The Goodyear Tire & Rubber Company · NASDAQ:GT
The Goodyear Tire & Rubber — Q4 2016 Earnings Presentation
48 slides from The Goodyear Tire & Rubber's earnings presentation, Feb 8, 2017
Slide 1: Fourth Quarter 2016 Conference Call
Fourth Quarter 2016 Conference Call February 8, 2017
Slide 2: Forward-Looking Statements
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 1995. There are a variety of factors, many of which are beyond our control, that affect o
Slide 3: Highlights
Highlights • 2016 segment operating income (SOI) within range of $2,000 to $2,025 million guidance (a) • Full year adjusted earnings per share of $4.00 (b), up 20% • Americas full-year earnings of $1,151 million, 14.1% operating margin • Europe, Middle East and Africa full-year earnings of $461 mill
Slide 4: Our Journey
Our Journey (a) (c) Segment Operating Income Full Year Operating EPS Terms: US$ billions Our Progress Terms: Earnings Per Share Reduced structural cost $4.00 $4.00 $2.0 $2.0 • Pension and $1.9 $3.32 footprint $1.7 $1.6 Reduced operating cost $2.83 $2.63 $1.4 $1.2 • Net cost savings Profitable gro
Slide 5: Income Statement
Fourth Quarter 2016 Income Statement Terms: US$ millions Three Months Ended (except EPS) December 31, December 31, 2016 2015 Change Units 41.1 42.1 (2)% Net Sales $ 3,741 $ 4,063 (8)% Gross Margin 27.2% 24.4% 2.8 pts SAG $ 600 $ 725 (17)% (a) Segment Operating Income $ 479 $ 480 (0)% (a) +5% Segment
Slide 6: Segment Operating Results
Fourth Quarter 2016 Segment Operating Results Terms: US$ millions +5% $480 ($22) $120 ($37) $35 $479 $458 ($19) ($3) ($27) $18 ($66) Venezuela $563 Q4 Q4 Volume Inflation(c) Currency Other(d) Q4 2016 2015 Unabsorbed Raw 2015 SOI Total Fixed Cost Materials(b) Core Price/Mix Cost SOI SOI(a) Savings ($
Slide 7: Balance Sheet
Fourth Quarter 2016 Balance Sheet Terms: US$ millions December 31, September 30, December 31, 2016 2016 2015 Cash and Cash equivalents $ 1,132 $ 975 $ 1,476 Accounts receivable 1,769 2,649 2,033 Inventories 2,627 2,754 2,464 Accounts payable - trade (2,589) (2,600) (2,769) (a) Working capital $ 1,80
Slide 8: Free Cash Flow from Operations
Fourth Quarter 2016 Free Cash Flow from Operations Terms: US$ millions Three Months Ended Trailing Twelve December 31, Months Ended 2016 2015 December 31, 2016 Net Income (Loss) $ 567 $ (373) $ 1,284 Depreciation and Amortization 191 176 727 Change in Working Capital 833 666 (117) Pension Expense 17
Slide 9: Americas
Fourth Quarter 2016 - Segment Results Americas Terms: US$ millions Units in millions Fourth Quarter • Operating income growth of 2016 2015 Change $33 million excluding Venezuela Units 18.7 19.6 (4.6%) • Strong performance in consumer offsetting weakness in U.S. commercial truck Net Sales $2,061 $2,3
Slide 10: Europe, Middle East & Africa
Fourth Quarter 2016 - Segment Results Europe, Middle East & Africa Terms: US$ millions Units in millions Fourth Quarter • Continued growth in >17” 2016 2015 Change • Lower OE volume, driven by OE Units 14.1 14.2 (0.7%) selectivity and focus on >17” • Consumer replacement up 1%; Net Sales $1,132 $1,1
Slide 11: Asia Pacific
Fourth Quarter 2016 - Segment Results Asia Pacific Terms: US$ millions Units in millions Fourth Quarter • Record fourth quarter and full 2016 2015 Change year operating income Units 8.4 8.3 1.2% • Strength in China driving volume growth; fourth quarter consumer Net Sales $548 $559 (2.0%) replacement
Slide 12: 2017 Select >17" OE Fitment Wins
2017 Select >17” OE Fitment Wins Americas EMEA Asia Pacific Cadillac CT6 BMW 5-Series Audi A4 Image Credit: Cadillac Image Credit: Cadillac Image Credit Nissan Image Credit BMW Image Credit: Audi Ford Super Duty Jaguar F-Pace Honda CRV Image Credit Ford Image Credit Jaguar Image Credit: Honda 12
Slide 13: Raw Materials
Raw Materials 2016 Raw Material Costs Raw Material Cost Increase Non-Commodity 2017 vs 2016 Supplier costs ~$1.1B Terms: $ millions +27% Non- Examples: Supplier conversion costs, ~$0.8B Commodity margins, +20% transportation, $1.2B packaging ~$0.4B +10% Commodity $2.7B Commodity Input costs where No
Slide 14: Price vs. Raws History
Price vs. Raws History Note: This is price only; excludes the benefits of mix Note: This is price only; excludes the benefits of mix Q1 Q4 Q1 Q4 2010 2016 2010 2016 Absolute margin dollars have been protected during periods of rising & falling raw material costs (a) Raw Materials are changes versus
Slide 15: U.S. Industry Fundamentals: >17"
U.S. Industry Fundamentals: >17” U.S. Consumer Replacement Industry 2016 vs 2015 Growth Rate(a) Q4 FY RMA Members (>17”) 9% 9% • Non-members’ growth driven by weak comparable in 2015 RMA Members (<17”) -8% -11% Total 0% -1% • Focus remains on growth in >17” Non-Members 25% 18% • Strong fundamentals
Slide 16: EMEA Industry Fundamentals: >17"
EMEA Industry Fundamentals: >17” Europool & Turkey Replacement Industry 2016 vs 2015 Growth Rate(a) Q4 FY ETRMA Members (>17”) 11% 10% • Continued growth in >17” segment ETRMA Members (<17”) -1% -4% • Goodyear winter volume nearly Total 5% 2% double the market in >17” for Q4, FY Non-Members 3% 3% •
Slide 17: 2020 Segment Operating Income Target
2020 Segment Operating Income Target (a) Terms: US$ millions Positive SOI Drivers 2020 SOI Target 2018 vs 2017 Potential Impact ~$3,000 • Catch-up on 2017 OE RMI pricing ~$100 • EMEA cost programs $50 - $60 • U.S. Commercial recovery $25 - $35 • Net cost savings $100 - $150 ~$2,000 • >17” volume/mix
Slide 18: 2017 SOI Cadence
2017 SOI Cadence 1 Half 2017 vs 2016 st 2 Half 2017 vs 2016 nd ~ -10% ~ +10% -- Volume (driven by EMEA) + Volume -- Unabsorbed Overhead + Unabsorbed Overhead -- Unfavorable Price/Mix vs Raws (Timing) + Favorable Price/Mix vs Raws -- Unfavorable Foreign Exchange -- Unfavorable Foreign Exchange + Cost
Slide 19: 2017 Key Segment Operating Income Drivers
2017 Key Segment Operating Income Drivers (a) Current Outlook Driver Comments 2017 vs 2016 Global Volume ~1% Growth in >17” partially offset by declines in <17” Net Price/Mix vs Raw Raw material costs up ~$1.1 billion (+27%) at ~Flat Materials current spot rates; price/mix to offset Overhead Absorpt
Slide 20: 2017 Outlook – Other Financial Assumptions
2017 Outlook – Other Financial Assumptions 2017 FY Assumption Interest Expense $340 - $365 million Financing Fees ~$35 million Expense: ~30% of global pre-tax operating income; Income Tax Cash: ~15% of global pre-tax operating income Depreciation & Amortization ~$750 million Global Pension Expense $
Slide 21: Sources / Use of Cash – Cumulative 2017-2020
Capital Allocation Plan Sources / Use of Cash – Cumulative 2017-2020 Increase to share repurchase authorization of $1.0 billion (a) $1.0 billion in additional share repurchase authorizations approve by the Board of Directors on February 2, 2017. Remaining authorization for share repurchases is $1.2
Slide 22: Our Goal
OURSGOAL DELIVER SUSTAINABLEREVEN AND PROFIT GROWTH WHILE INCREASING THE VALUE OF OUR BRAND. HOW WE'LL WIN HOW WE'LL WORK INNOVATION SALES & MARKETING EXCELLENCE EXCELLENCE ft, OPERATIONAL EXCELLENCE ACTWITH INTEGRITY ENERGIZE THE TEAM PROMOTE COLLABORATION BE AGILE DELIVER RESULTS Winning at the in
Slide 23: Appendix
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Slide 24: Fourth Quarter 2016 – Liquidity Profile
Fourth Quarter 2016 – Liquidity Profile Terms: US$ billions $4.1(a) Available Credit Lines $3.0 Cash & $1.1 Equivalents December 31, 2016 (a) Total liquidity comprised of $1,132 million of cash and cash equivalents, as well as $2,970 million of unused availability under various credit agreements. 24
Slide 25: Fourth Quarter 2016 – Maturity Schedule
Fourth Quarter 2016 – Maturity Schedule Terms: US$ millions Undrawn Credit Lines Funded Debt $1,915 (c) $1,264 $1,050 $579 (b) $139 (a) $700 $597 $85 $273 2017 2018 2019 2020 2021 2022 2023 ≥ 2024 Note: Based on December 31, 2016 balance sheet values and excludes notes payable, capital leases and ot
Slide 26: Pension Update
Pension Update Terms: US$ millions Total Global Cash Flow Impact (a) (c) Global Unfunded Obligations (c) Global Pension Expense (b) (c) $1,338 $714 $642 $669 $625 $575 $525 $158 $135 $103 $89 $71 $75 -$100 $75 -$100 $75 -$100 $50-$75 $50-$75 $50-$75 2014 2015 2016 2017E 2018E 2019E 2014 2015 2016 20
Slide 27: 2017 Full-Year Industry Outlook
2017 Full-Year Industry Outlook Full-Year 2017 Guidance United States Western Europe (a) Consumer Replacement ~Flat – 1% ~Flat Consumer OE ~1% ~Flat Commercial Replacement ~1 - 2% ~2% Commercial OE ~(6%) ~4% (a) For replacement, Western Europe is Europool and Turkey. For OE, Western Europe is total
Slide 28: 2015 Venezuela Key Metrics
2015 Venezuela Key Metrics Terms: US$ millions Venezuela Q1 Q2 Q3 Q4 2015 Full Year Units (000s) 377 318 385 312 1,392 Revenue $94 $115 $155 $167 $531 Operating Income $22 $36 $39 $22 $119 Foreign Currency ($1) ($12) ($8) ($5) ($26) Exchange(a) Note: The Venezuela subsidiary was deconsolidated effec
Slide 29: Tire Unit & Sales Summary
Full Year 2016 Tire Unit & Sales Summary Terms: millions 2016 Sales = $15,158 2016 2015 (a) % Change Consumer Units 153.0 151.3 1.1% Consumer Retail Consumer 62% 8% 62% Chemical 3% Sales $9,414 $9,591 (1.8%) Commercial Other 18%9% Commercial Commercial Units 11.6 12.1 (4.2%) Other 18% 9% Chemical Sa
Slide 30: Goodyear Consumer >17" Sales Volume
Goodyear Consumer >17” Sales Volume (a) 2016 OE Replacement Total Americas 80% 40% 50% EMEA 45% 25% 30% Asia Pacific 30% 30% 30% Total Company 55% 30% 40% (a) All percentages are approximate. 30
Slide 31: Raw Materials
Raw Materials Raw materials are ~40% of tire COGS Global Raw Material Spend ~65% of raw materials are influenced by oil FY 2016 Estimate prices Natural Rubber, 19% - P&L impact lags spot rates by 1-2 quarters depending Synthetic Rubber, 28%* on commodity ~60% of raw materials are purchased in
Slide 32: $3.0 Billion Segment Operating Income Target Key drivers Risk Factors
$3.0 Billion Segment Operating Income Target (a) Key drivers Risk Factors Moderate global industry growth, including: Economic environment • Above market growth in > 17” • Significant weakness in key markets • Emerging markets growth Raw materials Goodyear volume growth of 20 million units, pr
Slide 33: Non-GAAP Financial Measures
Use of Historical and Forward-Looking Non-GAAP Financial Measures This presentation contains historical and forward-looking non-GAAP financial measures, including Total Segment Operating Income and Margin, Core Segment Operating Income and Margin, Free Cash Flow from Operations, Free Cash Flow, the
Slide 34: Fourth Quarter 2016 Significant Items
Fourth Quarter 2016 Significant Items (After Tax and Minority Interest) Terms: US$ millions, Shares in millions Insurance Rationalizations, (except EPS) Recovery - Asset Write-offs, Legal Claims As Discrete Tax Discontinued Net Gains on and Accelerated Unrelated to Pension Reported Items Products As
Slide 35: Fourth Quarter 2015 Significant Items
Fourth Quarter 2015 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions (except EPS) Loss on Rationalizations, Transaction Deconsolidation of Asset Write-offs, Costs and Net As Venezuelan Pension Debt and Accelerated Gains on Asset Discrete Tax Reported Su
Slide 36: Full Year 2016 Significant Items
Full Year 2016 Significant Items (After Tax and Minority Interest) Terms: US$ millions, Americas Shares in millions Insurance Rationalizations, Intracompany (except EPS) Recovery - Asset Write-offs, Profit Legal Claims As Net Gains on Discontinued and Accelerated Debt Elimination Pension Unrelated t
Slide 37: Full Year 2015 Significant Items
Full Year 2015 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions Charges for (except EPS) Loss on Rationalizations, Labor Claims Gain on Net Income Transaction Insurance Deconsolidation of Asset Write-offs, Related to a Recognition of and Other Costs and
Slide 38: Full Year 2014 Significant Items
Full Year 2014 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions Charges for (except EPS) Net Rationalizations, Pension Labor Claims Venezuelan Asset Write-offs, Curtailments Related to a Government As Discrete Tax Net Gains on Currency and Accelerated a
Slide 39: Full Year 2013 Significant Items
Full Year 2013 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions Charges for (except EPS) Rationalizations, Labor Claims Insurance Net Venezuela Asset Write-offs, Related to a Recoveries As Remeasurement and Accelerated Closed Facility Discrete Tax Net G
Slide 40: Full Year 2012 Significant Items
Full Year 2012 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions (except EPS) Charges for Rationalizations, Labor Claims Insurance Asset Write-offs, Related to a Recoveries As and Accelerated Debt Closed Facility Discrete Tax Pension South Africa Fayette
Slide 41: Full Year 2011 Significant Items
Full Year 2011 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions Rationalizations, (except EPS) Asset Write-offs, As and Accelerated Debt Fayetteville Discrete Tax Net Gains on Reported Depreciation Repayments Thailand Flood Tornado Items Asset Sales As
Slide 42: Full Year 2010 Significant Items
Full Year 2010 Significant Items (a) (After Tax and Minority Interest) Terms: US$ millions, Shares in millions (except EPS) Rationalizations, Asset Write-offs, As and Accelerated Venezuela Debt Supplier South Africa Import Cost Discrete Tax Net Gains on Supplier Insurance Reported Depreciation Deval
Slide 43: Reconciliation for Segment Operating Income/Margin
Reconciliation for Segment Operating Income/Margin (a) Terms: US$ millions Three Months Ended Twelve Months Ended December 31, December 31, 2016 2015 2016 2015 2014 2013 2012 2011 2010 Core Segment Operating Income $ 479 $ 458 $ 1,985 $ 1,901 Venezuela subsidiary operating income - 22 - 119 Total Se
Slide 44: Reconciliation for Total Debt and Net Debt
Reconciliation for Total Debt and Net Debt Terms: US$ millions December 31, September 30, December 31, 2016 2016 2015 Long-Term Debt and Capital Leases $ 4,798 $ 5,446 $ 5,074 Notes Payable and Overdrafts 245 179 49 Long-Term Debt and Capital Leases Due Within One Year 436 403 585 Total Debt $ 5,479
Slide 45: EBITDAP, Adjusted Debt & Leverage Ratio Reconciliations
EBITDAP, Adjusted Debt & Leverage Ratio Reconciliations Terms: US$ millions Year Ended December 31, 2016 2015 Net Income $ 1,284 $376 Interest Expense 372 438 Income Tax (Benefit) Expense (77) 232 Depreciation and Amortization 727 698 Pension Expense(a) 71 135 Other(b) 200 619 EBITDAP, as adjusted $
Slide 46: Reconciliation for Free Cash Flow from Operations
Reconciliation for Free Cash Flow from Operations Terms: US$ millions 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. Trailing Twelve Three
Slide 47: Reconciliation for Free Cash Flow Target
Reconciliation for Free Cash Flow Target Terms: US$ billions 2017-2020 Cash Flows from Operating Activities $8.9 - $9.5 Capital Expenditures ($4.6) Free Cash Flow $4.3 - $4.9 47
Slide 48: Goodyear
GOODFYEAR
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