ 373 Rationalizations (16) (41) Interest expense (103) (105) Other income (expense) 128 (168) Asset write-offs and accelerated depreciation (3) (1) Corporate incentive compensation plans (13) (27) Corporate pension curtailments/settlements - (33) Intercompany profit elimination (6) (13) Retained expenses of divested operations (2) (4) Other (17) (11) Income (Loss) before Income Taxes $ 359 $ (30) United States and Foreign Tax Expense Less: Minority Shareholders Net Income Goodyear Net Income (Loss) $ 224 $ (51) Sales $4,024 $4,469 Return on Sales 5.6% (1.1)% Total Segment Operating Margin 9.7% 8.3% 23

24 Reconciliation for Total Debt and Net Debt $ In millions March 31, December 31, March 31, Long-Term Debt and Capital Leases $ 5,965 $ 6,216 $ 7,047 Notes Payable and Overdrafts Long-Term Debt and Capital Leases Due Within One Year Total Debt $ 6,226 $ 6,394 $ 7,120 Less: Cash and Cash Equivalents 1,613 2,161 1,853 Net debt $ 4,613 $ 4,233 $ 5,267 24

25 Reconciliation for Free Cash Flow from Operations The amounts below are calculated from the Consolidated Statements of Cash Flows except for pension expense, which is as reported in the pension-related note in the Notes to Consolidated Financial Statements. ($ in millions) March 31, 2015 Dec. 31, 2014 Three Months Ended Sept. 30, June 30, March 31, 2014 Trailing Twelve Months Ended March 31, 2015 Net Income (Loss) $ 236 $ 2,128 $ 199 $ 232 $ (38) $ 2,795 Depreciation and Amortization Change in Working Capital (a) (569) 969 (362) (18) (590) 20 Pension Expense (b) Provision for Deferred Income Taxes 91 (2,031) (21) (1,858) Gain on Recognition of Deferred Royalty Income (155) (155) Capital Expenditures (204) (289) (193) (212) (229) (898) Other (c) (21) Free Cash Flow from Operations (non-gaap) $ (414) $ 1,093 $ 87 $ 314 $ (513) $ 1,080 Capital Expenditures Pension Contributions and Direct Payments (26) (46) (35) (34) (1,223) (141) Rationalization Payments (26) (57) (50) (83) (36) (216) Cash Flow from Operating Activities (GAAP) $ (262) $ 1,279 $ 195 $ 409 $ (1,543) $ 1,621 a) Working capital represents total changes in accounts receivable, inventories and accounts payable trade. b) Pension expense is the net periodic pension cost before curtailments, settlements and termination benefits as reported in the pension-related note in the Notes to Consolidated Financial Statements. c) Other includes amortization and write-off of debt issuance costs, net pension curtailments and settlements, net rationalization charges, net (gains) losses on asset sales, net Venezuela currency loss, compensation and benefits less pension expense, other current liabilities, and other assets and liabilities. 25

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