Core Thesis - Goodyear Tire & Rubber Company (GT) is viewed as a potential turnaround opportunity due to its "Goodyear Forward" transformation plan, with the stock trading at a deeply discounted valuation [2][4] Valuation Metrics - As of September 4th, GT's share price was $8.42, with a trailing P/E ratio of 5.71 and a forward P/E of 4.35, indicating market skepticism primarily due to its debt load [1][2] - The company has a P/B ratio of 0.47, reflecting its undervaluation in the market [2] Debt and Financial Health - Goodyear carries $8.98 billion in debt, resulting in a Debt-to-Equity ratio of 1.70, which poses a significant challenge to its enterprise value despite attractive earnings multiples [2] - The current valuation incorporates considerable downside risk, while also allowing for meaningful upside if the turnaround strategy is successful [4] Transformation Strategy - The company aims to double its segment operating income margin to 10% by 2025 through $1.3 billion in cost reductions and revenue initiatives [3] - In Q1, Goodyear achieved $195 million in savings, but Q2 results showed volatility with EPS missing expectations and net sales declining by 2.2% year-over-year [3] Market Sensitivity - The stock has a beta of 1.37, indicating elevated sensitivity to market fluctuations, which reflects the uncertainty surrounding its transformation efforts [3] Investment Outlook - If management successfully executes the transformation plan, there is potential for significant upside, including a re-rating of both earnings and enterprise value [3][4] - In a worst-case scenario, Goodyear may still serve as a defensive play in a recession-resistant sector, while in the best-case scenario, cost reductions and margin expansion could lead to a sharp recovery [4]

Summary of the Conference Call Industry Overview - **Industry Focus**: Auto Parts and Tires - **Current View**: - Auto Parts: In-Line - Tires: Attractive - **Highlighted Companies**: - Auto Parts: Toyoda Gosei - Tires: Toyo Tire Key Insights on Auto Parts Industry - **Competitive Landscape**: - Increased competition from Chinese firms in advanced fields such as AD/ADAS and BEV electric components [6][6] - **Electrification Trends**: - Growth in HEV parts; demand for ICE parts is being delayed due to changes in US environmental regulations [6][6] - **Supply Chain Strategies**: - Emphasis on collaboration with OEMs to enhance supply chains in response to next-generation technology and tariffs [6][6] - **Company Performance**: - Toyoda Gosei is expanding its 6-airbag systems in India and increasing sales to local OEMs in North America [6][6] - Other companies with positive outlooks include NOK, Nifco, Musashi Seimitsu, and NHK Spring [6][6] - Companies with equal weight (EW) include Stanley Electric, Toyota Boshoku, EXEDY, and Unipres, while underweight (UW) includes Koito, TS Tech, and Tokai Rika FCC [6][6] Key Insights on Tires Industry - **Growth Areas**: - Large-diameter and specialty tires are identified as growth segments, while production capacity for low-inch tires is decreasing [6][6] - **Company Strategies**: - Japanese tire manufacturers are adopting differentiation strategies to leverage their unique strengths, resulting in record-high profits [6][6] - **Shareholder Returns**: - Positive expectations for ROE enhancement at Toyo Tire and Bridgestone [6][6] - **Company Performance**: - Toyo Tire is enhancing its WLTR supply capabilities and stimulating demand for UHP and commercial vehicle tires, with expectations for share buybacks [6][6] - Other companies with positive outlooks include Bridgestone and Yokohama Rubber, while Sumitomo Rubber is rated equal weight [6][6] Financial Ratings and Price Targets - **Overweight (OW)**: - Toyo Tire, Toyoda Gosei, Musashi Seimitsu, NOK, NHK Spring, Nifco, Yokohama Rubber, Bridgestone [14][14] - **Underweight (UW)**: - Koito, Tokai Rika, TS Tech, FCC [14][14] - **Price Targets**: - Toyo Tire: Current Price ¥3,927, Target Price ¥4,800 (22% upside) [14][14] - Bridgestone: Current Price ¥7,010, Target Price ¥7,800 (11% upside) [14][14] - Toyoda Gosei: Current Price ¥3,783, Target Price ¥4,200 (11% upside) [14][14] Additional Insights - **Toyota Suppliers**: - Positive production recovery in Japan and growth in HEV parts [17][17] - **Honda Suppliers**: - Experiencing weak automobile production in China and a slowdown in motorcycle growth [17][17] - **Nissan Suppliers**: - Focus on fixed cost reductions, with independents also diversifying into non-auto businesses [17][17] - **Tires Market**: - Solid replacement demand and ongoing structural reforms are viewed positively [17][17]

Group 1 - The Goodyear Tire & Rubber Company's second quarter results indicate that tariffs have complicated the tire industry, which was expected to be protected [1] - Retailers have stockpiled low-cost tires, leading to a 5% decline in volumes [1] - Operating margins have been affected due to the complexities introduced by tariffs [1]

Core Points - Michelin has completed the divestment of its bias tires and tracks for compact construction equipment activities, following the terms announced on December 6, 2024, and after obtaining necessary approvals for the transaction [1] - The divestment includes two plants in Sri Lanka, the Midigama Tyre Division and Casting Product Division, and the Camso brand, which will be sold after a three-year licensing period [2] - This decision aligns with Michelin's sustainable growth strategy, "Michelin in Motion 2030," focusing on areas where the Group's innovations and technologies are most valued [3] - The divestment and discontinuation of these activities, which represented approximately 3% of the Group's third Reporting Segment (RS3) net sales in 2024, is expected to enhance the financial performance of the Segment [4]

Group 1 - Goodyear has partnered with Ice Cube to promote his "Truth to Power" tour, featuring the Goodyear Blimp at various concert venues across the U.S. [2][3] - The partnership was officially launched at the BIG3 Championship in Orlando, showcasing the blimp as part of the event [1]. - Goodyear is recognized as one of the world's largest tire companies, employing approximately 68,000 people and operating 53 facilities in 20 countries [4]. Group 2 - The collaboration aims to bring Ice Cube's music history and cultural impact to life, particularly referencing his iconic song that mentions the Goodyear Blimp [3]. - Concertgoers in cities like Denver, San Diego, Los Angeles, and Cleveland will have unique experiences involving the Goodyear Blimp during the tour [2]. - Goodyear's Innovation Centers in Akron, Ohio, and Colmar-Berg, Luxembourg, focus on developing advanced products and services for the tire industry [4].

Core Insights - Goodyear Tire & Rubber Company announced the appointment of Jan-Piet van Kesteren as Managing Director EMEA & Chief Sales Officer EMEA Consumer, effective September 1 [1][2] - Van Kesteren will lead the Consumer business across the EMEA region, focusing on sales execution, profitable growth, and alignment with the company's global strategy [3] - His extensive experience includes over 20 years in international commercial leadership, with previous roles at AkzoNobel and Unilever [4] Company Overview - Goodyear is one of the largest tire companies globally, employing approximately 68,000 people and operating 53 manufacturing facilities in 20 countries [5] - The company has two Innovation Centers located in Akron, Ohio, and Colmar-Berg, Luxembourg, dedicated to developing advanced products and services [5]

Government Policy & Geopolitics - Italian government is considering restricting Chinese investors' shareholdings in key companies to avoid potential tensions with the US [1] - The focus is on large entities in strategic sectors like energy, transportation, technology, and finance [1] Company Specifics - Pirelli, a tire manufacturer, is an example, with China's Sinochem International holding 37% of its shares [1] - Italy is evaluating options that could force Sinochem International to sell its shares in Pirelli [1] Investment Landscape - Approximately 700 Italian companies have Chinese investors [1]

Core Insights - Goodyear Tire reported an adjusted loss per share of 17 cents in Q2 2025, missing the Zacks Consensus Estimate of earnings of 37 cents, and down from earnings of 19 cents per share in the same quarter last year [1][8] - The company generated net revenues of $4.47 billion, a decline of 2.2% year-over-year, and below the Zacks Consensus Estimate of $4.53 billion [1][8] Segment Performance - The Americas segment generated revenues of $2.67 billion, down 1.3% year-over-year, with an operating income of $141 million, a decrease of 41.5% from the previous year due to higher raw material costs and inflation [3] - Revenues in the Europe, Middle East and Africa segment were $1.34 billion, up 5.1% year-over-year, but the segment reported an operating loss of $25 million compared to an operating income of $30 million in the prior year, primarily due to increased raw material costs [4] - The Asia Pacific segment saw revenues fall 22.7% year-over-year to $459 million, with an operating profit of $43 million, down 31.8% from the previous year, attributed to the divestiture of the OTR tire business [5] Financial Position - Selling, general & administrative expenses decreased to $692 million from $731 million in the prior year [6] - Cash and cash equivalents were $785 million as of June 30, 2025, down from $810 million at the end of 2024 [6] - Long-term debt and finance leases increased to $6.56 billion as of June 30, 2025, from $6.4 billion at the end of 2024 [6] - Capital expenditure in the first half of 2025 was $466 million, down from $634 million in the same period of 2024 [6] Revised Outlook for 2025 - Goodyear expects capital expenditures to be $900 million, reduced from a previous estimate of $950 million [7] - Interest expense is projected to remain at $450 million, while depreciation and amortization are expected to be approximately $925 million [7]

Financial Data and Key Metrics Changes - Second quarter sales were $4.5 billion, down 2% from last year due to lower volume and the sale of OTR, partly offset by increases in price mix [22][23] - Unit volume declined 5%, reflecting the impacts of global trade disruption on OE production and consumer sell-out trends [22][23] - Gross margin declined by 360 basis points, while SG&A costs were lower by $39 million [22][23] Business Line Data and Key Metrics Changes - The commercial business experienced a significant decline, with OEM replacement demand globally being materially weaker, contributing to about half of the sales miss [22][23] - The Americas unit volume decreased by 2.6%, driven by headwinds in consumer OE and replacement, while commercial OE volume declined by 22% [27][28] - EMEA's unit volume decreased by 2%, with significant weakness in the commercial business, while consumer OE volume grew by 11% [30][31] Market Data and Key Metrics Changes - The consumer replacement market in the U.S. was characterized by increased competition, particularly with low-end imports growing approximately 15% during the quarter [12][27] - Non-member imports in the U.S. increased over 30% in the quarter, while European imports also rose [18][28] - The truck tire market has been running at recessionary levels, with expectations for full-year volume and mix to register below COVID year levels [17][33] Company Strategy and Development Direction - The company is focused on executing the Goodyear Forward strategy, which aims to control costs and improve margins, with benefits already being realized ahead of schedule [6][8] - New product launches are planned, including 11 new products in North America and an extensive winter tire offering in Europe, aimed at gaining share in the premium segment [20][52] - The company is committed to strengthening its balance sheet through divestitures and cost control measures [8][26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the near-term outlook remains turbulent due to global trade disruptions but expressed confidence in regaining momentum as market conditions stabilize [5][19] - The company expects to see benefits from raw material costs beginning in Q4 and anticipates a decline in imports in the U.S. market [9][16] - Management highlighted the importance of adapting to changes in the market, including potential tariffs in Europe and the need to manage distribution effectively [16][19] Other Important Information - The company reported a net income increase to $254 million, driven by a gain on the sale of the Dunlop brand, despite rationalization charges of $59 million impacting results [23][24] - Free cash flow was stable versus last year, with significant proceeds from asset sales contributing positively [26][82] - The company expects to receive gross proceeds of $650 million from the sale of its Chemical business later this year [26] Q&A Session Summary Question: Impact of low-cost imports on key markets - Management clarified that there was a surge in imports across key markets, particularly in the U.S. and Europe, despite tariffs being in place [44][45] Question: Contribution of price versus mix - Management indicated that pricing actions implemented in May are effective, but commercial truck mix has been a significant offset [48][50] Question: Future SOI impact from commercial vehicle headwinds - Management expects continued headwinds from commercial truck mix but anticipates adjustments in production to mitigate impacts [61][62] Question: Mitigation efforts for increasing tariffs - Management confirmed that adjustments to the supply chain are being considered to limit tariff impacts on the P&L [66][67] Question: Disruption from exiting ATD - Management noted that the transition to new distributors has been largely successful, with 95% of the retail base making the switch [74][75] Question: Full-year outlook on SOI and free cash flow - Management provided insights on expected drivers for Q4, including favorable raw materials and Goodyear Forward benefits, but noted uncertainty in volume [80][82]

Financial Performance - Segment Operating Income (SOI) was $159 million[1], impacted by challenging industry dynamics[3] - Net sales reached $4,465 million, a decrease of 2.3% year-over-year (YoY)[11] - The company reported a net loss of $0.17 per share[11] - Free cash flow was negative $387 million, a decrease of 11.8% YoY[11] - Gross margin was 17%, a decrease of 3.6 percentage points YoY[23] Strategic Initiatives - Goodyear Forward initiatives drove benefits of $195 million in Q2 2025[3], with $395 million achieved in the first six months of 2025[15] - The company expects an additional $750 million benefit from Goodyear Forward in 2025[15] - Gross asset sale proceeds to date totaled $1.6 billion, with expectations to exceed $2.0 billion this year[3] Segment Results - Americas segment operating income was $141 million, with a margin of 5.3%[13] - EMEA segment reported a segment operating loss of $25 million, with a margin of -1.9%[13] - Asia Pacific segment operating income was $43 million, with a margin of 9.4%[13] Outlook - The company anticipates global unit volumes to decrease by approximately 5% in Q3 2025[42] - Goodyear Forward is expected to contribute a benefit of approximately $180 million in Q3 2025[42]