Goodyear Tire & Rubber Stock

Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Vice President, Investor Relations.

Thank you, and good morning, everyone. Welcome to our third quarter 2026 earnings call. With me today are Mark Stewart, CEO and President; and Scott Deakin, Interim Executive Vice President and CFO.

A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect future results and for reconciliations of non-GAAP measures, please refer to today's presentation and SEC filings. All of our earnings materials can be found at investor.goodyear.com.

With that, I'll hand the call over to Mark.

Thanks, Ryan, and good morning, everyone. Thank you for joining us today. I'd like to start by sharing my perspective on our third quarter performance, and I'll spend some time discussing the actions we're taking, actions we're taking to strengthen our competitive position, improve our structural profitability and return the business to sustainable free cash flow.

During the third quarter, we achieved segment operating income of $174 million compared to $36 million in the second quarter and $95 million in the first quarter. This is a meaningful improvement over the first half of the year, but our earnings remain below our expectations. Our SOI shortfall has been impacted by several factors. These include softer-than-expected consumer replacement demand in EMEA and a continued pressure within Americas commercial replacement business.

We've also discussed for some time now the challenges facing the global tire industry. Competitive intensity remains high. Demand has been uneven and changes in channel inventory have created more volatility. All these dynamics continue to impact our business, and our cost structure amplifies these pressures. This reinforces the need for more fundamental change. We must deliver improved performance through actions within our control. While we have made important progress within our cost structure through the Goodyear Forward and other initiatives, that progress hasn't yet translated into the level of earnings and cash generation we expect from our business.

After completing Goodyear Forward, we entered 2026 focused on identifying further opportunities to strengthen our structural profitability. This year's operating environment has reinforced the importance of that work. We've been focused on identifying a comprehensive set of actions and making sure we're positioned to execute them effectively. We are not basing these plans on a recovery in volume. Instead, we're focused on what we can control. This includes channeling our efforts and resources towards the areas of our business where we have the greatest competitive advantages, optimizing our manufacturing and cost structure and making disciplined decisions about how and where we deploy capital.

We recognize the urgency of improving our performance and the significant opportunity ahead of us. As I'll discuss later, we're evaluating changes to our business to strengthen our competitive position, improve returns and generate sustainable free cash flow.

During the third quarter, from a market or industry perspective, we continue to see a challenging combination of lower OE production, uneven replacement demand, strong competition and pressure on the industry price mix versus raw material increases. In EMEA, both consumer OE and replacement demand contracted during the third quarter. That said, we grew our share within the consumer OE again in quarter 3. That builds on more than 2 consecutive years of OE gains in the EMEA region. Commercial OE was relatively flat and commercial replacement showed moderate growth.

In Asia Pacific, the consumer space showed mixed performance between OE contraction and the replacement growth. The region continued to deliver strong SOI margins of roughly 13%. This demonstrates the results we can generate when product mix, competitive position and our operations are aligned. Asia Pacific has leveraged the strength of the Goodyear brand, grown our regional OE presence, executed well on price/mix and focused on serving the most attractive segments. In fact, 53% of Asia Pacific's consumer portfolio is 18-inch and above rim sizes, which leads the company. We're pursuing these strategies across all regions.

In the Americas, the overall consumer OE market contracted, though once again, we grew market share during the quarter. The commercial OE market is trending in the right direction. And on top of that, we grew share. The consumer replacement market remained challenging. After starting the year with a sharp decline, we now see our volumes continuing to normalize. We've seen demand for commercial replacement weaker than expected, reflecting the continued soft freight trends in the market. This has been an important source of pressure on both overhead absorption as well as the price mix.

We continue to progress through the effects of our deliberate SKU rationalizations over the past several quarters. Those decisions have reduced our participation in lower return segments. They've also created near-term volume and utilization headwinds as we transition towards a more attractive portfolio mix. Our focus remains on competing more deliberately aligned with where we can earn appropriate returns rather than pursuing volume simply to fill factories.

We also continue to make steady progress in strengthening the quality and competitiveness of our product portfolio. Last quarter, I discussed the deliberate choices we're making to concentrate our resources on the products and segments where Goodyear can deliver the greatest value. That means continuing to invest in differentiated products and premium technologies. It also means we're reducing the number of lower return products that do not support our long-term objectives. We're seeing that strategy take shape through our product pipeline.

Just last week, we launched the Cooper Discoverer HT, a new all-season highway mixed-terrain tire. It is tough, robust, reliable. It is designed for folks who rely on their full-size trucks and SUVs to get the job done. We also unveiled an expanded 2026 UltraGrip winter tire portfolio in EMEA. And late last week, we introduced an ultra-premium limited edition Mickey Thompson Street Comp GHT Signature Series. Our tires continue to earn recognition in the market all around the world. Goodyear Wrangler Outbound AT, Steadfast HT, Assurance ComfortDrive and the Eagle F1 Asymmetric 6 earned recommendations from Consumer Reports. Our Eagle F1 Asym 6 won Evo's October '26 summer test tire (sic) [ tire test ]. The annual Evo test is considered to be one of the most rigorous independent evaluations. And the Goodyear Vector 4Seasons was crowned test winner by Tyre Reviews, Auto Bild, Auto Bild Allrad in their respective all-season tire test. I want to thank all of our talented teams behind the design and the engineering of these awesome new products.

Across the company, we're continuing to prioritize larger rim sizes, ultra-high-performance tires in the all-weather and all-season categories. That's where our technology, brand and product performance come together to really make the difference.

We see our consumer mix as a key indicator of our progress. In the third quarter, tires with rim sizes of 18-inch and above made up 44% of our consumer portfolio compared with 39% a year ago. This increase of 5 percentage points demonstrates continued advancement of our strategy.

The financial rationale behind the strategy is compelling. These products typically generate higher profit per tire. This improves our mix with higher-value products creating an opportunity to expand margins independently from volume growth.

While we're seeing some consumers shift towards lower quality and lower-priced alternatives in the current environment, the long-term growth in SUVs and vehicles equipped with larger rim sizes continues to expand the market for more technically demanding tires. By focusing on these segments where our Goodyear technology and brand strength sets us apart, we believe we can improve the profitability of our portfolio to generate more attractive returns.

We're also continuing to make progress with OE customers. In the third quarter, we grew our OE volumes in both the Americas and EMEA despite industry contraction. This generates clear share gains in both regions and builds on a trend that has been well established over roughly the last 3 years. These gains in OE business, which have been disproportionately in 18-inch and above rim sizes help establish a future pipeline of high-end replacement demand for Goodyear.

In the U.S., our Velocity program continues to expand our indirect dealer network, adding nearly 1,500 rooftops through new dealer additions and expansions this year. Also in our U.S. retail business, we opened 11 new stores so far in '26, including our new concept store in Detroit. We have plans to open 5 additional locations by the end of the year.

We've also completed the rollout of our digital vehicle inspection process across more than 500 stores. This process provides real-time vehicle data insights, providing an improved customer experience and loyalty opportunity. These are important proof points because they demonstrate that we're improving not just the products we offer, but how effectively we compete in the marketplace.

The combination of increased premium product selectively around the segments of the market we serve, stronger customer relationships and disciplined portfolio management remains central to building a more competitive Goodyear.

One of the clear realities in the current environment is that we have the opportunity to reduce our earnings sensitivity to changes in volume. When demand falls short, the resulting pressure on factory utilization and fixed cost absorption can significantly affect our profitability. Given volume trends over the last decade, we see a meaningful gap in our relative financial performance and underutilization in our manufacturing footprint. We are laser-focused on addressing this issue.

As our product portfolio evolves, we see an opportunity to better align our manufacturing network, operating model and capital requirements with the markets and product segments where we intend to compete. We've been clear that our footprint strategy is not simply about reducing capacity. It's ensuring we have the right capabilities in the right geographies with a cost structure that allows us to compete effectively.

The closure of our Fayetteville, North Carolina facility is an important example of that approach. We are focused on a smooth transition for our associates and for our customers. We remain on track to complete the closure by the end of '27, with $270 million of SOI benefits by 2028.

Beyond Fayetteville, we're executing on more opportunities across our manufacturing network. In September, we announced we're closing our 2 remaining chemical facilities. That's expected to generate $15 million to $20 million of annual SOI benefits beginning in '27. Earlier this year, we closed the mold operation in Ohio as well. Together, these actions reflect our continued focus on aligning capacity with the future requirements of our business.

We're approaching these hard decisions, recognizing that the business needs to operate efficiently at realistic demand levels. Chasing low return volume to support utilization is not sustainable. The path forward is a more flexible, competitive and appropriately sized operating model.

The actions we've already announced are meaningful, and we expect them to improve our structural cost position, but these actions alone won't deliver the level of earnings or cash generation we believe the business can deliver.

Next, I'd like to spend a few minutes on free cash flow, which we view as the clearest measure of our progress. Over the past several years, we've improved our balance sheet, we simplified the portfolio, and we've enhanced our operating performance. Goodyear Forward delivered substantial SOI benefits and our business portfolio actions helped reduce debt and increase our financial flexibility.

At the same time, our recent earnings performance has resulted in additional cash utilization. We are not willing to wait for industry volume recovery to solve this issue. While market conditions have certainly been a headwind, the fundamental challenge is one we can address. We need to generate more cash from our operations relative to the capital required to maintain and advance our competitive position.

That makes our mandate super clear. Goodyear must be capable of generating sustainable positive free cash flow through a range of industry conditions. Doing so requires stronger structural margins, a more competitive manufacturing footprint, disciplined capital allocation, improved working capital efficiency and a portfolio focused on products and channels that generate attractive returns. It also requires a willingness to continually assess where we compete and how we deploy capital to maximize long-term value creation.

Our Goodyear Forward plan positioned us well to pursue these investments. It gave us a significantly strengthened balance sheet. That has provided sufficient financial flexibility to support our transformation while preserving the company's ability to invest in our highest return opportunities to serve our customers. Over time, sustainable positive free cash flow should support leverage reduction and further solidify Goodyear's financial foundation. Ultimately, our success cannot be defined by revenue, volume or even SOI. It will be measured by our ability to consistently deliver free cash flow. That is the financial objective guiding our decisions.

Given all this, let me close by discussing how we're approaching Goodyear's next phase. Goodyear Forward formally concluded at the end of 2025, following an intense focus on executing the program and delivering ahead of our commitments. Throughout '26, we've been developing opportunities to improve the structural economics of our business. These actions we've announced to date matter, but incremental improvement alone won't take the business to where it needs to go. We need to make more fundamental changes to improve Goodyear's structural profitability, capital efficiency and ability to generate cash. The goal is to build a business with stronger earnings resilience and more consistent cash generation across the cycle. The industry environment this year has reinforced the urgency of that objective. We're approaching this work with speed, with discipline and with an openness to change.

We're assessing where Goodyear has the strongest competitive positions, where our brands and technology create the greatest differentiation and where we can generate attractive and sustainable returns on the capital we deploy. These are consequential decisions, and we're rigorously evaluating the financial and operational implications and pressure testing execution plans prior to moving forward.

Again, our objective is to build a stronger, more focused Goodyear with structurally higher returns, greater capital efficiency and sustainable positive free cash flow. We have a strong foundation, including one of the world's leading brands, strong market positions, a talented team, a refreshed premium product portfolio and differentiated technology capabilities.

To support these efforts and get the results, we've established a dedicated transformation office. This brings together leaders with the responsibility to advance this work and drive focused execution across the company. This structure will provide accountability and speed as we evaluate opportunities and move those decisions into action. We expect to provide an update on the work of the transformation office with you on our next quarterly earnings call.

The actions we've already announced are important steps, but they do not represent the full extent of the opportunity we're evaluating. We see tremendous opportunity to improve Goodyear's structural returns and cash generation, and we're committed to pursuing the actions necessary to realize that potential. Our 2026 financial performance reinforces the importance of that work. We recognize investors expect more from Goodyear, and we share those expectations. We are committed to delivering value.

Thank you. I'll now turn the call over to Scott.

Thank you, Mark. Good morning, everyone. As Mark discussed, third quarter earnings improved meaningfully from the first half of the year, supported by continued strength in original equipment and normalization in the U.S. consumer replacement market. Softness in other areas of our business and continued pressure from our legacy fixed cost structure, however, resulted in financial results that were below our prior expectations.

This morning, I'll focus on the financial drivers of profitability for the quarter before discussing cash flow, the balance sheet, segment results and our outlook. I'll also discuss how we are approaching the broader transformation that Mark outlined from a financial perspective.

Turning to the income statement on Slide 6. Third quarter sales were $4.5 billion, down about 2% from last year, reflecting last year's divestitures of the chemicals business and the Dunlop brand as well as slightly lower volumes. These effects were partially offset by price and mix improvements. Excluding the divestitures, all-in organic sales were up about 2%. Tire unit volume declined about 3%, driven by lower consumer replacement demand in EMEA and Asia Pacific.

Gross margin decreased by 2 percentage points, primarily due to fixed cost absorption headwinds and higher operational costs. SAG decreased about 1.5%, reflecting benefits from Goodyear Forward and other actions. All considered, these factors resulted in segment operating income of $174 million.

Our tax expense remained elevated in the third quarter due to the regional mix of profit generation. As earnings improve in key markets, particularly the U.S., we expect that our effective tax rate will normalize over time. After adjusting for significant items, including rationalization charges and discrete tax items, non-GAAP earnings per share was a loss of $0.11.

Turning to the segment operating income walk on Slide 7. Our 2025 earnings base was lower by $56 million due to the sales of the chemical business and the Dunlop brand. After this change in scope, our 2025 SOI was $231 million. Lower tire unit volumes represented a headwind of $16 million during the quarter. Fixed cost absorption was a reduction of $61 million, primarily reflecting lower production levels in Q2.

As we've previously discussed, lower volumes affect us not only through lost contribution margin, but also through the absorption of legacy fixed costs that remain in our manufacturing footprint. This absorption impact typically lags 1 quarter. Price and mix contributed $105 million to SOI, while raw materials were a headwind of $29 million.

The continued benefits of Goodyear Forward accounted for $90 million of SOI, while inflation across both manufacturing and administration was an unfavorable impact of $69 million. Other operational costs were higher by $40 million, primarily related to elevated transportation costs. Tariffs were a headwind of $8 million. Finally, foreign currency and other were a combined headwind to SOI of $29 million.

Turning to Slide 8. Free cash flow was a use of $283 million in the third quarter compared with a use of $181 million a year ago. The year-over-year change reflected the flow-through of lower earnings, partially offset by reduced CapEx. Capital spending was $139 million during the quarter compared with $183 million a year ago. For the full year, we expect CapEx of $675 million, of which roughly 70% is directed toward maintenance investments with the balance supporting growth and strategic initiatives, namely investments necessary to expand our capabilities in larger rim sizes and other premium categories as we drive continued improvements in our product mix.

As we look ahead, we continue to evaluate our capital requirements carefully, balancing necessary investment with our strategic objective to reduce the capital intensity of the business over time.

Net debt was $6.6 billion at quarter end, declining nearly $700 million versus a year ago. We ended the quarter with approximately $4.5 billion of available liquidity, providing an important source of financial flexibility as we continue executing our previously defined restructuring initiatives and evaluate additional opportunities to improve the business.

As Mark mentioned, consistent free cash flow generation is a central objective that our team is intently focused on achieving. That requires more than just improving SOI generation. We are also relentlessly focusing on tightly managing cash requirements, including CapEx and working capital as we further shape the cost structure.

Moving to the SBU results on Slide 10. Americas tire unit volume was flat year-over-year. Volume growth in both U.S. consumer OE and replacement was offset by weakness in commercial replacement. More specifically, U.S. consumer OE volume increased at a mid-single-digit rate despite a softer overall market. In consumer replacement, our volumes grew at a low single-digit rate, driven by greater than 18-inch rim sizes compared with a total industry sell-in decrease of about 1%. This is a significant improvement from earlier in the year and encouraging evidence of our progress toward higher-value products even in the current cost-sensitive market.

Commercial replacement remained weaker than anticipated, weighing on both fixed cost absorption and price and mix. Commercial OE volumes increased again, however, and outperformed the market.

Americas SOI was $96 million, down $110 million versus the prior year. Excluding the impact from the sale of the chemicals business, SOI was down $76 million year-over-year. Higher unabsorbed costs, transportation expense and inflation more than offset continued favorable Goodyear Forward savings.

Turning to Slide 11. EMEA third quarter tire unit volume decreased about 7%, reflecting weaker-than-anticipated consumer replacement sell-in. In addition to weak sell-in demand, partially the result of a slower start to winter, Goodyear consumer replacement volume was also impacted by the continuation of our planned SKU rationalization of lower-tier product offerings. However, we continue to see growth in the targeted high-value segments as well as strong response to our Cooper brand, where we see sustained growth.

Consumer OE continued to outperform in the region with market share growth for the 11th consecutive quarter. Commercial OE volumes also improved. EMEA segment operating income was $12 million. Excluding the impact of the Dunlop brand divestiture, SOI improved organically by $5 million year-over-year.

Turning to Asia Pacific on Slide 12. Third quarter tire unit volume decreased 6%, driven by planned SKU rationalization in consumer replacement. Despite volume pressure, earnings benefited from our emphasis on the premium segment of the market, driving strong price and mix versus raw material costs in the region. SOI increased to $66 million, representing 13% margin, up 270 basis points compared to the prior year.

Now before closing with our outlook, I'd like to connect our quarterly financial results to the transformation priorities Mark outlined. From a financial perspective, we are evaluating this transformation work against 3 interlinked objectives. First, we are establishing a more competitive cost structure that can generate acceptable profitability across a range of industry conditions. Our results this quarter demonstrate this need. When volumes soften, the resulting pressure on factory utilization and accordingly reduced overhead absorption quickly offsets any improvements that we are able to realize in price and mix. So as we drive improvements in our operating model and manufacturing footprint, our objective is not simply to remove cost, but to structurally improve the foundational economics of the business. That will enable us to compete profitably without fully relying on cyclical recoveries in industry volumes.

Second, we need to improve the earnings power of our business portfolio by focusing on the products and markets where Goodyear has the greatest competitive advantages. That means continuing to shift towards differentiated products, larger rim sizes and higher-value segments where our technology and brands support more attractive profit per tire. As Mark mentioned, we're focused on improving the strategic positioning and profitability of the business for the longer term, not simply tactically maximizing volumes or preserving revenue for today.

Third, we need to improve free cash flow generation. That requires looking beyond operating income improvements to address the capital intensity of our business, improve working capital efficiency and review other areas of our business to ultimately generate more cash.

Some of our transformation initiatives will naturally require near-term investment. Importantly, our strong liquidity position of $4.5 billion provides us with the financial flexibility to undertake these actions while continuing to manage seasonal fluctuations in our working capital requirements. These investment decisions will be guided by a clear alignment with the ability to generate sustainable improvements in free cash flow from them over time.

Importantly, while we do believe that the industry is currently facing uncharacteristically high headwinds in both cost and demand, our financial framework for the transformation is not built around an assumption that the market volumes return to historical levels. We are evaluating the business thoughtfully against the realities of the market and accordingly, realistic volume scenarios.

As Mark mentioned, our work is ongoing, and we are not yet in a position today to quantify the full financial implications or provide financial goals. As plans are finalized in the coming months, however, we do intend to provide investors and other stakeholders with clear visibility into the expected financial benefits and timing of our planned actions. Ultimately, the financial objective of this transformation is to build a more profitable, less capital-intensive business that is capable of generating consistent free cash flow across the cycle.

To set the stage for our fourth quarter outlook, I'd like to address the raw material environment as it relates to our input costs. As we've discussed, on average, movements in commodity prices typically affect our P&L with a 4- to 6-month lag, reflecting our inventory, sourcing agreements and production cycle. During the quarter, natural rubber prices initially declined, but ultimately rebounded, reaching near-term highs early last month. Petroleum-derived raw materials also increased earlier in the quarter, and they remain elevated.

Looking ahead, we continue to expect raw materials to be an approximately $170 million headwind to SOI in the fourth quarter. Moreover, while there is the opportunity for these trends to ultimately revert with better weather patterns and lower crude prices, given the recent progression of commodity prices and the typical lag before these costs flow through our P&L, we still expect elevated raw material costs to continue through the first half of 2027.

Contractual raw materials index mechanisms, mainly within our OE and fleet businesses help manage a portion of our raw materials exposure. In non-index businesses, we will continue to evaluate price, mix and cost actions as the environment evolves.

Turning now to our fourth quarter outlook. I'll begin with the key drivers of our expected year-over-year bridge in SOI. First, the absence of earnings from previously divested businesses will reduce SOI by $44 million compared to the prior year. In addition, the nonrecurrence of an insurance settlement in Q4 of 2025 reduces our earnings base by $56 million during the quarter, meaning that our comparable starting point for SOI 1 year ago is $316 million.

We now expect global tire unit volumes to decline modestly versus prior year, reflecting continued pressure in both consumer and commercial replacement markets. We also anticipate roughly $45 million of higher unabsorbed fixed costs, reflecting lower production levels during the second half of the year.

Price and mix are expected to contribute approximately $60 million, supported by recent pricing actions and continued improvements in our product mix.

As I mentioned, raw material costs are expected to increase by approximately $170 million, reflecting the impact of higher commodity prices flowing through our P&L.

Goodyear Forward is expected to contribute roughly $110 million in year-over-year benefits during the quarter. General inflation is expected to increase costs by approximately $70 million, while other costs are expected to be higher by about $40 million, principally the result of increased transportation expenses.

And finally, regarding nonoperating items, we continue to expect that tax expense will remain elevated relative to pretax income due to our current geographic mix of earnings. For the fourth quarter, we anticipate tax expense of roughly $50 million.

With that, we'll open the line for your questions.

[Operator Instructions] And we'll take our first question from James Mulholland with Deutsche Bank.

I was hoping to dig in a little bit into this company transformation committee. So when we think about it at a high level about what it could possibly entail, would it look like a Goodyear Forward 2.0? I mean I think it's probably fair to say that you're likely to cut some capacity in some facilities, modernize other facilities, which are going to require some cash spend. But are there any parts of the portfolio that could be up for sale or monetization that could maybe give you some balance sheet breathing room, maybe the retail business or specialty ops like aircraft? And I guess in the next earnings call, should we expect a full program outlay? Or will it be something that just gets incrementally announced over time?

Yes. Thank you, James. As we think about the transformation office that we've created versus Goodyear Forward, maybe just to revisit the history again on Goodyear Forward. Goodyear Forward really addressed significant opportunities we had at that time around our cost structure. It was a cost reduction program really to simplify the portfolio to focus on core businesses. And it was to pay down debt and strengthen our balance sheet. And we did accomplish that, right? Year-on-year, we're $600-plus million lower in terms of our debt structure.

One of the distinctions that the work that we're doing now and have been doing over the course of this year is to focus on where we can compete as Scott and I both mentioned and shared with you guys in earlier calls, it really is about our product mix up. It is about our overarching cost structure. It's the structural elements of the business, and it's the economics of the business and where we operate. We're evaluating opportunities to create a much more focused business with greater emphasis on the premium consumer segment. You saw that success.

I think the improvement from 39% to 44% of high rim size, high-margin products year-on-year, which we're really pleased with the progress of that and the great work our product development team is doing, our global product development team where we can actually bring those products to market very cost effectively by designing them and rolling them out around the world. As we've shared with you before on that as well, guys, it's giving us packing a punch of greater than 2x efficiency, getting closer to 3.

So we're -- again, it's that emphasis on premium consumer segments where our tech, our brands and product mix can generate those stronger margins and returns. And it matters because the objective is not just to take out cost. And hope those exceed whatever is happening in the headwinds of the market or the geopolitics at the moment in terms of headwinds to raw materials, tariffs, et cetera.

We want to improve the structure of the company, increase our portfolio to the more resilient end markets and enhance the profit and the cash that we would generate from that portfolio. Feel very good about the products that we're developing and putting in the market in the blank spaces. We feel very good about deprecating the lower-end SKUs that were, as I would say, "long in the tooth" or the vitality of those products were not what we wanted to be at Goodyear. And so we understand that creates some short-term headwind to take those out.

But just to say more plainly that we expect Goodyear to be less financially sensitive to changes in volume that really overpowered the P&L benefits we got of this $1.6 billion plus savings of Goodyear Forward, and we're leaning into our strengths. So we've been developing those plans over the course of '26. It has moved beyond just simply identifying areas where we think there's opportunity.

Many of those consequential decisions are interconnected with each other. We know it can materially impact the value. So we don't think it would serve well for us to give snippets or little pieces of details on that before we have fully completed that, the analysis and the work of what we're rolling out as well as us having the confidence and standing up as exactly what we're going to do and when we're going to do it. So we recognize the importance as well though of demonstrating that progress in a measured way. So we're going to provide clear milestones, what we expect to achieve, when we expect to achieve it, and we're going to share more with you on the quarter 4 earnings call.

Great. And then as a quick follow-up, recognizing that you're not giving us a guide for next year, but we are swiftly approaching the midpoint of the fourth quarter. Could you give us any early indications of the puts and takes that we should be looking at for next year beyond raw materials? Fair to say there's probably going to be some SOI improvements, but restructuring expense is going to weigh on free cash flow maybe for another year. Could it be as negative as it is this year? Or would you expect where we stand today, ignoring anything that might be announced that there might be some incremental improvement? Is that fair to say?

Yes. I think if you build on the indicators that we gave you for Q4 and start to look forward, our take is it's not necessarily a normalized earnings indicator of Q4 looking into the rest of '27, but there are some key points that are indicative as a reference point.

The volume environment, we would say that, that will be largely consistent with what we're experiencing today. The higher raw material costs that we talked about, that we and the industry are contending with in Q4, look to carry into at least the first half of 2027. We've talked about the lag dynamics there generally, and we talked about it in our prepared remarks as well.

We'll obviously be working to mitigate those increases. I think everybody is familiar that we do have RMI mechanisms in place. That's about $50 million. And for those parts of our business that aren't covered by those, we'll be working to mitigate those in other ways as well.

And then the other part is we'll continue to realize the benefits from the actions we've taken already to improve our cost structure, and we'll continue to see benefits. So again, I think if you look at those factors in Q4, they are indeed indicative in terms of the kinds of things that we'll see into the first half at least of 2027.

To your point about cash, for this year, we expect to use about $300 million -- $300 million to $400 million of cash in 2026. If you think about sort of the elements of that, roughly about $200 million of that is restructuring oriented. So if you sort of remove that and focus on the operating free cash flow and the use of cash flow there, we're talking closer to about $100 million to $2 million (sic) [ $200 million ]. And I guess I'd just say, look at that in the context of the overall restructuring next to the Fayetteville closure, just as an example. We're going to be talking about uses of cash up until about the fourth quarter of 2026. That starts to go positive and then significantly positive from there forward.

You bump up what I just talked about in terms of the nonrestructuring general operating free cash flow of $100 million to $200 million, Fayetteville alone on a mature basis is close to $240 million of free positive cash flow. And I think those kinds of indicators in terms of the other things that the transformation office are going to be focusing on give a good positive indicator for us.

James, I would tack on just a little bit about the -- we think about the volume and the top line for it. What we're seeing on the horizon for '27, if we look at Mobility Global, the old IHS forecasting service that the OEs use that passenger vehicle production is expected to increase about 1% next year. The heavy truck that we know has been in the trough, really lowest levels in a long, long time/ever with the heavy truck builds is expected to grow mid-single digits in most regions around the world. And we know the market is going to continue to be dynamic. And that's why we're continuing to strengthen our ability to compete, filling in the gaps in the product portfolio in the premium, very profitable segment with that 18-inch and above.

At the same time, we are being cognizant that we need to make sure we've got products for everyone. It's why we really focused in Europe and bringing the Cooper brand there. And from that standpoint, it's doing very well in the market, replacing those Dunlop volumes and providing a strong value proposition. And the same thing, we will make sure we have a full portfolio for our customers and the end consumers. But we're building our plans on realistic volume assumptions, and we're going to focus on what's within our control to improve cash generation. It's also why we're focused on this transformation and having a dedicated transformation office to make sure that we execute and remove any roadblocks that could prevent us from getting things done.

We'll take our next question from James Picariello with BNP Paribas.

Just to hit on a few of the buckets for next year at current spot prices for crude, right, in the $90 to $100 range, would the raw mats impact also hit the third quarter next year given the modest headwind that was realized this past quarter? Can you help dimension what this raw mats impact could look like for 2027? And then as we think about the reduction in CapEx this year, the reduction in your restructuring cash spend, how do those 2 buckets look like -- how do those 2 buckets look like for next year?

Yes. So I'll speak first to the raw piece of it. As we talked about, roughly about $170 million a quarter of headwind going into at least the first part of the year. We've talked about the lapping dynamics associated with that as we start to get into the second half of the year, depending on where raw shifts. And obviously, to your point, crude is one element to that. But there's also been weather dynamics with regard to natural rubber that have been a big part of the headwind as well. If you start to move into the second half of the year and if we see improvements in both of those areas, I think we'd start to see some improvement from that. But that will obviously tell going forward.

Your second question was related to CapEx. And if I could just repeat that question, I want to make sure I understand your point there.

Yes. Just on CapEx and your restructuring cash spend, both of those were reduced for the 2026 guide. Just how to think about those 2 pieces for next year.

Yes. So as we talked about on the call, roughly 70% of the CapEx right now is more on a maintenance-oriented basis. So the rest of it is related to the restructuring actions we're taking, growth-oriented actions. That will generally continue. As we talked about, roughly $300 million to $400 million of cash use is the expectation for this year. And within that, roughly $210 million, $200 million or so is related to restructuring. So if you focus just on the nonoperating cash aspects of things and you start to look forward past that and start to see the benefits of the actions already being taken, that will start to come down some from there.

So I think those indicators for 2026 are pretty good indicators of the trends that you'll start to see in 2027. But for the transformation actions we just talked about and to Mark's point, we would fully expect that as we outline those actions, outline those priorities, we'll talk about the sources and uses dynamics for the cash that are a key part of that.

Yes. Maybe, James, if I could tack on a little bit on the CapEx itself. And we've shared with you guys in prior quarters. One of the areas I'm really proud of from the team and in terms of the results of it and the execution, you mentioned the lower spend in '26, but that didn't mean that we were getting lower amounts of modernization and efficiency in new products. We actually put out 3x more products over this past year, as we've shared with you guys than we ever have in terms of that.

We've been very efficient when it comes to -- we've shuttered one of our mold facilities to go to a more optimized cost structure of keeping internal mold facilities full, also partnering with outside mold facilities to have a big lift in that, which is a chunk of our CapEx for future of these new products. But we -- I think we shared with you before, we see between 40% and 60% capital efficiency over the past in terms of just how we were going to market. So a shout out to our procurement, our advanced global engineering teams and the execution and quite frankly, our governance of CapEx has substantially changed since I've gotten here, where we go through the business cases in detail very rigorously. We have a team that works specifically on supplier development. So we're actually bringing new sources into the Goodyear zone, if you will, in terms of that CapEx efficiency. But it's very meaningful what we're able to buy equipment, whether it's automation equipment, tire building equipment, mixing, et cetera, much, much lower cost than what Goodyear was paying in the past, James.

Appreciate that. And then just on the demand side of things, how is industry sellout in channel inventory trending in the U.S. for consumer replacement? What would be your assessment of the import volume trends there? And then in Europe, where are we at on the EU tariffs front with respect to the tariffs levied against China imports? Is this now in place? Is there any benefit to be seen on this front in the future?

Yes. Okay. Maybe why don't we start off with the EU tariffs and then come back around on the Americas. So sell-in and sell-out. So the tariffs took effect middle of the year, I think in early July, if I'm remembering correctly. And while we do have some of the Tier 2, Tier 3 brands in our portfolio, if you recall, we have deprecated a lot of that product. We've kept some of our Fulda, Sava, Debica where we're competitive and needed that in terms of the full portfolio. We have put Cooper in and Cooper is doing very well in that place. But it really -- in terms of the Tier 3, Tier 4 market in EMEA, we believe we could see some benefit from that antidumping measures, and we already see through the published data that China is quickly moving away from Chinese produced in China, into Europe into other areas of ASEAN, where it's Thailand, Vietnam, Cambodia and so forth. So there will be a period of time for some arbitrage we believe, but not a long-term impact for that.

Meanwhile, we have really been focusing our footprint as we structurally changed the footprint in EMEA with Fulda, first of all, the South Africa locations coming out of the network to balance supply and demand. So we were not stuck with those fixed overhead costs in very high-cost markets and really working on our lower cost footprint across Eastern Europe.

And from that, we've been really focused on our capacity capabilities and making sure that we've got the right capacity in place for that for premium products and focused on Seg A. We're continuing to focus in that market. So that's it on the EU tariff front.

If we look at the sellout, as we said in the opener, we saw volumes being more normalized as we go through it. We've seen some really positive progress in terms of Goodyear sellout over this last quarter of us coming back very strong compared to others and particularly on our 18-inch and above growing very strongly as these new products are taking hold in the market with the Eagle F1 winning a best-in-class, which has really helped propel that in the marketplace as well. But across our portfolio, we see some positive signs on that in the upper tier of the market, which is, again, where that profit pool is, and it's where we've seen our Tier 1 competitors be more resilient earlier in the year.

[Operator Instructions] We'll take our next question from Itay Michaeli with TD Cowen.

Maybe just 2 follow-ups on the so-called kind of Goodyear Forward 2.0 plan that you're working on. Maybe the first is, you mentioned you're not assuming any or reliant on any volume growth from there. But what are you kind of assuming as you're putting this plan together for price mix relative to raws, particularly next year, but just generally on that relationship as you kind of look to arrive at your future cash flow targets?

A couple of things. First, we talked about for Q4, our expectations on the realization of price and mix relative to raws. And we're getting some of it, but we're clearly not able to pass through all of it. And that's the realities of the market and sort of the -- sort of current volume economic sort of situation that we're dealing with. So we will continue to try to do that to try to offset some of those raws. But at this point, we're only realizing part of it.

As I said before, as you start to look forward into 2027 and beyond, we'll obviously be trying to understand after we get past the first half of the year, how the crude oil shifts and how the natural rubber shifts based on weather improvement will impact us there. But our ability to pass it on is really going to be dependent on sort of the overall trends in the marketplace.

We have not -- all of that said, we have not been able to -- and at this point, we're not able to give you sort of full blow-by-blow indications of how the actions we're going to be taking ultimately manifest in sort of financial improvement for the business. But as I said before and we said before, as we come into the first part of the year and into the spring, when we communicate all of these actions, we will do that not only with sort of base understanding of what we think that can do for the business. But again, as I said before, the sources and uses dynamics as well.

Sorry, just to follow on really quick. The purpose of us working on the -- our standing transformation office is really to get Goodyear in a much more resilient way and where we're price mix versus raws and so forth so that we're resilient in that marketplace to get our overarching structure in place so that we can maneuver much better as we go forward. And I'll give you a good proof point of it. And that's in -- as we shared in the opener with Asia Pacific, right, for this quarter, where we have deprecated those low-end SKUs over time over the last couple of years. We're super focused on the 18 and above with over 50% of the portfolio there sitting in the 18 and above, and it's generating SOI margins of roughly 13%, which is exactly where we were intending to be even better than from our first phase of Goodyear Forward.

But it is -- that really demonstrates the results, again, we generate when that product mix, our product position and the operational footprints are all in alignment. So having those stars aligned gives us that tailwind and that strength, that resilience that we're looking for to do in all other parts of the world. So because we're actually sitting at about 53%, I think, in total of 18 and above in AP and having shed those. So that's for us why we're pursuing that strategy across all the rest of the regions. We're doing it at a different place. So we make sure we bring our customers and the consumers along with us in the right way and doing it in the chunks as we've talked in terms of this product portfolio mix up. So again, to make sure we've got resiliency when it comes and not worried about as much about the price mix and the raw factor.

That's very helpful, Mark. And as a follow-up, I know we'll wait until January to get all the details. But Mark, you did mention a sense of urgency. And I'm just kind of curious at a high level, should we think about this plan being -- starting to have an impact in '27? Is it mostly '28 or '29? Like if we just think about a high level, like the strengthening of all the initiatives, is it 2 years, 1 year, how do we think about the cadence of those benefits are coming?

Yes. And it's -- in terms of the work and why the transformation office is Goodyear Forward did it, certainly, self-help continues to be a key part of our strategy. But as we looked at it, I mean, I clearly saw that self-help alone is not going to get it. We need to continue to structurally change that business into that trifecta we talked about. Where we compete, what we manufacture, where we manufacture and where we deploy our capital and being very mindful of all of those things in conjunction with our working capital, our free cash flow, right? And so that is a key part of our execution within our transformation office. You can expect to see savings in '27 as we roll that out as well because we have had the work stream going with my senior leadership team for quite a while now. And you actually saw a little bit of it already in terms of the early spoiler alert, which was the Fayetteville restructuring that is very meaningful of that $270 million. And I know you guys have already digested that. But as we look to it, it is -- we're evaluating every part of the business to make sure that we are to the right benchmarks, the best-in-class, and it's a value creation exercise in terms of where do we spend that precious capital? Where do we engage when it comes to spending our cash in order for the returns that we would get.

And we'll take our next question from José Asumendi with JPMorgan.

Jose from JPMorgan. A couple of questions, please, I would appreciate if you could speak about the -- a bit more around balance sheet and cash targets for 2026. And then also in conjunction with the strategic plan, which sounds very encouraging, if you could also speak about minimal liquidity you need in the balance sheet to run the business or cash -- minimum cash you want to have in the balance sheet as we think about these strategic plans?

A couple of things, and Mark certainly jump in. I think we talked already for '26, a use of $300 million to $400 million in cash. As we get into '27 and particularly are able to share more of the details of the transformation we talked about, again, we will fully give you an indication of how we feel about the underlying performance of the business in that context, the sources and uses, et cetera. Honestly, right now, we feel pretty good about the liquidity we have. The team has done a really nice job putting the balance sheet in a healthy place. We've got about $4.5 billion of liquidity. Roughly $800 million of that is cash, and then we've got our revolver ability -- excuse me, our revolver availability on top of that. To the extent the transformation ultimately requires us to think differently about that, we'll talk to you about how we plan on providing for that as a part of our discussion of the sources and uses.

We have reached our allotted time for questions. And this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call may be recorded.

It is now my pleasure to turn the conference over to Ryan Reed, Vice President, Investor Relations.

Thank you, and good morning, everyone. Welcome to our second quarter 2026 earnings call. With me today are Mark Stewart, CEO and President; and Scott Deakin, Interim CFO.

A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to our presentation and our SEC filings. Our earnings materials can be found at investor.goodyear.com.

With that, I'll hand the call over to Mark.

Thank you, Ryan, and good morning, everyone. We appreciate you joining in with us today. Before we get started, I'd like to recognize and thank all of our associates around the world. This past year has brought its share of challenges for our industry and the stabilization we're seeing at Goodyear is a result of our team's focus, execution and commitment to our customers. To all of our associates, thank you for all that you do.

Now we'll look at our performance for the quarter, and I'd like to spend some time discussing the actions we're taking to strengthen our competitive position and how we're setting Goodyear up for long-term success. Let's head into the quarter 2 recap. Overall, second quarter performance was in line with the expectations we shared on our last call with you. Our global tire volumes stepped up sequentially. And though some pockets continue to be weak, we saw more market stability overall in Q2 compared to Q1. Additionally, channel destocking moderated from the first quarter as sell-in more closely reflected customer sell-out.

EMEA and Asia Pacific both improved financial performance over the prior year. Asia Pacific was again a really bright spot for us, achieving volume growth across both consumer and commercial as well as OE and replacement businesses. Asia Pacific also delivered both revenue growth and margin expansion during the quarter. Performance in the Americas remained challenging, driven by a competitive marketplace combined with soft consumer backdrop. However, as the channel destocking moderated, the region delivered sequential volume improvement in the quarter.

As I reflect on the quarter operationally, two things stand out to me. First, all regions continued to increase the share of 18-inch and above rim sizes in their consumer portfolios. Across Goodyear, that mix increased 4 percentage points year-over-year, matching the fastest pace of expansion since we started disclosing the metric. Additionally, we grew OE volumes as well as market share in all regions during the quarter. This OE growth, in particular, stands out against a weak consumer OE production backdrop across the regions. The greater stability we're seeing across the business gives us confidence in the step-up in the SOI we expect to deliver in the second half.

Thinking longer term, it's clear to us that heightened competitive pressure isn't going away. This continues to validate the actions we're taking to strategically reposition our business, and our priorities are very clear. We're working to strengthen our product portfolio, improve the competitiveness of our manufacturing footprint and enhance our go-to-market strategy.

Let me expand on each of these areas. First, on product portfolio. Over the past 2 years, we've made deliberate choices about where we believe Goodyear can contribute the greatest value within the marketplace. That means becoming more disciplined about retiring SKUs that do not generate acceptable returns. It means we're also continuing to invest in the products, brands and innovation that differentiate Goodyear and align our offerings with the most attractive segments in the market.

That strategy continues to take shape through product pipeline. In Q2, we brought products to market in EMEA, including our Vector All Season 4. This tire builds on our legacy of innovation in a category we helped pioneer nearly 50 years ago when we introduced the first all-season tire. We've also expanded our Cooper portfolio in EMEA, introducing new all-season and winter tires across passenger cars, SUVs and light commercial vehicles as well as new summer tires for passenger cars and the SUV segments.

This is where Goodyear science really comes in. The same innovation tested in some of the world's toughest environments from commercial aviation and military aircraft to lunar missions and the racetrack helps deliver the tires and solutions customers trust. We're proud that differentiated capability is being recognized in the industry.

One of the ways we know we're on the right track is through the recognition of our products that we continue to receive. For example, Auto Bild named Goodyear the Top Manufacturer of the Year for Summer Tires. In a recent test, Tire Rack recognized Eagle F1 All Season as the leading ultra-high performance all-season tire in the market.

Looking ahead, we remain focused on the fastest-growing, highest-value segments in the market, including ultra-high-performance tires, larger rim sizes of 18 and above and strong product offerings in the all-weather and all-season segments. In fact, later this year, we have new Cooper products set to launch in the U.S. and Canada and a new Goodyear product in Latin America to advance this strategy.

Our new product introductions, coupled with continued portfolio optimization to eliminate the lower-margin SKUs, demonstrates our commitment to investing in the products and segments where we can compete most effectively. As our portfolio evolves, our manufacturing footprint needs to evolve with it. The footprint actions we've taken over the last few years haven't solely been focused on reducing costs. They are a direct response to where we're headed. In our portfolio-driven manufacturing strategy, we're aligning our footprint with the segments we believe Goodyear can most effectively compete in, strategically producing the right products in the right facilities.

The decision to close our Fayetteville facility reflects this strategy. It's another step towards building a manufacturing network aligned with our portfolio and positions Goodyear to compete more effectively over the long term. We expect production to wind down by the end of 2027 with volume transitioning to other facilities across the network. That will improve utilizations, strengthen the competitiveness of our manufacturing footprint and reduce structural costs to the Americas by $90 million in 2027 and $270 million thereafter. As we continue to reshape our portfolio, it's essential that our manufacturing capacity evolves alongside it. We'll continue evaluating our footprint to ensure it remains aligned with our portfolio strategy.

We're making targeted investments across our global manufacturing and supply chain network to strengthen critical capabilities. These investments will help us increase flexibility and resilience, improve efficiency and better position Goodyear to meet customer demand in higher-value segments, including the 18-inch and above market. At the same time, we're simplifying our network, expanding automation and improving utilization and productivity, all to strengthen our competitiveness, support financial performance and better serve demand in premium and high-value segments. Our goal is to have a manufacturing network that supports the long-term strategy by efficiently serving the growing demand in premium, high-value segments and positioning Goodyear to deliver stronger business performance over time.

Building a stronger portfolio and a more competitive manufacturing footprint is only part of the story. Our path to long-term value also depends on our ability to win with our customers and deliver the products and services they rely on every day. Central to that are our OE partners. When leading vehicle manufacturers choose our tires for their new vehicles, it expands our brand with millions of drivers, strengthens our competitive position and creates a pipeline for replacement sales down the road. That's how a single OE win can become an important driver of sustainable value creation for many years to come.

Additionally, we're continuing to strengthen how we compete across the replacement market through stronger channel partnerships and investments in digital capabilities as well as tools that make it easier for customers to do business with Goodyear. You've heard me talk about our focus on our portfolio, manufacturing footprint and go-to-market strategy. We see these priorities as deeply connected. Progress in one area creates lasting value if it's matched by progress in the others.

Over the past 2 years, we've taken meaningful actions to strengthen Goodyear and build a more focused company. Through Goodyear Forward, we did what we said we were going to do. We strengthened our balance sheet. We increased our strategic focus and operating discipline and implemented opportunities to create the greatest value, and that work continues today.

As we look ahead, we're focused on delivering the financial performance expected of an industry leader by building a more competitive, more profitable and more resilient Goodyear. You'll continue to see us making deliberate choices about where we invest, where we compete, how we allocate capital and always with the objective of improving returns and building a stronger Goodyear. The imperative is to ensure every major decision from product development to manufacturing investments to sales execution supports the same strategy, concentrating our resources behind the markets, products and opportunities where Goodyear can create the greatest long-term value.

Together, these efforts and results, along with our commitment to innovation, serve to differentiate us in the marketplace. From our role in supplying advanced lunar tires for the Pegasus LTV as part of NASA's Artemis program to creative collaborations like Toy Story 5 fitments with Porsche, we're bringing Goodyear science and technology to life in ways that capture attention and connect with customers. These moments do more than reinforce our brand. They show how we're leveraging our unique strengths to stand out in the marketplace.

Finally, I'd like to welcome Scott Deakin as our Interim CFO. Scott brings a deep public company finance and operating experience. We're pleased to have him in the role and look forward to continuing to work closely with Scott. I'll now turn the call over to Scott. Thank you.

Thank you, Mark, and good morning, everyone. Since joining the company, I've had the opportunity to spend time with a good many of the team up and down the organization. What stands out to me is the tight alignment and focus across Goodyear in addressing both the challenges and the opportunities ahead. The enthusiasm and urgency focused on continuous improvement and forward progress is compelling. Now turning to our results. I'll begin with our second quarter financial performance before discussing cash flow, the balance sheet and our outlook.

Turning to the income statement on Slide 6. Second quarter sales were $4.3 billion, down about 5% from last year, given lower volume and last year's divestitures of the chemicals business and the Dunlop brand, partially offset by price and mix improvements. Excluding the divestitures, sales were down about 1% organically.

Unit volume declined 4%, driven by lower consumer replacement volume in the Americas and EMEA. Although tire unit volumes remained down year-over-year, we saw improvements compared to the first quarter, reflecting stabilizing industry demand and the benefit of lapping of product and SKU rationalization actions taken last year.

Gross margin decreased by 1 percentage point, primarily due to lower volumes and unfavorable fixed cost absorption. SAG increased about 1.5%, which continued to be explained by the foreign exchange effects of the weaker U.S. dollar on sales, particularly against the euro. Excluding currency, SAG on a dollar basis was relatively flat. All considered, segment operating income was $36 million.

Similar to the first quarter, one item to call out is our unusually high tax expense, which was driven by the regional mix of where earnings were generated during the quarter. After adjusting for significant items, including rationalizations and discrete tax items in the quarter, non-GAAP earnings per share was a loss of $0.61.

Turning to the segment operating income walk on Slide 7. Our 2025 earnings base was lower by $44 million due to the sales of the chemical business and the Dunlop brand last year. After this change in scope, our 2025 segment operating income was $115 million. Lower tire unit volume and the associated pressure on factory utilization were a headwind of $132 million, driven principally by lower consumer replacement volume in the Americas. Price and mix versus raw materials was a benefit of $123 million. The continuing favorable contributions of Goodyear Forward accounted for $95 million of benefits during the quarter. Inflation was an unfavorable impact of $53 million. Tariffs were a headwind of $32 million and other operational costs were higher by $68 million. Finally, foreign currency and other were a combined headwind of $12 million.

Turning to Slide 8. Free cash flow was a use of $69 million in the quarter, improving $318 million compared to the prior year, driven by both more efficient working capital and lower CapEx. Net debt declined over $700 million versus a year ago, reflecting debt repayment at the end of last year.

During the quarter, we successfully issued approximately $1 billion of senior notes. We intend to use those cash proceeds to repay our 2027 senior notes, thereby extending our debt maturity profile and further strengthening our liquidity position. This transaction provides the financial flexibility to continue executing the actions we've outlined, including the manufacturing footprint optimization underway without being constrained by near-term maturities. We believe we've positioned the company with the liquidity and runway necessary to execute our strategy, and the team is aligned around continuing to strengthen the balance sheet as those improvements are realized.

Moving to the SBU results on Slide 10. Americas unit volume decreased 9%, driven principally by lower U.S. consumer replacement volume. As Mark discussed, we continue to prioritize our strategic decision to exit low-margin product lines. These actions primarily drove our volume decline during the quarter.

Specifically within the U.S. consumer replacement industry, we saw the rate of destocking improve as both consumer sell-in volumes and sell-out volumes were down between 1% and 2% during the second quarter. While Goodyear's consumer replacement volumes were down during the quarter, OE volumes grew despite market softness as we achieved market share gains. Commercial volume remained lower than last year, driven by replacement. However, commercial OE volume grew in the mid-teens percent, driven by rising freight rates and improving fleet confidence.

Americas segment operating income was a loss of $10 million, reflecting the impact of lower volume, tariff cost and inflation, partly offset by price and mix versus raws, together with the continuing benefits of Goodyear Forward savings.

As Mark noted, we recently announced the closure of our Fayetteville, North Carolina facility. This action will improve the structure of the Americas business as it better aligns our footprint strategically with the markets where we intend to compete while also reducing our fixed cost base. We expect cash costs from this action of roughly $200 million with approximately $40 million in 2026, $100 million in 2027 and the balance in 2028. We believe this action will sustainably improve Americas SOI by roughly $90 million in 2027 and about $270 million annually in 2028 and thereafter.

Turning to Slide 11. EMEA's second quarter unit volume decreased 2%. Consumer replacement volume declined, reflecting soft sell-in conditions in the region. Consumer OE, however, was a continued area of strength where we achieved market share growth for the tenth consecutive quarter. Commercial volumes saw improvement as well in both replacement and OE. Segment operating income in EMEA was a loss of $17 million in the quarter. When adjusted for the sales of the Dunlop brand, however, SOI improved by $20 million.

Turning to Asia Pacific on Slide 12. Second quarter unit volume increased 5.3%, driven by improved consumer volume across both OE and replacement with particularly notable increases in Japan and China. Our Asia Pacific OE growth stands out against the backdrop of a meaningful decline in the China OE market during the quarter.

Growth in earnings was driven by strong execution in price and mix versus raw materials. Our price and mix actions and results reflected our focus on the premium segment of the market, where we achieved growth of 500 basis points year-over-year in greater than 18-inch rim size tires as a percentage of total consumer sales. Segment operating income increased to $63 million or 12.7% to sales, expanding 330 basis points compared to the prior year.

Now turning to the third quarter outlook. First, the nonrecurrence of earnings from previously divested businesses will reduce SOI by $57 million compared to the prior year. We expect global unit volumes on the remaining business to be roughly flat versus prior year as the Americas consumer replacement market continues to stabilize. In addition, we expect higher unabsorbed fixed costs of $70 million, reflecting lower production during the second quarter.

Price and mix, however, is expected to be a benefit of approximately $110 million, driven by the benefit of recent pricing actions and continued improvements in product mix. Raw material costs are expected to increase by approximately $20 million as higher commodity costs associated with the conflict in the Middle East begin flowing through our P&L, consistent with our typical 4- to 6-month lag. Goodyear Forward is expected to deliver benefits of roughly $70 million in the third quarter.

General inflation of roughly 3% is expected to increase costs by approximately $60 million. Other costs from transitory manufacturing expenses and operating costs above general inflation are expected to increase by $15 million. Tariff-related headwinds are expected to reduce to approximately $10 million during the third quarter. Other is expected to be a headwind of $20 million, primarily due to our non-ERT businesses and other miscellaneous costs.

Finally, on a nonoperating basis, we do continue to expect tax expense to remain elevated relative to pretax income due to our current regional distribution of earnings. For the third quarter, we expect tax expense of roughly $50 million.

With that, we'll open the line for your questions.

[Operator Instructions] We'll take our first question from James Picariello with BNP Paribas.

Welcome aboard, Scott, in your new role. Congrats. I want to first ask about replacement versus OE volume expectations for the third quarter, which I assume entails sustained OE growth likely at a lower rate and with less pronounced replacement declines, right, to get your total volumes flat year-over-year for the outlook. And then assuming -- depending on whether I have that right, and then just how you're thinking about the fourth quarter within both channels.

Sure. Thanks, James. In terms of the -- if we go from quarter 1 to quarter 2, right, we saw a meaningful change in the volume, right? And the unit volume, it was down about 12% in quarter 1. As we shared, that was kind of broken into 1/3s. 1/3 of it being our SKU rationalization to get out of those low-margin products. 1/3 of it was destocking coming into the year where we saw distribution with heavy loads of inventory to work through. And 1/3 of it was the competitiveness and the kind of the crappy weather situation.

In quarter 2, we're down to 4%, right, on that. So meaningful change in terms of the volume there. And 2/3 of that was really around the low-end SKU rationalization. So in terms of -- we've seen meaningful sequential improvement Q1 to Q2. Our outlook for the second half is not dependent on a sharp change in the market.

The biggest improvement we've had has been in the Americas consumer replacement. Scott shared the strength we've got in Asia Pacific, right, both on the OE side as well as the replacement. In EMEA, we've got great traction with our Cooper going into the Tier 2 marketplace to replace Dunlop. And then in the Americas, we've got a lot of great proof points in terms of things really ticking up in quarter 3 in terms of those volumes.

But to the Americas, again, the quarter volumes were impacted by weaker demand, that severe winter weather, as we've talked about quarter 1 that's clearly not there now and the channel destocking. And we largely see that channel destocking behind us. And we see also kind of the anniversary or the lapping of a lot of our SKU rationalization from the first quarter and then finishing that up in quarter 2. So the second half is really a much better comp in terms of us having rationalized those low-end SKUs.

To your point on OE, it's the growth that we've seen all around the world, right, 3, 4 and 5 percentage points year-on-year and the strength of our consumer OE, particularly as we look compared to our competitive set, right? We've been really excited about the growth in consumer OE that's setting us up right for the future, James, right? And all in the 18 and above premium rim sizes. And we're also -- on the commercial side, we're seeing some really positive trends there as things start to look up there.

That's great. I appreciate that color. And then, I mean, if we can, can you discuss the major bucketed items for the full year or speaking specifically to the fourth quarter either way, right? Like does overhead absorption finally turn the other way in the fourth quarter or not yet? How should we be thinking about price/mix versus raws for the fourth quarter? And then any color you're willing to share on the non-raw mats inflation as well?

Sure. Thank you. I can speak to that. So if you take Mark's point just in terms of the volume dynamics, again, Q3, we guided to roughly flat. For Q4, we'd expect maybe slightly better to that. If you really look at the starting point, 2025 SOI was about $1 billion. If you factor in the divestitures that we talked about, that gets us to about $800 million. So then walking through the puts and takes from there. Our take is that raw materials will be essentially neutral on a full year basis. Offsetting that, price and mix should contribute more than $200 million, that's bucket one.

Bucket two is Goodyear Forward benefits are expected to offset inflation and other cost increases, which puts us with the largest headwind overall is volumes and the resulting impact on fixed cost absorption. That together, ultimately, we believe, is going to reduce SOI for the full year to the tune of about $350 million. And then again, on tariffs, we think the full year impact of that, even though getting better over the course of the year into the second half, is a full year impact of about $50 million.

So James, just to reinforce, I mean, I think that this -- everything that Scott just walked through lands us essentially in the same place as we communicated the outlook to you guys last time. And that's true of the volume outlook as well, right? I think last call, we talked about obviously a headwind in the first half turning into flat to slightly up in the second half. And essentially, what we saw in Q2 was fairly in line with our expectations. And so the second half is really a continuation of that.

Understood. So yes, the similar SOI for the full year of around $600 million, I believe, was where we all arrived at. But...

Yes. I mean, I think it's -- yes, we're maybe a touch higher than that, but I think that's certainly in the ballpark.

We'll take our next question from James Mulholland with Deutsche Bank.

This is probably a little bit more for you, Mark. I think it's fair to say that Goodyear Forward did generally what it was supposed to. But as, at least in part an externality, you've had almost 16 quarters straight of year-over-year volume reduction. So now you have a fairly significant overcapacity overseas. You've closed a few plants and Fayetteville is probably a good start. But I was wondering if you could give us a sense as to what moves are next that you and the team are considering. So whether that's more plant closures, more asset sales, monetization of the retail business, which seems like an opportunity. Just some high-level thoughts, if you wouldn't mind.

Yes, sure thing. Just to recap again to Fayetteville, as Scott mentioned there, right, it's -- as we look out to really 1.5 years, 2 years out, right, it's about a $270 million per year lift to the SOI, specifically in the Americas and globally for us. So it really is about matching supply with demand.

We continue to do all of the things that we need to do in terms of as we shared with you before, controlling the controllables. And again, on the Goodyear Forward, we clearly see we're going to trigger past $1.5 billion of savings in the coming couple of months here, which is great. We've embedded that into our DNA, and we continue to drive, as I shared about -- it really is about our operating discipline, the cost focus.

And so as we think about Fayetteville specifically, right, that's taking a capacity out that at peak was between 7 million and 8 million units, James. So it really is to balance that in terms of some of the headwinds that we saw here in the first half and looking back over the last couple of years, right, around that unabsorbed fixed cost.

Meanwhile, the manufacturing team is not standing still, right? We are continuing to modernize. We're doing -- the modernization plans are fully being executed and continue to be, such as in Lawton that we've shared with you, Napanee expansion, doing our digitalization of the plants to be able to be very tight in terms of our flexing of the plants, managing the inventory as well as other expansions such as in Americana and South America. We've also focused heavily in Debica in Eastern Europe as we were now completing that second plant closure, which we announced right as I came on board between the Fulda and Furstenwalde and getting our [ Seg-A ] or that premium capacity moved over into Eastern Europe, which is a meaningful shift as well. So I feel very good about the investments that we're doing there and the restructuring activities that we're doing to make Goodyear more competitive.

Okay. That's quite helpful. And I guess, Scott, welcome. This question is probably a bit more for you. Based on the walk that you gave us -- to the other James a few seconds ago, it sounds like probably for this year, cash flow will be neutral or even some cash burn, understanding, of course, that next year, you have some expenses around the Fayetteville plant closure. Is it fair to think that next year might be another year of cash burn? Or you have this -- at least a little bit of padding on the balance sheet from the debt raise. But I just want to get your thought on when we might start to see that turn around.

Yes. To your point, for fiscal 2026, we do expect it to be a burn year in the tune of about $200 million to $300 million. To your point, notable item in the mix being Fayetteville at about $100 million for the year. We would expect to have some continued burn into 2027 as well. But to your point, it will definitely start to moderate. And when you factor in Fayetteville's benefits of nearly $250 million in 2028, clearly, benefits like that will start to flow through.

We'll take our next question from Rajat Gupta with JPMorgan.

Yash Beswala here for Rajat Gupta. Maybe just wanted to ask on the raw mats piece into 2027, just given the 6-month lag effect, the raw mat spike that we're seeing right now should start hitting the P&L early next year as well. So I just wanted to understand some underlying assumptions about what you're seeing on the ground today, maybe in the current spot rate? And how should we think about just the year-on-year headwind into first half next year?

Yes. So on the last call, on the first quarter call, the company talked about an expectation that raw materials are going to be headwinds for the second half to the tune of about $200 million. And to your point, while we've seen some slight improvements, clearly, there's a lot of uncertainty that's still out there. And so accordingly, we haven't seen enough to really update or change our outlook around that $200 million.

Why? Obviously, the point you raised, the lag effect dynamics, the supply chain dynamics, refinery economics, all those things are clearly a factor in that. And so we think that pushes us, and essentially, those were already baked into the company's expectations that were conveyed in the first quarter, particularly related to the fourth quarter.

I will say, to your point, as we start to look into 2027, clearly, we were encouraged by the dynamics coming out of the Middle East and any stabilization there flowing quickly through to oil. And so we would start to see some benefit of that as we get into 2027. And then the other factor in consideration in all that is raw material indexes on that portion of our business where we have those, roughly about 1/3 of the business, we would expect those to begin to reset higher as we move into 2027, and that's a benefit as well.

Helpful. Just wanted to ask another one on just the commercial vehicle side of things. So I just wanted to see what are the underlying trends you're seeing in the month of July and August now across both OE and replacement channels. We have some participants who are pointing to like seeing some early signs of recovery here after hitting the trough. So I wanted to understand a little more on what you were seeing on that front.

Sure. Thanks. The overall fundamentals in the commercial market are looking better, right? There has been some decline, obviously, specifically in the Middle East in terms of the outlook for that. The rest is relatively flat or just slightly down as we look at some of the replacement cycles.

On the OE front, as we shared with you in the last call, I think things were looking 200% up year-on-year. And where we're at today, we're seeing it about 100% up year-on-year in June. Reminder, right, that's on a very low comp number, right, with the industry being the lowest it's been really kind of in the history of that marketplace when we think about Class 8 truck business. But what we do see the truck capacity tightening, freight rates are moving higher. We continue to see the purchasing manager index, PMI, above 50 for the entire year, which gives some reasons to believe in acceleration and that the manufacturing sector is starting to pick up as well, right, which is absolutely key towards that overall freight activity picking up, that's helping that replacement business, retread business, et cetera.

So in quarter 2, we saw our commercial OE shipments up for the first time in 2 years, right? So it's going to be, though, we have to remember, right? It's super depressed industry levels for commercial, and it's going to need more than a year for it to get back to kind of a mid-cycle level of production from the OE side.

But to the replacement, to that point, right, the improvements in fleet profitability that's been seen in the market is really about capacity rationalization across the industry, which is elevated freight rates, carrier profitabilities. But net-net, the freight volumes are still down year-on-year. So -- but that's why, again, as we refer back to that PMI, that purchasing index above 50 and manufacturing picking up, we think that's a really important step to us getting back on a better footing as an industry and specifically for Goodyear as part of that.

[Operator Instructions] We'll take our next question from John Healy with Northcoast Research.

I wanted to go back and talk a little bit about the retail business here in the U.S. Mark, there's been a lot of M&A kind of activity amongst retailers of late, some sizable-type movements. Would love to get your thoughts just about how -- and I know it came up briefly just a few minutes ago, but just how you view the retail asset? Is it something that you feel Goodyear needs to be in for its kind of long-term success? I know you're launching this week kind of a revitalized new concept up in Detroit. So I would love for you to kind of address the position you guys are in there.

And as you look at some of these transactions that are going on in the marketplace, does that help, hurt the restocking? Does that help, hurt Goodyear's position, do you think, within the replacement category?

Sure. Thanks, John. A couple of key points when it comes to retail. Let's start maybe with company-owned retail in the U.S., right? So we're -- we continue to march forward with really the turnaround or the improvement in the robustness of that business, and that business is performing better than it has in over 2 decades. So really, really, really pleased with that. A big shout out to our retail team and the Americas team for just the improvements in that business, right?

What I really enjoy about that business is it puts us direct consumer-facing and gives us a direct flavor of what all of our customers are going through as they are working with the end consumer. So for me and throughout my career, it's been an important point to have some of that so that we can stay close to customer and consumer at same time.

To your point on the concept store, we're really excited about launching that next Friday -- next Saturday. And it's really about a destination location, if you will, of car enthusiasts and what better place to do that than in my former home of the Motor City to start that out, right? So where cars and coffee is just part of the DNA of Detroit life, right? So let's take something that may be not the happiest purchase for everybody. We've got the enthusiasts that love it, and we've got other folks that just need to buy them.

So we want to make it something that's special and fun. And again, it's about our Goodyear DNA, right? It's about performance, race to road. It really is about being consumer-centric, customer-centric, and we feel that this kind of puts that on stage, if you will, right, in terms of additional learnings for us and bringing folks back to the brand.

As I joined 2.5 years ago, it was one of the things I shared with you guys, we had been out of the marketing and advertising business for too long. We had talked a lot about mixing up, but we hadn't actioned that. So in fact, we're back with the Still commercial. We're back with Fast Is In Us. We are back in terms of winning at Tire Rack of having the #1 high-performance tire in the marketplace. And we are back when it comes to being much more consumer-centric and doing what we say we're going to do. So that was a long-winded version of -- I feel pretty strongly that -- really, really, really pleased with our internal retail team.

To your point, in the broader issue, right, we have a lot of channels that we participate in between our large chains, our distribution, our smaller retail shops, our franchisees, et cetera. And there have been -- continues to be a lot of consolidation and PE activity. We have a very robust program called Velocity for our smaller dealers that -- a strong loyalty program where we combined our Goodyear and Cooper programs, which had not been finished since the acquisition, we got that wrapped up, great feedback. And it's about us being much more easy to work with and to understand where we're at and working with our customer base.

And that's what's important to us. We're working through as we have been, my 2.5 or 3 years and before that as well, with our sales teams directly with each of the channels and what their specific needs are. I feel very good about within this consolidation, we have done well with our share of business and getting the right portfolio screens for each of those customers based on their specific needs and where they're going in terms of the market and the market placement.

While I share -- we are rationalizing low-end SKUs we cannot make money on that are too long in the tooth. At the same time, we're making sure we have a refreshed or vitality as we call it, a refreshed lineup all the way across. So we have a full portfolio and our power lines are fully vetted out for each of our customers, so they have a complete offering for every customer coming into their -- each consumer coming into each of our customers' shops.

Great. That's very helpful. And I just wanted to ask just a kind of financial question on the rationalization line as well as kind of some of the things you're going to be doing with Fayetteville. When you guys talk about rationalization, does that also include the dollars to kind of reallocate and kind of retool wherever that capacity is going? And when you talk about the savings of $100 million or $270 million, does that include kind of the start-up or transition costs that go into the facility where that -- where those volumes are moving to?

Yes, absolutely, John. It includes any mold CapEx. It includes movement or recertification of product and getting the ramp-up curves, getting things to where last off, first off, same quality, same uptimes and all of that is taken into account in those numbers that Scott shared with you earlier.

P&L and the balance sheet dynamics associated with that.

We'll take our next question from Itay Michaeli with TD Cowen.

Welcome, Scott. Maybe, Mark, first question on -- with all the portfolio rationalization and evolution in the SKUs and of course, the go-to-market strategy, I'm just curious how we should think about the impact to overall volume going forward. It does seem like your second half exit rate for volume positions you maybe to grow global volume by low single digit next year. I'm just trying to make sure we're thinking about that the right way, just given some of the changes in the portfolio and SKUs and, of course, the go-to-market as well.

Yes, sure. Thanks, Itay. As we shared with you before, right, last year, we had about 40% more new SKUs and power lines into the marketplace than we've ever brought forward. Again, a big shout out to our engineering and manufacturing team for making that happen. Those are all flowing meaningfully into the market now, which, again, is part of those proof points as we think about the second half and going into '27 as well.

As a reminder, right, a lot of that greater than 18 and above, and especially the new power lines, where we have built out the power lines that were not complete in terms of a full portfolio for our customers, as I just shared with John. At the same time, it's -- those were literally blank space products where we were not participating in the market. Now those typically are tail SKUs, right? But meanwhile, they're tail SKUs, much more meaningful in terms of the revenue and the margin profile of those products. Some of the ones that, as you well know, and we've seen, right, in the numbers of rationalizing on the low end, where we were participating in areas, quite frankly, for too long that we could not compete in nor convert that into the double-digit profitability that we're still marching towards.

So long story short on it, we'll continue to optimize the portfolio. We have another big year of things coming out this year as well as next year, which fully builds out the portfolio in what we laid out in terms of the 18 and above. At the same time, there are certain things around the world, 18 and above or premium mix, we're really trying to moderate how we say that because around the world, 18 and above is not necessarily it, right? In South America, it's more like 16 and above. It's about premium market share, right? It's about premium products. So it means different things around the world for that, and we're doing that within each of the geographies on that, Itay.

That's very helpful, Mark. And then as a follow-up on the financials, curious at a high level how to think about kind of costs into 2027. If we assume kind of normal course inflation of a couple of hundred million, should we think about the $90 million Fayetteville savings as being incremental to sort of normal cost offsets you would take to kind of offset inflation? Or do you kind of need that $90 million to offset sort of normal course inflation and other costs?

Maybe I'll start, and I'll turn it over to Scott on it, right? It's -- yes, absolutely. It's a meaningful part of our offsetting inflation headwinds going forward. But that is very much about balancing supply and demand in the areas of the market we want and need to participate in versus trying to be everything to everyone, right, and running these larger volume, low-end SKUs that are just running for a contribution margin, which makes no sense in the long term to run that hard, right, for so little. So that's why to balance that.

Meanwhile, within manufacturing and across the zone, right, it is embedded in our DNA from the Goodyear Forward, which really is about offsetting inflation with productivity. And that doesn't mean only a closure scenario. It really is about continuing to invest in the future for modernization, automation, improving waste, improving those things while continuing to have top-notch quality products that people want. And from that side, then, we will -- let me let Scott take it over on some numbers there.

No, not numbers per se, but if you go back to sort of my opening remarks at the beginning, one of the things certainly that I've noticed here is, take Fayetteville, clearly, that's a structural item. There was a question earlier about other kinds of things like that, that the company is considering. Those are being evaluated. But really across the company, that continuous improvement mindset from SG&A, all the way through manufacturing, the punch list of projects that people are actively working to address those productivity dynamics are absolutely part of the mandate and the expectation that Mark and the team are driving down through the business. So clearly, that is the expectation.

And I would add too, Itay, really it's that same clarity and focus on that controlling the controllables that continues, even though the official part of Goodyear Forward, again, we're going to go past $1.5 billion at this point. But every function, every region, every [ TBU ] are driving that with a regular cadence that's been embedded as well of governance where we're holding ourselves accountable whether it is delivery of the new products from engineering, whether it is offsetting inflation headwinds and finding ways to improve the overall cost and efficiency in manufacturing to our direct and indirect material costs and so forth. So work streams in all of those areas. And the teams are absolutely laser-focused on getting that done.

At this time, we reached the end of our time for allotted questions. I will now turn the call back over to Mark Stewart for any final or closing remarks.

Okay. Thank you, Brittany. Again, guys, we are laser-focused on resources of the areas of Goodyear, which can compete the most effectively to create value, value for our shareholders, value for our employees and making sure we're doing products that are exciting. The actions that we're taking really are all meant to serve that strategy, build the right portfolio, manufacture the products in the right footprint with the right cost structure and win customers through our sales execution.

The priorities really reinforce one another. They position Goodyear to create stronger financial performance. And we're really encouraged by the evidence that strategy is taking hold, right? That higher mix of 18 and above products all around the world, the OE market share gains across every region that are setting us up for the replacement cycle 2 and 3 years out to have a robust pipeline of premium 18 and above products and the wins that our teams are having in each of the marketplaces in terms of the performance and again, our goal of being #1 in tires and service. So thank you, guys, and thanks for joining today.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to our first quarter 2026 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP measures. For more information on the most significant factors that could affect future results and for reconciliations of non-GAAP measures, please reference today's presentation and our SEC filings. Our earnings materials, including a replay of this call, can be found at investor.goodyear.com.

With that, I'll hand the call over to Mark.

Thank you, Ryan, and good morning, everyone. We appreciate you joining our call. As we look at the quarter, you'll hear Christina and I walk through how we are staying disciplined as market dynamics continue to shift and how we're managing through the current environment.

With that, let's start with our results with the Q1 summary. First quarter operating results were largely in line with our expectations and reflected industry declines in both consumer OE and replacement demand in many of our markets. In that environment, both EMEA and Asia Pacific regions showed year-over-year segment operating income growth and SOI margin improvements. Conditions in the Americas were challenging. Weak consumer and commercial demand, retailer and distributor destocking and increased manufacturer promotion weighed on the results. At the same time, Goodyear Forward savings continued to exceed plan. We generated $107 million of SOI benefits during the quarter.

While Goodyear Forward was launched as a 2-year program, the actions we took simplifying the business and improving productivity continue to deliver benefits for us today. The conflict in the Middle East has introduced more uncertainty, particularly around raw materials and potential end market demand. When you add that to already weak industry trends, it creates a challenging backdrop for the coming quarters, but one we're well prepared to manage. In the Americas, consumer OE industry demand declined, reflecting lower OEM production. Even in that environment, we grew our OE market share by about 2 points in the quarter. That progress really reinforces our confidence in our OE strategy and continues to build a strong pipeline for future premium replacement demand over time in the replacement cycle.

On the consumer replacement side, U.S. industry demand declined, driven by harsh winter weather and a cautious consumer. As I mentioned earlier, manufacturing promotions carried over from the fourth quarter given a weak demand environment. Against that backdrop, we stayed disciplined on price mix, and we did not chase near-term volumes. Americas first quarter volumes also reflect planned actions that rationalize low-margin noncore brands, noncore product lines as we continue to work to streamline our portfolio of product offerings in the marketplace.

As we look to the second quarter, we expect consumer replacement volume to improve from first quarter levels given the sharp destocking we experienced in Q1 and new assortment wins achieved by our sales team with key U.S. customers. The Americas commercial truck tire business continued to be impacted by tough comps and a continued weak freight environment during the quarter, showing meaningful declines versus last year. Volumes remained at a very low level and operating results in our Americas commercial business continued to be challenged given the multiyear downturn in U.S. freight activities. Our focus here is clear: improving the trajectory of earnings through price mix and a strong focus on cost. We believe our industry-leading cradle-to-grave fleet solutions business model will help us win with our customers.

Turning to EMEA, where our consumer OE business continued to gain share, growing by roughly 2 points despite industry volume in both OE and replacement declining in the region. In fact, Q1 marked the ninth consecutive quarter of OE market share gains in the region. EMEA's consumer replacement volume was lower, driven primarily by 2 factors: increased competition in low rim size tires and like the Americas, our strategic portfolio rationalization of low-margin products. Importantly, the Middle East represents a very small portion of our EMEA sales, and we did not see a material volume impact from the conflict during the quarter. In EMEA commercial truck, industry demand improved somewhat with replacement demand up slightly and OE increasing following gains in the second half of last year. We continue to see opportunities to improve our commercial business this year through price mix, and through increasing operational efficiencies in our solutions business.

Finally, as we shared with you on our last call, we completed 2 major factory restructuring actions in Europe in '25. Another is underway this year. EMEA's cost base is seeing improvement, and we expect high utilization across our consumer capacity in the region. We also expect a final decision on the EU tariffs on Chinese consumer tire imports this summer.

In Asia Pacific, SOI margin was very strong, with share remaining relatively flat in the quarter, our volume performance reflected underlying market conditions. Our strategy to expand in rim sizes 18 and above continues to gain traction. We're encouraged by our progress. Premium over 18-inch tire sizes now account for 55% of our consumer sales in the region, a 4-point increase over Q1 of last year. Across our SBUs, our teams have taken decisive actions to strengthen our portfolio. In EMEA, we've relaunched the Cooper brand with a refreshed product lineup with first quarter volumes exceeding expectations. And just this past weekend in the U.S., we introduced our new Fast Is In Us brand campaign in support of our Eagle tire launch. Both reflect where we're choosing to invest in strong brands and products that meet our customers' needs. It's encouraging to see these efforts translate into tangible improvements in 2 of our 3 regions despite the challenging market conditions. This highlights the strength of our execution and positions us to drive value creation with a more premium product portfolio.

Taking a broader perspective on the market, we've been consistent in our conviction that execution on price/mix and cost are critical components of long-term value creation. We remain committed to that strategy. That said, both the macro backdrop and industry dynamics have proved to be somewhat more turbulent than we anticipated at the start of the year. We're responding accordingly, remaining disciplined in our strategic priorities, taking a pragmatic approach to managing the business in the near term. As we think about the path forward, demand and inflation will largely depend on the duration and direction of the current geopolitical conflict and its impact on consumers.

Historically, periods of elevated oil prices have had negative impact on vehicles mile travel with even modest changes in VMT translating into meaningful shifts in the consumer replacement industry demand. In addition to raw material and other cost pressure, the current environment introduces the potential for supply chain disruption. We're actively monitoring this across our supply base, and we're well positioned due to both our purchasing scale and long-term relationships with our supply partners, and we are planning for a range of outcomes to support continuity of supply. In response, we're going to focus the actions that we can directly influence to manage through uncertain environment. As we've shared with you before, it's about controlling the controllables. We have meaningful carryover SOI benefits in 2026 from Goodyear Forward actions.

Additionally, we're accelerating the new cost actions that build on the transformation work we began 2 years ago. That includes a continued emphasis on simplifying the organization, improving efficiency across our manufacturing footprint and strengthening the structural cost profile of the business. We will continue to take action proactively adapting our cost structure as conditions evolve, and we'll provide additional detail as those actions are finalized. In addition to the actions on cost, it's even more critical today that our product development efforts sustain the momentum we've achieved over the last 2 years. This will help ensure our product coverage aligns with the most differentiated and the most profitable segments of the tire market.

In closing, we continue to align our portfolio towards the most attractive segments of the tire market even in a highly dynamic environment. Our consumer OE share gains positions us very well for premium replacement demand in the years ahead. We believe much of the destocking is behind us. As that headwind eases, it should provide a more stable backdrop for volumes. In addition, we're accelerating the initiatives that build on the success of Goodyear Forward, further strengthening our cost structure. This will require us to make some difficult but very necessary decisions to ensure the business is aligned with the environment we're operating in. We have consistently demonstrated strong capabilities to drive those cost transformations. We are confident this approach will position us well over the long term.

With that, I'll turn the call over to Christina. Thank you.

Thank you, Mark. While our operating performance in the quarter was in line with our expectations, the conflict in the Middle East will materially impact our costs. With a high degree of uncertainty around the duration of the conflict, our approach is similar as to how we've navigated earlier macro pressures. We are proactively preparing for a wide range of scenarios. We're implementing further profit-enhancing actions and have already initiated prudent steps on cost management. As events continue to unfold, we'll maintain the flexibility to adjust our approach as needed. I'll come back to the outlook in just a few moments.

Turning to the income statement on Slide 6. First quarter sales were $3.9 billion, down about 9% from last year, given lower volume and last year's divestitures. Unit volume declined 12%, driven by lower consumer replacement volume in Americas and EMEA. As Mark mentioned, consumer OE volume increased, driven by share gains in both of those regions. Gross margin improved by 0.5 point, which includes a $46 million tariff adjustment related to the IEEPA Supreme Court decision in February. SG&A increased $18 million, which was more than all explained by the weaker U.S. dollar, particularly against the euro. Excluding currency, SAG decreased $10 million. Segment operating income was $95 million. I'll note that our effective tax rate was unusually high given our country mix of earnings. After adjusting for significant items, including new rationalizations and discrete tax items in the quarter, non-GAAP earnings per share was a loss of $0.39.

Turning to the segment operating income walk on Slide 7. Our 2025 earnings base was lower by $37 million due to last year's divestitures. After this change in scope, our 2025 SOI was $158 million. Lower tire unit volume and factory utilization were a headwind of $159 million. Price/mix versus raw materials was a benefit of $103 million. Goodyear Forward contributed $107 million of benefits during the quarter and inflation, tariffs and other costs were a headwind of $117 million, which includes a $46 million IEEPA tariff adjustment. Foreign currency and other were a tailwind of $3 million.

Turning to Slide 8. Free cash flow was a use of $893 million in the quarter, consistent with our seasonality and largely in line with last year's levels after excluding operating cash received in the first quarter 2025 from the sale of OTR. Net debt declined almost $900 million versus a year ago, reflecting debt repayment at the end of last year.

Moving to the SBU results on Slide 10. Americas unit volume decreased 17%, driven by lower U.S. consumer replacement volume. Commercial volume was also significantly lower than last year, following trends in recent quarters. U.S. consumer replacement volume reflected a couple of different factors. First, the external environment. We saw destocking at our retailers and distributors given weak industry sell-out trends as well as market share losses following aggressive competition for shelf space, particularly in the less than 18-inch rim size segments. The second factor was our own planned exits of low-margin product lines, which amplified our volume decline in light of the difficult industry environment. We will lap the majority of our product exits by the end of the second quarter. And it's important to note that our premium products continue to perform well as we look at our market share at retail sell-out. Having said that, competitive market share losses in structurally vulnerable lower-tier segments requires that we accelerate actions to reduce footprint costs.

Turning to the commercial truck business. Replacement volume declined 22% and OE volume was down 5.5%, but relatively stable compared with the fourth quarter. Americas segment operating income was $37 million, reflecting the impact of lower volume, partly offset by price/mix versus raw material benefits and Goodyear Forward savings ahead of cost inflation, net of the IEEPA tariff adjustment.

Turning to Slide 11. EMEA's first quarter unit volume decreased 8.5%. Consumer replacement volume declined, reflecting a weak sell-in market, low-end portfolio rationalizations and increased competition, partly offset by the relaunch of the Cooper brand in the region. Consumer OE was a continued area of strength and commercial volume improved, driven by replacement. Segment operating income in EMEA was $1 million in the quarter, reflecting an increase of $13 million adjusted for the sale of the Dunlop brand. I'll also note that in March, we announced a rationalization plan to streamline our sales and distribution model and our business processes that should deliver $50 million in annual savings. The plan should be complete by 2028.

Finally, as Mark noted, our direct volume exposure to customers located in the Middle East is relatively immaterial. In addition, before the beginning of the conflict, we have fixed about 75% of our energy rate exposure in EMEA for the current year. And finally, EMEA should see much less of an impact from rationalized product lines in Q2.

Turning to Asia Pacific on Slide 12. Segment operating income increased 27% to $57 million or 12.5% of sales, expanding 3 full points compared to the prior year. Growth in earnings was driven by strong execution in price/mix versus raw materials with our premium product lines up nearly 30% year-over-year. Asia's first quarter unit volume decreased 3.8%, driven by lower OE volume, particularly in China, given lower EV incentives versus last year.

Turning to our 2026 outlook. The direct impacts of the conflict in Iran on the tire industry and our earnings largely depends on its duration, related impacts to customer and consumer demand and higher commodity costs, all which make the outlook for the balance of the year unclear. At current spot prices, raw materials will be a headwind of $200 million in the second half, which represents a headwind of about $300 million from our prior forecast. We have a consistent track record of offsetting raw material inflation with price mix, and we are fully committed to new and meaningful operating and structural cost reduction. While there is very clear pressure on our near-term earnings, I am confident in our team's ability to manage through various scenarios that might unfold over the coming quarters with both price/mix and cost actions over time.

As we look at the second quarter on Slide 14, we would expect lower year-on-year volumes, but improving from the first quarter, all else equal. This expectation is rooted in new assortment wins with key customers, actions we implemented during the first quarter and a more natural alignment of sell-in relative to sell-out. Having said that, it's not clear what demand volatility we may see due to the Middle East conflict. Our second quarter industry assumption for consumer replacement is down about 3% in North America and China and down about 2% in EMEA. For commercial, we expect the industry in North America to be down 12% and down 3% to 4% in EMEA.

Given production cuts in the first and second quarters, including actions to manage our cash flow during this period of uncertainty, unabsorbed overhead will be a headwind of approximately $90 million and negative again in the third quarter. Price/mix should continue to be positive and step up meaningfully from the first quarter given stronger volume and our mix of new fitments, all else equal. Raw materials should be a benefit of roughly $100 million, and Goodyear Forward will drive benefits of approximately $90 million in the quarter. Inflation, tariffs and other costs will be a headwind of approximately $200 million. On a full year basis, these will be about $420 million higher, which is a reduction of about $80 million from our February call, driven by the IEEPA tariff adjustment of $60 million, $46 million of which we recorded during the first quarter. Finally, the sales of Dunlop and Chemical lowers the base of earnings by $43 million in the second quarter.

Other financial assumptions are shown on Slide 15. Given the uncertain environment, we have reduced planned capital expenditures to $725 million. Our global tax rate will continue to be unusually high and sensitive to changes in country mix. And finally, while our working capital for the year could be shaped by both timing and levels of volume and commodity rates, we will continue to target a working capital inflow at year-end.

With that, we'll open the line for your questions.

[Operator Instructions] And we will take our first question from James Mulholland with Deutsche Bank.

I just wanted to dig in a little bit on the raw materials headwind in the back half of the year. Given the volatility, I was wondering if you could share some thoughts on the sensitivity of SOI based on oil prices. I mean we've seen a pretty material move yesterday and then again this morning. So it would be helpful if we could ballpark the impacts on the guide. I guess put another way, I'm not sure what the oil price of the current guide incorporates is, but if oil were to change $5 or $10, could you give us some sense of what that sort of benefit might look like?

This is Christina. Thanks for the question. So we -- our spot prices that are noted here in our first quarter conference call are pulled as of April 29. That equates to a crude oil closing price of about $106 per barrel. And so obviously, with the volatility we've seen yesterday, it could be some impact on the forward outlook. Obviously, there's been a significant amount of volatility. We do provide in our supplemental information on our website, sensitivities to changes in raw materials. With oil, in particular, you're going to want to pay attention to synthetic rubber inputs like butadiene and styrene, which are levered more toward oil than some of the other input costs. We also see a strong correlation to pigments, chemicals and oils, which are also a significant portion of our raw material buy.

Got it. So I guess, recognizing that you do have index pricing agreements in place for OE tires, that's on a lag. So you won't probably see any help there at least until fourth quarter. Our sense is that some competitors have started to push through price increases on replacement to help offset any raw materials impacts for the year. Understanding there was a 4% to 6% price increase last year in North America, would you look to do something similar? And could we expect to benefit from that in the back half of the year to help offset some of those headwinds?

You're right. I would say about 1/3 of our business is linked to index agreements for increases in raw materials. Those do reset on a lag on average that takes about 6 months or so. So we do have this timing mismatch with a significant increase in raw materials that you're pointing out. So that's the first point. Up until now, I can say we have announced price increases in EMEA for consumer, that's about a 4% increase and in commercial, about a 7% to 8% increase earlier in April, May time frame. And we will obviously look to continue to increase price/mix to offset the headwinds that we're seeing in raw materials as well as take action on costs to manage through the current volatility.

We will move next with James Picariello with BNP.

This is [ Jake ] on for James. So just at a baseline, how are you thinking about volumes in the second half? And I realize it's a tough question to answer just given some of the volatility. But just based on my math, if we assume 1% OE and replacement growth in the second half, SOI for the year should be somewhere in the $600 million range. Are we thinking about that right?

So maybe I'll start and Mark can chime in. I would say the overall forecast hasn't changed materially when we think about the flow, in that we do expect volume to improve sequentially each quarter on an absolute basis, and we still should get to year-over-year improvements in the second half, obviously, still dependent on consumer demand and some volatility we may see in VMT just related to gas prices. Having said that, we are annualizing some of the Q1 share loss in Americas, which equates to about 2 million to 2.5 million units lower volume in the second through the fourth quarter versus our February outlook.

Yes. Maybe just to tack on to that, right? As far as what did happen in the first quarter, right, when you think about the Americas volume specifically, and it's about 1/3, 1/3, 1/3. When you think about destocking is about 1/3 of the volume delta in the Americas. Our optimizing the portfolio, as we've shared with you guys over the last 2 years, moving out of the lower to no profit pool, lower rim size pieces, as we had planned for that through the process. So that's about 33% of it. And then we saw definitely increased competition in the fourth quarter, particularly on the lower rim sizes with very aggressive pricing in that.

And as we shared with you guys as well, we are not chasing profit into a nonprofitable zone, right? So -- sorry, chasing volume into a nonprofitable zone. So we've continued our absolutely our road map of moving up and proof points to believe, as we shared, we released 40% more new products in the higher rim size last year around the world. Proof points on AP, right? We were substantially up. We were up nearly 3, 4 percentage points. I think 4. We moved from 51% to 55%, 18 and above, with record SOI and AP for the quarter. In EMEA as well, great proof point there of moving up. And as well, we've launched the Cooper to replace the Dunlop volumes. We're marching ahead of our launch ramp program with really great receipt from customers and end consumers.

So we feel very positive about EMEA and really securing that strong Tier 2 marketplace for EMEA. In the Americas, we continue our mix up there. We have moved up from a 42% to 50% greater than 18 and above year-over-year in our consumer replacement, and we continue to launch the new products into the marketplace. And just last weekend, we had our big launch on our new Eagle tires globally, but starting here in the U.S. to fill those white spaces we've shared with you guys before. So we feel very good that we've got the right products, especially as we think about kind of the K economy of the more resilient pricing and a little bit more Teflon-proof, shall we say, in terms of the pricing in those upper rim sizes.

And then could you just provide an update on the trade environment? Based on our tracking, it looks like tire imports into the U.S. are finally starting to fall off a little bit. And then in EMEA, it looks like the European Commission might be set to implement some duties on Chinese imports in the next couple of months. So you can talk about what you're seeing and what the potential benefit could be there?

Sure. Maybe just to start on the EMEA front. By mid-summer, we're anticipating that the EU will give their ruling in terms of the tariffs on Chinese tires coming into Europe. So we hope we'll have news for that as we do our second quarter announcement, but that's the latest info we have is mid-summer, they'll be making the announcement on that. In terms of the U.S., with the lower imports, we did see some destocking. As you guys know, last year, there were the pre-buys around the tariff. There were lots of things with the tariffs moving a lot throughout the year and a big stocking of product. So we do see that starting to destock. Christina?

I don't have a lot to add. I can maybe layer on some statistics. The nonmember imports in North America were down about 7% in the first quarter, which is a positive trend. Having said that, they do remain at a relatively high level compared to historical periods. But I think when you couple that with the elevated raw material costs, we think that's constructive as we think about the layout for imports in the coming quarters.

We will move next with Ross MacDonald with Citi.

Three questions from my side. The first one is just on that destock that you're calling out in North America. How far through that process do you think you are? Maybe you could talk a little bit about whether there's further destock ahead of us in Q2 or if that process is largely done now? And then within that, how you would assess the Goodyear inventories within the dealer network in the U.S. and whether there's some opportunity to gain back some share in Q2 by topping up dealers.

The second question on mix specifically. I know you don't guide on mix, but given the points you called out, Mark, around the K-shaped economy, the higher rim size share gains that you're making, how should we think about mix more structurally within Goodyear? Is there any steer you can give us for '26 and beyond on sort of structural mix benefits from that work you're doing cutting the lower value-add SKUs?

And then just a final question on U.S. trucks. It looks like on some of the freight data that the activity troughed around January. So just be curious what you're seeing maybe on April trading, if there is a little bit of momentum coming back to the freight activity. And linked to that, whether you're also giving up some share on the truck side and trying to avoid sort of lower value-add products or if that's specific to the consumer business?

So maybe I'll start on the first question, which is destocking, I think, particularly in North America or the U.S., we did lay out our outlook for the consumer replacement industry in the second quarter, which is significantly better than Q1, but still negative. I think that indicates that maybe there's slightly more destocking yet to go because it's a little bit more than the weakness we're seeing currently in sell-out. Dependent all still on the price/mix environment, sometimes we do see prebuy if there is a significant move in overall pricing across the industry, that can instigate some prebuy. Having said that, with the uncertainty around the consumer, uncertainty around vehicle miles traveled, I'm not sure that I would say we're expecting that here over the course of the next couple of quarters.

The second question was on structural mix over the course of the rest of the year. As we talked about this on our fourth quarter call, we did say we would expect mix to improve and stabilize in the second half of 2026, largely due to the fact that we're comping through the commercial truck weakness that began in the second quarter and third quarter of last year. So structurally, we should see a much stronger mix for us coming out of the second quarter.

The third question was on truck. Maybe I'll turn that one over to Mark.

Yes. For truck and as we look at the commercial trends, right, it's -- the fundamentals of the market are definitely looking better. We need to see that sustain in quarter 2 and on through the rest of the year. And it obviously takes some time for that to flow through the market. But we've seen the capacity of trucking industry tightening up. The freight rates improving. We're starting to see the OEMs increasing their builds. And the PMI or the purchasing index has been above 50 now for quite a few months, which is a key towards that freight activity picking up.

And in talking closely with our customers through our solution business and our fleet services, we -- again, we see the OEM piece moving up substantially over a low number, granted, but moving up substantially. But we get a nice pull from our fleet customers. And we know there's a lot of talk from them in terms of being more positive in their thinking and in terms of the buy.

But what we have -- to your last point question was really around the lower end of the products, we have been -- just like the consumer side, right, we have specifically been rationalizing those low-margin products and getting out of those to really focus on our premium business, particularly the tractor tire business for the truck drive itself, the drive tires as well as our retreading operations and really working to robustly improve our efficiencies around the world from our solution and service business. So we've got a big lift that we're working on. The team is super focused on our cost structure and the value proposition for our fleet customers around the world. And so far, we're on track with those plans through the year, and it looks that we'll continue to improve that through the year.

Our next question comes from John Healy with Northcoast Research.

Just wanted to ask about the competitive position. I think when you look at the release, and I know you guys kind of expected a slower start on the U.S. replacement market. But in the categories in which maybe like-for-like tires are being kind of moved at certain dealers or with certain partners, is there a way to think about just kind of what your organic SKUs were doing and maybe how those performed just so we could kind of put your performance kind of in more what I would say, reasonable parameters to judge that?

Maybe I would start, John, make sure I understand the question right. But it's the -- if we think about what Christina said in terms of sell-out was stronger than sell-in, right? So there was the destocking that happened from the buildup over quarter 3, quarter 4 of last year. So that's a portion of it. We were still as well in contract negotiations with some of our larger customers that have been settled out. And so from that standpoint, as we look through that in terms of the volume profile going forward, we're very pleased with our mix up, if I understand organic SKU, right, of our mix with our power lines in terms of products like MaxLife 2, right, the Eagle that I just mentioned that we've completely -- product development has done a super job to reinvigorate and bring new products into the marketplace for that as well as our WeatherReady 2s obviously performed very well in the marketplace.

And so on those power lines, those 18 and above that we have been launching over the course of the last 18 months, and we've got another 36 months of a very robust pipeline coming in. That's why we feel very strong to the -- in terms of the organic growth of our SKUs, if we will, that we are much more meaningfully participating in the higher profit pool, and that will continue to grow because we've got our marketing plans behind it. We've got our sales enablement teams out in the marketplace, and we've got the products to do it with.

That's helpful. And just 2 quick follow-ups. I know Walmart has always been a big customer of yours. And I was wondering if you could talk to the relationship there, if anything is changed there or your working with them has kind of moved along in a certain direction. Just if that's impacting the numbers in a meaningful way at all? And then secondly, are there any further like price increases baked into kind of some of the numbers that you guys have talked to us about the price mix headwinds?

Yes. We don't normally share on a particular customer on this call, right? We can provide some additional color. What I would say is as we look to -- across all of our portfolio, again, we are purposely mixing up the portfolio, refreshing specific SKUs in certain brand sizes where the profit pools are. What I can say, they're a great customer and have been for 40-plus years, right? So we have a very strong relationship and continue to do so. And as we look at that and the growth of brick-and-mortar -- sorry, the growth of e-com along with brick-and-mortar, we're being pretty successful in that arena with them as well.

We will move next to Itay Michaeli with TD Cowen.

I want to ask a question on some of the, I guess, upcoming cost and maybe footprint actions you alluded to. I'm curious if maybe you can roughly kind of size those relative to the original Goodyear Forward plan. And ultimately, I guess what I'd like to try to get at is sort of as you plan these next actions, what sort of timetable that you're trying to target in this sort of new environment to kind of get back to like a 10% SOI margin?

So Itay, I'll start. We talked a lot about footprint actions in this call specifically. Obviously, we are targeting restructuring actions that have a very near-term payback and the restructurings that we've completed over the last several years have all been focused in other regions outside of the Americas. But just given where volume is, in particular, in the Americas this quarter, our restructuring is going to be focused there, which will, just because of the nature of the high cost base, usually deliver a very fast payback.

So that would be point number one. A lot of our other initiatives nearer term that we're adding to the coffers as we think about cost outs over the next several quarters and on through 2027, we're looking at raw material consolidation to help bring meaningful cost out, also simplification within our factories, driving efficiencies, indirect spend, control cost towers on a lot of the different levels of spending across the organization and then, of course, optimizing all other SG&A as well.

Maybe just to tack on it, right? It's -- we really -- we're in execution mode of building on the integrity and the credibility that we've built with you all, with our shareholder base and our associates around the world of the Goodyear Forward program, right? As we've shared before, we really have it embedded in our DNA, in our governance, in our KPIs, in our actions, and we have a very robust road map of what we're doing. And while we're -- we don't have a formal announcement today of what the details of that are with you, obviously, being very sensitive to that.

But it is our intention to share with you guys coming up on the specific cost-out value creation plans, but it is absolutely in keeping with the principles that we've had in Goodyear Forward. But it's, as we shared, right, we continue to top off the cost reduction value creation actions that we had in Goodyear Forward on a very disciplined way function by function, as Christina mentioned, on direct material, indirect material, our product rationalization, making sure that our footprint and specifically our cost flexing is in line with volume demand. So it's the continued journey that we're on there, and we continue to be confident in our ability to execute that credibly as we've been doing here over the last 2.5 years.

That's all very helpful. Maybe just 2 quick follow-ups. First, on the CapEx cut for the year, maybe talk a little bit about where that's coming from and how sustainable that is going forward? And a second quick housekeeping. Is the IEEPA adjustment expected to be also a cash benefit this year?

Sure, Itay. So on CapEx, in particular, obviously, we're reacting somewhat to the current demand environment, which brings down the need. As we think about maintenance in the factories, utilization rates are lower than we would have expected. And we are also applying a new best cost methodology across all major categories of capital spend to help control costs. So more to come on that. But hopefully, as we even move into next year and years beyond, we're able to take capital spending to much lower levels than you've seen from us historically. On IEEPA in particular, the cash inflow, very, very difficult for us to say if that comes later this year or early next. We have booked the receivable based on the Supreme Court ruling, and we'll continue to update you as we move through the rest of the year.

And maybe just to tack on to the CapEx piece as well. Again, as Christina mentioned, right, we've done a lot of work over the last, let's say, 1.5 years with our advanced global engineering team towards developing those best cost solutions, but also best spec solutions, right? So we have completely rethought how we go to market for CapEx in terms of bundle buying, in terms of looking at efficiency of where to have it made, but also looking at what we truly need in the operations as we modernize factories and work on our cost footprint. But we're seeing significant reductions in our CapEx for the ability to produce same as if more -- same as or better quality. And so we feel very good about that, that our CapEx dollars will go much further. So I wouldn't think about it as much of a big reduction in the CapEx bill of starving the future. It really is about feeding the future on a much more efficient base.

[Operator Instructions] We will move next with Ryan Brinkman with JPMorgan.

I wanted to continue with these questions asking around the impact of raw materials, commodity prices, offsets, et cetera. Firstly, maybe starting with the indirect impact of higher commodities because I recall during the pandemic, you actually met quite well with the challenge of passing along the higher raw material input prices, but obviously found it more challenging to contend with all of the unusual indirect impacts of the higher cost of higher diesel, freight, ocean shipping, logistics, electricity, natural gas, et cetera.

And I think there were unique aspects of that particular environment. But I just wanted to check in with regard to how these other costs might be tracking, which in some ways, do find their way back to the same Middle East conflict impacting raws more directly. I think you account for this mostly in the -- when it exceeds the general inflation rate in the other costs and tariffs bucket, I suppose, of the SOI Bridge. And how should we think about that driver trending going forward?

So thanks, Ryan, for the question. We have headwinds of about $40 million, mostly in increased transportation, a little bit of energy in that other cost bucket, just as you pointed out. And that is more than offset by the IEEPA tariff refund adjustment as well as some other cost reductions as we've been discussing so far on this call. I think largely, when we also think about energy in EMEA, I mentioned in the prepared remarks that we have hedged out or fixed a lot of the contractual agreements for our energy costs in EMEA pre-war. So that's 75% to 80% of those rates were fixed before the war. So we feel really good about the position, and we'll monitor the environment for volatility and continue to update you as we move through the year.

Okay. And then with regard to the offsets of restructuring and price mix against all this headwind, maybe starting with restructuring. Obviously, I see you've increased the Goodyear Forward impact here from $300 million to $325 million, up only [ $25 million ] versus the raw mat degradation for the full year looks $300 million-ish, $312 million or -- you dug deeper with Itay just now on the allusions in the prepared remarks, right, with regard to the restructuring actions.

The payback activity -- payback timing, I thought was interesting. It sounds like maybe workforce reductions in Americas that you're looking to maybe not pull the trigger on if the environment quickly resolves? Is that how we should think about it? But also what about magnitude? Because yes, it seems like really price mix, and that will be my next question, but is the only thing that can really offset this headwind. So what's the outlook for company-specific restructuring actions under your control to be able to offset like how much of this incremental raw mat headwind, say, when we annualize it to next year, for example?

Yes. Maybe, Ryan, I can start and then Christina chime in. As we think about -- we really work very hard on our cost flex, our firm versus flexible cost within each of our factories around the world, right? So we have intense governance around that, again, utilizing the principles of the Goodyear Forward in terms of the best cost practice, best quality practices across the plant and implementing those around the plant. Some of that involves flexing of manpower. Some of it involves waste reduction. It's every element of manufacturing 101. So it really is about flexing our costs to match the volume and demand and also the mix of our products. So we have meaningfully moved products that are important for the portfolio into cost locations where we can make the proper returns on those.

We've rationalized footprint -- sorry, rationalized products. We've rationalized footprint, as you know, on the EMEA side, and we continue to look at that all over the world to make sure as we move to global function and global manufacturing, part of that intention was, again, best landed costs for our customers and for our shareholders to make sure that we can hit the right returns and have a competitively priced product in the market. The other part of that price mix, again, is robustly changing our portfolio, as we've shared, right, with filling out all of those blank spaces that Goodyear has not been participating in or where we were, the products were -- the vitality or the freshness of those products were not appropriate. So that's why we continue to march in each of those. It will lead to some additional restructuring, obviously. But we -- part of it is just normal day-by-day, good cost management. Christina?

Yes, I'll chime in. I think about these 2 buckets a little bit differently, Ryan, in the sense that we have a really strong track record of offsetting raw material inflation with price mix. And we talked about sometimes seeing a structural lag because of OE RMI indexed agreements. But having said that, looking back through the history, the inflation that we've seen in raw materials has been covered by actions all in and around price/mix. Then when it comes to volume, and Mark just made these comments, where we're seeing volume pressure, especially at the lower end of the market, just sort of dictates that we address that unabsorbed overhead with cost-out actions in restructuring dollars. And those paybacks are generally 1 to 2 years, and they're going to be right now focused on our highest cost footprint. We can't share more details with you today, but we hope to be able to do that over the coming quarter.

Okay. That's very helpful. And just lastly here, I want to get your thoughts on how things might play out and the impact on Goodyear in a couple of different scenarios here. So hard to predict what's happening in the Middle East. And most of the time I'm thinking, oh my gosh, Brent Crude is going to stay at $120, $100, this is awful. It's going to continue like this. And then other days, the tweet comes up in the White House and it's down 20% on the day, right? So I mean, on the one hand, you sort of just addressed, I think you've got a good track record of passing along these higher costs. I think there was one time where you didn't, right?

And that was kind of when they spiked up, right, at the end of '16, early '17, maybe and then spiked right back down. And I remember when oil fell the most in 30 years or whatnot, the other week, I mean, hopefully, that is the case, it resolves very quickly, right, for the world. But how do you anticipate? And are you prepared for -- do we have to consider that scenario also and maybe making it more complicated to pass along those costs. And of course, the price mix opportunity is not in a vacuum with the softer demand and higher inventory backdrop. So I guess even in the event that they were to stay elevated, how much could you, this time around, maybe hope to be able to offset relative to prior scenarios that I know you do have a good track record for except for maybe the onetime.

Maybe I can start on it, Ryan. As mentioned, I think as we think about the K economy, right, we're seeing the greater than 18 pricing more resilient in the market. We see a lot of competitive price pressures in the below 18 rim size, as we shared earlier, as we do the competitive, the scrapings in the market, looking at sell-out data from the published sources. And as we look to that, right, that, again, it goes back and really reinforces our strategy, which is to position Goodyear as the strong premium #1 brand again, right?

That's been our journey. It's why we continue on that because being in a dog fight in the lower tiers of the marketplace at a very different cost structural base to Christina's point, is not the winning proposition, right? The winning proposition is the journey that we're on, which is to successfully gain. And again, proof points for us, again, in AP, up 4 percentage points to greater than 55%. Same thing of the -- on the -- in the U.S. marketplace, and we've been filling that out in EMEA as well. So we feel good that, that helps that resiliency and also the ability to pass those pricing needs forward into the marketplace.

We will take our last question from Emmanuel Rosner with Wolfe Research.

So Christina, how should we think about free cash flow outlook for this year based on some of the puts and takes that you gave, obviously, on the SOI, but also some actions to preserve cash. And then within that, when we're thinking about some of these potential restructuring actions, should we sort of like budget within that also some extra cash restructuring within this year's outlook?

Yes. So no, thanks, Emmanuel, for the question. I think you're right. We're definitely focused on free cash flow. I do think it's a little too early for us to settle on where we're going to land. I think we're going to need to get through the second quarter, see where raw material prices will fall out in our P&L over the course of Q3 and Q4. But we have given you the drivers that we know today.

Free cash flow is still going to also be dependent on some of those variables. You noted, we've reduced CapEx, and we're committed to managing the business for cash, and we feel really good about the balance sheet position. I would say our free cash flow doesn't contemplate any additional restructuring related to any upcoming announcement that we may make over the course of the next couple of quarters. But I wouldn't expect that anything upcoming to impact our cash flow until next year.

Okay. This is extremely helpful. And then in terms of the second quarter volume, I think that you gave the various pieces. I'm not sure if I caught them all in terms of how you're thinking about it. But I know historically, you have sort of like an overall number in the slide. I think here it might be a little bit more complicated. Is there also more -- can you just go back over the pieces of how you think about second quarter volume, but also is it a little bit more volatile? Or I guess why no like point estimate, I guess, this time in the slide?

Yes. So I mean the consumer demand environment is still subject to gasoline prices. I mean we're pulling up the average gasoline prices last night and this morning, and it's above $5 per gallon. And historically, we have seen a commensurate impact on vehicle miles traveled when we see gas prices spike. So I think what we've given you is our best view and still an improvement for volume in Q2 relative to Q1 and sequential improvement as we move through the rest of the year. But we're going to have to stay agile and continue to update you as to impacts on the consumer over the coming quarters.

And at this time, I will turn the call back to Mark Stewart for closing comments.

Thank you, guys, for joining us today, and thank you for the questions. We really appreciate that. As you heard, right, we are absolutely taking and continue to take decisive actions to navigate through the current environment. We've got a clear focus on cost, a clear focus of matching our cost structure with the demand structure of the market and also keeping to a very strict portfolio discipline of moving up into the more premium product mix. So we're confident these actions are positioning us well in supporting our long-term strategy. As Christina mentioned, we are absolutely focused on our cash flow as well. And with that, guys, we really appreciate you joining today. Again, thank you for the questions.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions].

Please note, this call will be recorded. It is now my pleasure to turn the conference over to Mr. Ryan Reed, Vice President, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started.

During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our SEC filings. Our earnings materials, including a replay of this call, can be found at investor.goodyear.com.

With that, I'll hand the call over to Mark.

Thank you, Ryan, and good morning, everyone. We appreciate you joining our call. I'll begin today with a brief overview of the financial results, then walk you through what we're seeing across each of our business segments. I'll then hand it over to Christina, who will provide a view into our fourth quarter financial results as well as fourth quarter outlook.

Let's start off with quarter 4. We delivered fourth quarter revenue of $4.9 billion, and segment operating income of $416 million, which represents year-on-year organic growth of 18% and continued sequential growth in earnings and margin across each of our geographies. As I mentioned in the press release, we issued yesterday, our fourth quarter results marked the highest SOI and SOI margin the company has achieved in over 7 years.

And our free cash flow was one of the strongest on record. These results cap a year of meaningful progress on multiple fronts for Goodyear. We executed relentlessly on Goodyear forward, where our P&L commitments were consistently ahead of schedule. To date, we have delivered $1.5 billion of run rate benefits under the program. We drove renewed focus on high-value segments of the market and increase the vitality of our product portfolio by launching 30% more new products than most in our company history.

We increased pricing in the U.S. and Canada in response to the tariffs. We won significant share in consumer OE in both the U.S. and Europe. We refreshed our brand advertising and customer programs in key markets. And finally, we completed 3 major asset sales in 2025, returning the balance sheet to a position of health and one that is more reflective of our iconic company's leadership in our industry.

Controlling the controllables. It's at the [indiscernible] I emphasize frequently during the year as the industry environment proved to be and remains very challenging. And while I'm encouraged by our strong fourth quarter results, it's clear that progress isn't linear in today's environment. So I'll move on quickly to what we're seeing in the businesses and how that's reading through into the first quarter.

Start with the Americas. In the Americas, the consumer replacement market remained volatile in the fourth quarter. U.S. consumer sellout decline despite the vehicle miles traveled remaining positive. On the other hand, we saw increased sell-in discounting and promotional activity as we ended the year, which only exacerbated the high levels of channel inventories.

As we've shared, our focus has been on price mix and higher-margin tires, which means we won't sacrifice margin for the sake of fleet volumes. The price mix in our fourth quarter results is a testament to that strategy and the execution. What we saw in January was an industry sellout that was materially weaker than Q4, down about 5% across the industry. Part of this can be explained by the shock of the January storms and [ the fridge ] temperatures around the country but it's also true that consumers are extending the tread on their tires. All of this means that on the back of high channel inventories, dealers and distributors are taking action to reduce inventory in the first quarter.

Similarly, [ trends ] in Americas commercial truck remained very challenging during the quarter. Heavy truck builds in the U.S. declined 17% during the fourth quarter as the OEMs continue to destock. In commercial replacement, industry sell-in leveled out after being artificially inflated earlier in the year with pre-tariff front-loading of the imports. Within the turbulent environment, we remain focused on building the pipeline and the discipline for sustained growth.

This includes making the right changes in our product lineup and programs with our customers to drive a more resilient portfolio of products than we've had before. We are bringing greater discipline through clear matching of products to white space opportunities and high-margin profit pools with governance of our cross-functional work streams, including a fully integrated pipeline across product planning, technology, manufacturing and marketing. This combination ensures we bring the right products to market at the right time, allowing us to grow where we can generate the highest returns. I am equally focused on our manufacturing costs. We are establishing the rigor within our teams to continue driving throughput, yields and efficiencies factory by factory, so we can optimize the way we flex costs to generate the best outcomes for the future. and we are building the team.

Over the past several quarters, I've updated you on strategic hires we've made that are helping to innovate Goodyear and how we approach our business. As our largest region, the Americas is foundational to Goodyear's performance. As we look ahead to the opportunities in front of us, we are refining how we lead the business to drive clear ownership, faster decisions and more consistent execution. In January, [ Jay Chahaki ] joined our team and will lead the Americas and our Americas consumer organization with a strong focus on sales execution, profitable growth and alignment with our global strategy.

Dave brings more than 3 decades of senior sales leadership across well-recognized industrial and consumer companies and has a proven track record of building high-performance teams, modernizing go-to-market models, and driving sustainable margin-focused growth capabilities that align very closely with the transformation underway at Goodyear. I'm confident that this leadership evolution further positions the Americas organization for long-term value creation.

Turning to EMEA. softening sell-in trends within consumer replacement reflected anticipation of EU duties on Chinese tires. While the European Commission recently announced an anti-subsidy investigation into Chinese passenger tires, the time line for a decision on antidumping tariffs has been pushed to midyear. Our consumer OE volumes in EMEA extended their run on market share gains, growing share by roughly 3 percentage points. Q4 was the eighth consecutive quarter of market share gains in the region.

Profitability for EMEA continued to sequentially increase during the fourth quarter. If I look at the underlying operations, we are making steady progress, with EMEA's fourth quarter SOI margin at the highest level in over 3 years. In addition, we settled an important insurance claim during the quarter, which helped to deliver strong free cash flow for year-end. If I look at EMEA from a macro perspective, with 2 major factory restructuring actions in the region completed in '25, another underway in '26, our cost base is seeing improvement.

As the industry works through elevated channel inventory from prebuy activity, we expect high utilization of our consumer capacity in the region. In Asia Pacific, our performance strengthened with meaningful growth in SOI margin, and we're seeing the benefit from strategic actions to prioritize margin performance. Following a year of prudent SKU rationalizations are consumer replacement volumes in the region returned to growth. Consumer OE volume was a headwind for Asia Pacific in '25 as government incentives in China have been geared towards opening price point vehicles.

We are committed to managing our cost to maximize margin and to generate strong returns in the region. Let's turn to Goodyear forward. Our fourth quarter results demonstrate the broader transformation underway across the company as we've sharpened our focus on execution, made deliberate portfolio choices and prioritize sustainable margin performance. Over the past 2 years, we've made substantial progress in strengthening our execution, and I'm proud of the discipline that underpin the Goodyear Forward plan that made this possible.

While market disruption around tariffs and trade has meant we're finishing '25 short of where we need to be, the successes we drove in the fourth quarter gives me confidence in our ability to ultimately deliver on those commitments. As I mentioned on our second quarter 2025 call, these targets are not off the table, and we're still executing with discipline and a sharp commitment to achieving them. There are 2 drivers that can help us achieve these goals, market improvement that allows us to recover profitable volume and continued self-help.

We are not waiting for the market. We've been actively building the next phase of our plan to further drive cost efficiencies while increasing the company's exposure to the most structurally attractive parts of the tire market. As market disruption clears and the visibility improves, we look forward to providing additional details on our strategy, initiatives and the medium-term financial framework. All in all, while our Goodyear forward plan has now reached its 2-year conclusion, we will continue to work to deliver a strengthened foundation we are integrating Goodyear forwards efficiencies, discipline and precision to drive a more durable earnings profile.

With that, I'll turn the call over to Christina.

Thank you, Mark, and good morning, everyone. Our fourth quarter results reflect the execution of targeted actions to strengthen our business over the past 2 years. Goodyear Forward has provided significant benefits and debt reduction has situated as well compared to when we began the transformation just 2 short years ago.

Turning to the fourth quarter results on Slide 8. Q4 sales were $4.9 billion, down [ 0.6% ] from last year given lower volume and the sale of the OTR and Chemicals businesses. Additionally, revenue per tire increased 4% in the quarter, driven by an 8% increase in consumer replacement. Unit volume declined 3%, driven by consumer replacement. In addition, Americas commercial volume declined 14%, reflecting ongoing market weakness. Consumer OE volume increased 2%, driven by share gains in EMEA. Gross margin increased 1 full point during the fourth quarter, driven by strong execution in price/mix and Goodyear forward.

Segment operating income was $416 million, which was up about 9% versus last year and up 18% adjusting for divestitures. SOI margin was 8.5% in the quarter and up 1 point, excluding asset sales. Our segment operating income in the quarter includes $56 million related to the settlement of a business interruption insurance claim, which we have excluded from adjusted earnings per share. After adjusting for this and other significant items, our non-GAAP earnings per share was $0.39. I'll note that we also received insurance proceeds of $52 million in the fourth quarter of 2024.

Turning to the segment operating income walk on Slide 9. Our 2024 earnings base was lower by $30 million due to the sales of OTR and Chemicals. After this change in scope, our 2024 segment operating income was $352 million. Lower tire unit volume and factory utilization were a headwind of $92 million. Price mix was a benefit of $206 million, with each of our regions contributing to the strong performance versus our prior outlook. Higher revenue per tire was driven by both price and mix up, where we grew greater than 18-inch tire volume in the U.S., EU and China. Raw material costs were a slight headwind of $9 million in Q4.

Inflation, tariffs and other costs were a headwind of $227 million and other SOI was a headwind of $13 million. Goodyear Forward contributed $192 million of benefit during the quarter. and ahead of the outlook we shared with you on our last call. On a full year basis, benefits from Goodyear Forward were $772 million. In total, we exceeded our initial P&L targets for 2024 and 2025 by over $150 million. Turning to Slide 10. With a strong focus on our balance sheet, we generated over $1.3 billion in free cash flow during the quarter. Combined with proceeds from divestitures, our net debt declined $1.6 billion versus a year ago, which reflects the benefits of net proceeds from asset sales, partly offset by cash restructuring and currency translation on debt.

Moving to the SBU results on Slide 12. Americas unit volume decreased 4%, driven by lower U.S. consumer replacement volume. Commercial volume was significantly lower than last year and sequentially, particularly in replacement. U.S. consumer replacement industry sell-in was down about 0.5 point during the fourth quarter. As part of that, U.S. TMA member shipments were essentially flat year-over-year, while low-end nonmember imports declined 3% during the quarter. Industry sellout at retail declined 2.5% in the fourth quarter. U.S. consumer OE volume declined 3% and was driven by supply chain challenges within our OE customers. We achieved significant market share gains for the full year in consumer OE. U.S. commercial OE industry volume declined 26% as OEM production remained very depressed amid continued weakness in freight and ongoing regulatory uncertainty. Similarly, U.S. commercial replacement industry volume was lower by 5% during the quarter.

Americas segment operating income was $233 million or just over 8% to sales. Turning to Slide 13. EMEA's fourth quarter unit volume decreased 2%. Consumer industry sell-in declined as imports fell 7% in anticipation of potential tariffs in 2026. With the extension of the time line for a preliminary decision on antidumping tariffs in the EU, we're cautious on near-term conditions as the delay provides further opportunity for another round of low-end imports to make their way into the region. Consumer OE was a continued area of strength where EMEA registered its eighth consecutive quarter of market share gains. Segment operating income in EMEA was $114 million or 7.5% of sales.

The increase of $76 million was driven by the insurance recovery we mentioned earlier. That said, excluding the insurance SOI increased by $20 million and margin expanded 120 basis points versus last year. Turning to Asia Pacific on Slide 14. The Fourth quarter unit volume decreased 2% driven by lower OE volume. Consumer replacement volume returned to growth following SKU rationalization actions that meaningfully contributed to volume reductions throughout 2025. We Segment operating income was $69 million or 13.1% of sales. Excluding the sale of the OTR business, Asia Pacific segment operating income increased $16 million and margin expanded 330 basis points.

Turning to our first quarter outlook on Slide 16. Business trends moving into 2026 still reflect many of the same headwinds we faced in 2025. Even though the overall tariff environment has broadly stabilized in the U.S. overall weak industry conditions continue to affect our global operations in terms of top line and cost. While our fourth quarter results demonstrate meaningful progress, we anticipate continued volatility as we move into 2026. First quarter results will be particularly impacted as heavy fourth quarter promotional activity across the U.S. consumer replacement industry further inflated channel inventory. At the same time, consumer industry sellout during the month of January was down significantly, shaped by extreme winter temperatures and weak consumer sentiment more broadly. And in Europe, the delay of the ruling on a potential tariff on consumer imports has added to this uncertainty. As a result, our first quarter SOI will be significantly affected driven by the convergence of lower consumer replacement volume, fixed cost carryover from 2025 and and a continuation of unusually weak commercial truck trends.

These are temporary factors, and we're confident that we'll regain earnings and margin momentum once this turbulence subsides. We expect first quarter volume to be down approximately 10%, driven by U.S. consumer replacement. Unabsorbed overhead will be a headwind of $60 million. As we shared on our last call, we lowered production by 4 million units in Q4 to manage inventory levels. with weak volume trends in the fourth quarter and in Q1, we will see a similar impact in the second and third quarters as we align production with demand. Price mix is expected to be a benefit of approximately $25 million, given Q1 volume and as we anniversary 2025 price actions and begin to see the impact of RMI indexed agreements.

Raw materials should be a benefit of approximately $85 million in Q1, a full year raw material costs are a benefit of $300 million at current spot rates. Goodyear Forward will drive benefits of approximately $100 million in the first quarter and about $300 million for the full year. Inflation will be similar to what we saw in Q4. Tariffs and other costs will be a headwind of approximately $130 million with tariffs at approximately $65 million and other costs reflecting increases in warehousing and freight, factory inefficiencies and transitory manufacturing costs associated with previously announced facility closures. For the full year, tariffs will be a headwind of $175 million and other costs will be $120 million, both weighted to the first half. Finally, the sales of Dunlop & Chemical lowers the base of earnings by $37 million in Q1 and $185 million on a full year basis.

In addition, we will amortize $55 million of deferred revenue in 2026 related to supply agreements from the 3 asset sales. This is an increase of roughly $15 million versus 2025. Other financial assumptions are shown on Slide 17. For modeling, on a year-over-year basis, we've decreased both our CapEx and interest expense.

With that, we'll open the line for your questions.

[Operator Instructions] We'll go first this morning to James Picariello of BNP Paribas.

I guess I first need to ask about volumes, the -- how you're thinking about volumes for the remainder of the year? Obviously, we have the first quarter look and you just gave the overhead absorption headwinds through the third quarter. I was just thinking if volumes start to stabilize in 2Q and improve from there. Is it possible that the overhead under absorption might not be by the third quarter similar to the first quarter? And then, yes, my question is just your high-level thoughts on OE versus replacement the rest of the year. .

Yes, as we discussed at the opener, we really expect the conditions to improve after Q1, right? Weather obviously being a a big headwind, but also some of the destocking and the inventories feeling a little bit stuffed, if you will, in terms of distribution coming into the year. So those 2 things really are a drag on Q1. Coming into that as well, right? We slowed our production in the fourth quarter because we did not stuff channels. We wanted to make sure we were maintaining that that richer mix, if you will. So we make sure to be careful with that. So we have that drag in Q1, which should correct as we go into Q2 with that. So the drawdown in Q1, we think it's going to be constructive as we look at the industry and for Goodyear specifically. If we look at the sellout as well from quarter 4, right, down 2.5 points plus that inventory going into the system with heavy promo in terms of the stuff went into sell-in from others. So as that clears, we're really focused on on making sure that we're continuing our U.S. portfolio in particular, right, with the richer mix, the larger rim sizes.

As mentioned, we had 30% more new products into the market than we've ever had of the white space products in that premium size in terms of a much richer mix in terms of margin. We're going to also increase that assortment of new products throughout 26. We are driving the business in a completely different way. The governance aspects and the control towers we put in place are very important. We've not fallen back on that. We've also created across globe on our SLT, working directly to Christina and I, Alex [indiscernible] that was internal to part of the Goodyear forward process and the Clean Sheeting running our global business process with the transformation office, so that we can make sure working with each SLT member around the globe and their teams we are driving those -- the costs and cost efficiencies around the world, James.

So on that 30% new product coming into the market as those really take hold and get their shelf space. we've got another 1,700 new products coming in '26, all fitting the bill of the richer margin and more premium size premium mix. So we're really confident that we're positioning the business to drive those earnings at Q1. Christina?

So James, I'll just jump in on the question on overhead. I think embedded in the comments around Q2 and Q3 is an assumption that Q2 sell-in begins to normalize in line with sell-out Mark mentioned a recovery in demand. in Q2, but still, I think, a conservative assumption. You could argue that there's some pent-up demand there. So -- and it could be the unabsorbed overhead impact could be lower. So we'll see how that plays through. When you asked about OEM replacement, and I think the best way for you to talk about that is by region.

And Americas second quarter, I would still say is still lower in consumer replacement year-over-year, but significantly better than the first quarter with the expectation for slight year-over-year growth in the second half. Consumer OE should grow beginning in Q2, and that's all based on our mix of fitments. When I look at EMEA is planning for a softer first half in consumer replacement, just given the delay on the tariffs. And then consumer should continue to be strong, just given the share gains we've seen over the past couple of years. Commercial OEM replacement volumes in EMEA will be up but low single digits is sort of what we're thinking stable. And in comparison, in the U.S., looking at commercial replacement down in Q1 may be stable, slightly down in Q2 and then up a little in the second half.

Okay. That's really helpful. And then one quick clarification is for the divested Dunlop units, is that still about 6.5 million units, and that's excluded from any volume assumptions that you're sharing, right? .

Yes. So the Dunlop sales in 2025 were closer to 5 million units, James, and the supply agreements that we have with SRI are a minimum of 4.5 million units.

We'll go next now to Itay Michaeli Ate ice at TD Cowen.

This is Justin on for Itay. So a quick question on the Q1 volume setup and industry assumptions kind of baked into that. I know you briefly hit on it for a bunch of the regions, but just kind of how you're thinking about it against Q4 to Q1 and the industry sell-in and industry sellout trends that you may be modeling for Q1, where would you expect, I guess, total channel inventory to kind of look like at the end of Q1? Just trying to get a sense of that more cleanly.

So if I look at how year-end landed, we believe across the industry that U.S. channel inventories increased about 10% on a year-over-year basis, and that was a lot driven by prebuy of imports over the course of the year and then this increased promotional activity at year-end. I think built into our assumptions is that the majority of that is declined over -- or declining in Q1, maybe a little bit of flow through into Q2. And so earlier, when I was mentioning that our assumption for Q2 volume in Americas consumer replacements, still beginning to improve and -- but yet below sellout, I think there's still some inventory clearing that we've assumed here in Q2.

Perfect. Super helpful. And then I guess maybe on the information you provided before on the volume by regions and kind of understanding the nuance and [indiscernible] throughout the year. How should we think about maybe where the 2026 full year SOI and free cash flow land maybe based on those volume assumptions as well as maybe anything else that might not be explicitly guided for within the deck. Just trying to get like a rough bridge here.

Yes. No, no problem. So I'll walk through the assumptions and I did try and lay out quite a bit in the presentation, but I'll just take you through add some context on some of the different drivers. If you start with our 2025 SOI ex insurance, that's about $1 billion. And then we take out the impact of the divestitures, which would leave us at about $815 million for base as we begin the year. Lost revenue on the divestiture as we noted in the presentation is about $915 million.

So good year forward, $300 million. We've increased that steadily over the past couple of quarters, we'll continue to look to add to that over the course of the year. Mark was referencing that earlier. Tariffs are a headwind of $175 million, and that's really concentrated in the first half, just given the timing of tariff implementation last year. Now other costs should be about $120 million, and that includes the ramp down of a couple of our factories last year. So we'll lap a lot of those costs in the first half. Now raw materials are a benefit of $300 million at current spots.

And I'd say 2/3 of that is going to pull through in the first half of the year. And then price mix, we haven't spent time talking about that yet, but price mix should continue to be positive as we move through the year, slower in Q1, obviously, on volume and some of the seasonality but a significant step up in Q2 and Q3 until we get to a very high comp in Q4. And so then it all comes down to what I want to assume on volume when we lay out those drivers I think you should be able to model year-on-year organic growth on that base SOI of $815 million in the range of 10% or so.

And I mentioned this earlier when we were talking to James, but we're assuming that Q2 sell-in in the U.S. begins to normalize in line with a normal level of sellout. We're also assuming U.S. imports are stable to down slightly in 2026, and we're assuming European imports up slightly. And so that's all embedded within our assumptions. I think that free cash flow then, as you look at all the drivers and you create a bridge, we should have a significant improvement in restructuring on a year-on-year basis.

We're going to drive working capital inflows this year, reductions in interest expense. So all of that takes us to a base case where we're delivering slightly positive free cash flow. Of course, we're going to look to improve on that as we move through the rest of the year.

We go next now to James Mulholland of Deutsche Bank. .

So on the commercial vehicle side, there's been some significant improvement in expected orders for Class 8 in North America since your last update to 2 questions there, given how important it is from a margin standpoint. First, does your guidance anticipate any further improvement in the overall CV market in the U.S. And second, do you see this improvement spread into other geographies as well in the near term? And then I have a quick follow-up.

So in the Americas, our commercial business for OE is expected to be up, I'd say, high teens, low 20% in the second half, of course, that's off of a very, very low base, we should see the beginnings of some volume price mix improvement in Americas commercial in the back half. But I wouldn't say there are assumptions there are robust. In EMEA commercial OEM replacement, we do have growth, but I'd say it's low to mid-single digits. And it's not really a relevant business for us in Asia Pac.

I think on average, we we should be running between 12 million and 13 million units in commercial to generate a historical level of margins for that business. In 2025, our unit sales only totaled $11 million. So there's a lot of leverage as we see this business improve.

Got it. Okay. That's helpful. And then I guess with Goodyear Forwards completion now and in line of sight. It sounds like there could be maybe a little bit more upside on the cost savings there. I think last year, it feels like a while ago now, but the original exit SOI margin was around 10%. That was the target anyway prior to tariffs and other issues. Do you think that's a level that you can approach over the longer term? Or are there other significant steps that you can take to get to that point? Or I guess where do you think you could end this year and then start to leap off into '27.

No. We absolutely -- we've not backed off our good year forward targets, as we've shared in earlier calls, has been more of a bit of a push out to get to that overarching 10% SOI. As you can see in the year ending results, right, of 2 of the 3 units, particularly on the consumer base, at that level, as Christina just described on commercial, right? Certainly, the commercial business and the downturn in commercial as an industry really was a drag towards hitting that over arching 10. But as we mentioned, as we continue the execution of our Goodyear forward that's really embedded into our DNA, right, of keeping the pipeline full of projects and executing those for cost efficiency as well as continuing to drive that richer mix of products. around the world with the 1,700 -- or sorry, 1,500 and 1,700 new products coming into the market, both refreshed and brand new on the consumer side and making sure that we're best-in-class service on the commercial side. We feel good that we are going to get there as we go forward.

We'll go next now to John Healy of Northcoast Research.

I just found it in a minute late, so I apologize if you maybe mentioned this a little bit. Could you talk a little bit about the [ down 10 ] volume number for Q1? And now kind of puts and takes that goes into that number. My thought process had been that maybe there was a restocking opportunity on the horizon here. So is it a function of customer or moving away from any specific parts of the market, maybe how that downtown might look directionally by region. And do you persist that kind of down volume kind of taking place throughout the year? And kind of what's your view of just the global market probably opportunity this year, whether it's a good year or for just the industry as a whole?

I think the -- you're right. I mean, the U.S. market, theoretically could be a lot better in February and March. Having said that, I think within our assumptions is the expectation that the first quarter sees a more significant onetime destocking just based on the activity we've seen so far to date.

A large part of our story, so the downtown in U.S. consumer replacement really lies in what we're seeing as far as discounting and promotional activity, and that started in Q4 but it's continuing on into January. And so we are intentionally focusing on revenue per tire and mix, which was very strong in the fourth quarter because we have a point of view that we -- that this will disruption will moderate and we want to protect the returns within the business through that period.

There is a small part of the down 10% that is disruption, I would say, within our own customer base, you'll recall in the second quarter of last year, we exited the relationship with ATD. And that's a part of the headwind, but not a significant part that begins to normalize in Q3, of course. And then in EMEA, we've talked about the delay on the new tariff implementation or the prospective tariff implementation that was moved from January till the summer months. So we're expecting EMEA consumer replacement volumes to be soft in the first half as well.

And maybe just to tack on, right? The strength in Q4 in EMEA we were really pleased with our new winter premium products. They performed super well. They won the ADAC test. They were a very strong first winter pool on the OEs, the fitments that we got in the market in '24 and '25, and that really helped drive that 2-point share gain in the premium 18-plus in EMEA. So super strong demand for that product.

Got it. And then just on the cash flow benefits that you talked about, I think you called out working capital as an inflow this year. Is that first half? Is that second half? And is there anything kind of unique that's happening there? And as you look at kind of the business, I know you've you guys have tackled a lot of things operationally, but from a financial standpoint, in terms of managing working capital, are there any sort of big projects you could do there to maybe kind of saw some of the cash flow aspects of the business a bit.

So John, I would say Mark was referencing a little bit earlier shifts in the way we operate and improvements in governance, I would say working capital performance this year should be smoother and less peaks less valleys as we're managing the business for cash, that was embedded within my prepared remarks when I talked about unabsorbed overhead impacts.

And so just trying to manage cash flow very closely quarter-to-quarter last year. It was very clear that the factories ramped down very quickly at the end of Q3 and Q4 just on all of the tariff import prebuy, which makes it harder to flex costs. And so it has 2 benefits, right? One is the better cost management within our factories allows our teams to flex better but the second is in working capital. And so I think we'll see a smoother profile this year than normal, even though we do have a lot of embedded seasonality. As far as projects, I mean, we do continue to evaluate all alternatives in and around working capital because it is a big source of cash for -- or use of cash and source of cash as we think about funding the business. In 2025, we increased, for example, supply chain financing, bringing on more and more suppliers into our top-tier banks, credit facilities. And it's projects and programs like those that we'll continue to look to, to help fund some initiatives and potentially push the working capital inflows that we're expecting in 2026 even beyond what we've laid out here.

I would add to it just a bit, John, as well. When you look at the CapEx on the base CapEx and you see a lower number there as well. doesn't mean we're doing less. What it means is we're doing a heck of a lot more with what we've got. And that goes to big process changes that we've had within our global engineering and manufacturing groups that was really kind of an outcome of some of the activities we had in Goodyear forward. But together with procurement, just on the buying, right, whether it was bundling, whether it was clean sheeting, but also looking to to our equipment standards, the location of sourcing, the way we project manage. We've completely changed that process in the last 2 years, and we're seeing a big efficiency gain in our CapEx that's helping that working capital as well.

[Operator Instructions] We'll go next now to Emmanuel Rosner of Wolfe Research. .

Just a couple of follow-ups on the earlier questions. So I appreciate all the color on the SOI puts and takes for 2026 just took quick clarification. The other costs of $120 million, was that a tailwind or a headwind this year? And then as you said, it ultimately comes down to volume in order to hit serve like that, potential basic scenario of double-digit SOI growth versus the organic piece of last year. What kind of all-in global volume essentially is assumed?

Sure, Emmanuel, I guess other costs are a headwind in the first -- mostly in the first half, driven by -- I mean, it's factoring efficiencies ramp-downs of a couple of different factories in the first half. We talked about a first in-all factory in Germany. Also, we had a damn effect of closure in Gamble, Virginia of our commercial truck production last year, and we're going to lap some of that in the first half as we move through that initiative. .

As far as volume, I mean, the way I look at it, Emmanuel, is we have a significant step-up in price/mix in Q2 and Q3. And then in Q4, we lap a really strong comp from Q4 2025. I think the way I look at that is we balance it against the volume assumptions that we make on the top line. And so we we can balance that as we move through the year based on competitive conditions. But if I had to say right now, volume would be slightly down on a year-over-year basis. and price/mix would be significantly positive, just given what we've talked about in protecting our revenue per tire in our margins as we move through the year.

Great. Yes, I appreciate the color. And then my second follow-up is on the Goodyear forward. So you've obviously spoken about the potential for additional actions. Just curious how we should think about it? Are this going to be sort of like more incremental in nature? Or are you looking at a potential reloading of significant actions that might potentially be like more expensive from a restructuring point of view, but that could yield some larger benefits? And where would be the areas that you'd be looking at for them.

Yes. Thanks, Emmanuel. We are continuing to use the philosophy, the cadence of governance and the drive for execution of Goodyear forward to keep the pipeline filled with cost efficiency projects. and whether it's manufacturing efficiency, whether it's procurement efficiency, engineering development of, again, doing 30% more with the same number of engineers around the world. And so those are the activities we're doing. So we're not rolling out a big restructuring 2.0 at this point. It really is about execution right now.

We go next now to Ross McDonald at Citi.

It's Ross at Citi. I had 3 quick questions. The first one was on the inventory situation in the U.S. Could you maybe give a little bit more color if that inventory situation is full across all of the rim sizes? Or does it skew more to, let's say, sub 18-inch more budget type content? And Mark, on your point around the SKU offense if you're rolling out, could you maybe help us model where you see the Goodyear in North America, 18-inch and above share finishing this year? I think you were at about 43% in Q3.

So yes, so a couple of comments. I think inventory situation is broad-based. And that was probably just as we headed into year-end, driven by promotional activity that did not seem to favor Tier 1, Tier 2 or Tier 3. It was really something that occurred more across the board. When I look at the mix of greater than 18-inch in the fourth quarter, our U.S. business was about 50% greater than 18-inch and consumer replacement, of course, OEs almost all greater than 18-inch already.

And as you duly noted, in comparison during the same quarter, earlier or same fourth quarter 2024, we were only at 42%. And since the larger room sizes are the area of the market that has good growth, we're naturally now at a place where the portfolio is leveraged or geared towards growth. So that's good.

That's helpful. My next question is on the promotional activity. Is there any merit from your perspective here in engaging in some of of that promotional activity or discounting to try and encourage consumers to move up a tier and Mark called out that consumers were sort of delaying replacement decisions. Is there anything you can do here maybe to manage price down slightly, but with a view to actually getting higher volume market share on the back of that? It seems like the consumer is quite reluctant to move up tiers this time in the cycle.

Yes. There's -- as mentioned, a lot of selling promotional activities that went into the -- in the channel, right, into the distribution side of it as well as some of the sellout promo activities as well. [indiscernible] mentioned that quarter 1 has this headwind with the weather situation, particularly in the U.S. marketplace, right? But we're being super disciplined about our promo activities that we're doing for that. We feel that we've got our pricing ladders and the right spot now, our pricing power deltas versus the competition. We -- the new products that we've rolled out between MXL2 WeatherReady 2, the Eagle F1 coming out right now, all of those products are absolutely on the top of our game and top of the podium.

And we want to make sure that they command the right place in the marketplace. So we're continuing to monitor those things. but we want to make sure that we're providing the value of the Goodyear brand and our Cooper brands and family brands there.

And then final question, just a quick one on the truck business or commercial activities in the U.S. I'm not sure if you've disclosed in the past factory utilization rates in the U.S., but obviously, it has been a perfect storm in some prior callers -- you're asking and rightly about the order inflection that we're seeing. But could you maybe frame where we are in terms of commercial activity utilization rates in the U.S.? Is this in your opinion, trough levels versus, let's say, the last 20 years?

Yes. That's not something that we have historically shared. As we look to that commercial business, it's -- our mission is to be #1 in the tires and service, both consumer and commercial. We've got a very healthy fleet business that we're servicing the premium fleets. We've got a very healthy local book business as well. And that really helps us in terms of being able to weather a bit of a perfect storm in the commercial business, right, with the emission regulation changes a very healthy number of mothballed tractors, if you will, and a lot of fleets deciding not to not to do a prebuy or an early buy of those new emission vehicles from the OEs.

So we are continuing to focus on our service levels and through our which is a differentiator for us is around our CTFC or truck service centers around the country. But no, we don't share the information in regards to the actual output of the factories on commercial. As Christina mentioned, we did have a restructuring last year with our Dambo operations so that it can really focus on its aviation business.

We'll go next now to Ryan Brinkman of JPMorgan.

I wanted to ask first on the $300 million of Goodyear forward savings expected for the full year. On my math, I think you should have about $260 million of full year year-over-year tailwind simply on the anniversary of savings that were already achieved by the end of 2025, which I realize you overachieved on, but it maybe implies only about $40 million or so incremental savings sequentially from the end of 4Q, '25 [indiscernible] is that roughly correct? And then secondly, do you maybe have any internal ambitions for more cost cutting? Has the organization roughly achieved the level of leanness that you target? Or how should we think about the level of margin improvement that might remain from cost-cutting potential?

Sure, Ryan. I mean the assumption that you're making on the run rate flow through is, yes, correct. It's about a little more than $250 million flow through. The rest is all new actions in 2026. I think we'll obviously look to build on that. And Mark was mentioning earlier, the pipeline fill, not just for 2026, but even beyond. And that being a part of our rigor and our DNA inside the company. When we took another question a little bit earlier around restructuring cash costs, is there more to do?

I think our mode of operation this year is to run the assets that we have. And we look at the playing field as we have an unusually weak period in demand right now. So not necessarily looking to add any major restructurings to generate some cost out, but there's a lot we can do still yet in in manufacturing efficiencies.

And so we'll continue to build on that. And our intention is to come back and lay out not just what we're doing this year, but sort of that 3-year multiyear view for you a little later this year once some of this turbulence subsides and we just have the right backdrop to talk about the company story.

Okay. And then with regard to the potential European tire trips, what are the various implications there might be to push out from -- of implementation from the early part of the year to the middle part to I recall the pushout of expected tariffs in the U.S. and '25 had quite a bit of impact on pre-buy activity, U.S. TMA share and volume, et cetera. This is less of a concern, right, in Europe, given the retroactive or potential retroactive nature of tariffs.

Curious what your thoughts are there? And then alternatively, when we do get these tariffs, I thought your price/mix comment sounded pretty good insight step-ups in 2Q and 3Q. I know your practice is not tough to model anything for tariffs that haven't been officially implemented. But -- and obviously, that makes sense, but I don't know what the rates are, et cetera. But just curious if within the industry, you might have any kind of early read or sense of what the potential range of of magnitude of tariffs might represent and what the potential impact could be on volume, share price mix when they do come in the past.

Yes. Maybe I'll kick it off, Ryan, on the really 2 elements, right, to the tire tariffs in the EU. First, were the antidumping investigation. And that specifically was on antidumping for consumer tires originating from China, right? We had expected it in January. It's now expected in July of -- and in terms of your question there, the anticipated range for those duties is expected to be between 41% and 104%. And we'll have to wait until that time to see what range that is, but it's definitely a large amount of duties there in terms of helping the competitiveness of the local foot rent.

Second is on the anti-subsidy investigation. In November, the EU also launched the antisubsidy in terms of grants, loans, tax exemptions things around land or electricity usage below market into Chinese consumer tires as well. And so that is expected to conclude by the end of this year. And so from that standpoint, exactly to your point, right, it is -- things are preserved in terms of that possible retroactive duties. We'll just have to see how it pans out there.

We have no further questions this morning, Mr. Stewart, I'd like to turn things back to you, sir, for any closing comments. .

Okay. Thank you. So thank you all for joining us today for the earnings call. Our fourth quarter performance really reinforces the progress we've made to strengthen Goodyear's balance sheet and the financial performance for the company. The near-term environment, as we shared, definitely remains dynamic, but we are absolutely focused on continuing to execute with the greater discipline, controlling the controllables and positioning the business to capture the attractive opportunities to continue to mix up as the market conditions normalize going forward. The work that we've done over the past 2 years has definitely created a more resilient a stronger foundation.

And as the visibility improves, we are very confident in our ability to translate that foundation into sustained margin expansion, stronger free cash flow generation and long-term value creation for our shareholders. So thank you all for joining us today. I appreciate the time.

Thank you, Mr. Stewart, and thank you, Ms. Marrow. Again, ladies and gentlemen, that will conclude today's Goodyear Fourth Quarter 2025 Earnings Conference Call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye. .

Good morning. My name is Katie, and I'll be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Vice President, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to our third quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our filings with the SEC. All our earnings materials can be found on our website at investor.goodyear.com, where a replay of this call will also be available.

I'll now turn the call over to Mark.

Thank you, Ryan, and good morning, everyone. Thank you for joining our call. As outlined in our press release, we delivered revenue of $4.6 billion and segment operating income of $287 million in the quarter, results slightly ahead of the revised expectation we shared with you all on our last call. It's important to view these results in the context of an industry environment that remains challenging, particularly given continued volatility and global trade flows.

Even in that environment, we achieved meaningful sequential earnings and margin expansion, driven by the continued strong execution of the Goodyear Forward initiatives. Last quarter, I emphasized our focus on controlling the controllables and that approach continues to guide our actions here at Goodyear. With yesterday's announcement on the Chemicals business, we've now completed our planned divestitures, and we're bringing the balance sheet back to a position of health. We've introduced more premium product lines than ever before while improving organizational agility and sharpening our focus on margin and profitability. We're positioning the business to be able to leverage those strengths as the market environment begins to normalize.

With the remainder of my time today, I'll discuss what we're seeing across the industry and in each of our business segments, also how we're responding. After that, I'll hand it over to Christina to walk through our third quarter financial results and how we're thinking about the outlook for the remainder of '25.

Let's start with the Americas. In the Americas, the consumer replacement market continued to experience disruption similar to last quarter. On the consumer OE side, volume performed well, supported by strength in light truck and SUV fitments. Additionally, we've won additional fitments driven by OEM preferences for USMCA compliant supply. We expect OEM resourcing to remain a positive contributor for us going forward. As you all know, with U.S. tariffs on consumer tires effective in May, the domestic replacement market saw a surge of low-cost imports, coinciding with the implementation of increased duties during the first half of this year. In the third quarter, U.S. non-USTMA member imports were up an estimated 2%, which is actually a positive development compared to the significant growth we saw in the first half of this year.

More recently, we're hearing that the low-end imports may have slowed further, though it may take more time to confirm that trend, given the current government shutdown, which impacts the reporting of the imports. As we look at the drivers for the industry at a macro level, U.S. vehicle miles traveled are trending up about 1 percentage point year-to-date, while industry sellout is roughly flat, suggesting consumers are extending the replacement cycle.

Meanwhile, dealer and distributor channel inventories remain elevated with prebuy, and we expect the consumer replacement environment to stay challenging in the near term. Our focus in that environment has been on introducing new high-margin product lines, the 18 and above rim size and targeted product line extensions to drive our earnings in the coming year. In October, we've revitalized our all-terrain product portfolio with the launch of 3 new product lines that were designed for SUV, light truck and off-road applications.

The new lineup includes the Goodyear Wrangler Outbound AT, Goodyear Wrangler Workhorse AT2 and the Goodyear Wrangler Electric Drive AT. We've also finalized our famous Goodyear Eagle F1 lines with our new all-season tire for the high-performance segment as well. Our products are absolutely second to none, and the consumer feedback during launch events has been exceptionally strong. We're also better aligning distribution and retailer partnerships to ensure priority availability and service for our most profitable products.

In our company-owned retail stores, we are upgrading the store and the customer experience through multiple enhancements, including the addition of more products, more financing options and a complete refresh of the environment in select locations around the country. As I've mentioned previously, we've been able to achieve meaningful earnings growth in our retail business over the past year, through increasing same-store service revenues and through the addition of new last mile mega fleet business.

With this proven success in our existing footprint, we plan to open a slate of new brick-and-mortar store fronts in the coming quarters. Strengthening our retail footprint will help our retail business be even more of a differentiator for us in the future. Conditions in the Americas truck business were similar to the second quarter. Heavy truck builds in the U.S. declined over 30% as OEMs adjusted production amid reduced end market demand, driven by the uncertainty over EPA emissions mandates. In the replacement, imports remained elevated during the third quarter as the commercial tire IEEPA tariffs were implemented in August.

As we finish the year, we expect fourth quarter industry conditions in the U.S. to broadly reflect the same dynamics as the third quarter with elevated channel inventories and potential for some incremental reductions in OE volume, given multiple OEM customer supply chain challenges. We continue to expect momentum to return as we work through some of the transitory headwinds we're seeing today.

Let's turn to EMEA. Similar to the U.S. dynamics, EMEA's consumer replacement industry was driven by a prebuy of imports ahead of the tariffs expected early next year. While domestic manufacturers lagged the industry, we reached an important milestone for our EMEA business. We returned the business to profitability following a weak first half. This improvement was driven by 20% growth in our consumer OE volume, representing more than 3 points of market share gain.

At the same time, OE profit per tire in EMEA is increasing, so we are making the right choices with our OE partners as well. Our OE portfolio is a testament to our industry-leading tech as well as our product performance. We also completed 2 major factory restructuring actions in the region during the quarter, which strengthens the foundation for continued operational performance in EMEA.

Looking ahead, our winter order book and channel inventories are healthy, and we are optimistic as we think about EMEA's earnings potential in the fourth quarter.

Turning to Asia Pacific. Execution and SOI margin remained strong. Over the course of this year, we've exited less profitable SKUs and continue to increase our mix of high-margin product lines in the region. In the third quarter, we outpaced the consumer replacement industry as far as growth in our Goodyear brand, 18 and above rim sizes in China.

As our recent OE fitment wins with Geely, VW and Toyota ramp through the fourth quarter, we expect to return year-over-year OE growth and further improve SOI and margin from today's levels. Before closing, I'd like to add that even with the uneven market backdrop, our steady and consistent execution of our Goodyear Forward Plan has been even more important for us to position the business for near-term stability as well as long-term success.

I'd like again to acknowledge the efforts and the results of all of our associates around the world and thank them for what's been accomplished thus far. Goodyear Forward is much more than numbers on the sheet of paper. This program defines the evolution of the company and how we will continue to create value going forward.

With that, I'll turn it over to Christina.

Thank you, Mark, and good morning, everyone. Our third quarter results show lower costs with the benefit of Goodyear Forward and a significant reduction in debt. We are well positioned for growth as the broader economy strengthens in 2026. Prebuy channel inventory tied to tariffs is depleted and the implementation of tariffs in the U.S. and potentially in Europe, begins to reshape market dynamics in our favor.

Turning to the financial results on Slide 9. Third quarter sales were $4.6 billion, down 3.7% from last year, given lower volume and the sale of OTR, partly offset by price/mix improvements. Unit volume declined 6%, reflecting lower consumer replacement volume. Segment operating income was $287 million, decreasing from last year, but reflecting an increase of $128 million compared to the second quarter. Goodyear net loss of $2.2 billion was driven by noncash nonrecurring items including a deferred tax valuation allowance and a goodwill impairment in the Americas. The valuation allowance against our tax assets does not limit our ability to utilize them in the future.

After adjusting for significant items, our earnings per share were $0.28 compared to $0.36 last year.

Turning to the segment operating income walk on Slide 10. The sale off-the-road business reduced earnings by $10 million. After this change in scope, our segment operating income declined $49 million versus last year. Lower tire unit volume and factory utilization were a headwind of $90 million and price/mix was a benefit of $100 million, driven by our recent pricing actions and RMI contracts. Raw materials were a headwind of $81 million.

Goodyear Forward contributed $185 million of benefit during the quarter. Inflation and other costs were a headwind of $137 million. Other costs include approximately $40 million of tariffs, $25 million of manufacturing inefficiencies related to factory closures and lower production and $20 million of increased transportation and warehousing costs. The nonrecurrence of insurance proceeds received last year was $17 million and other SOI was a headwind of $16 million.

Turning to the cash flow and balance sheet on Slide 11. we Cash flow from operating activities was about flat for the quarter, including third quarter CapEx, free cash flow was a use of $181 million. As I mentioned last quarter, our year-to-date free cash flow includes a portion of the proceeds from asset sales, reflecting the value of long-term supply agreements and a prepaid for Dunlop inventory that will transfer at the end of the year. The remaining amount will be amortized into SOI over roughly 6 years.

We expect our year-end benefit in operating cash flow related to the various supply licensing and transition agreements to be approximately $370 million, inclusive of the chemical sale. Pro forma for the chemicals transaction, our third quarter debt declined about $1.5 billion, which reflects asset sale proceeds net of fees, partly offset by cash used for working capital and restructuring over the last 12 months. We continue to expect to generate significant free cash flow in the fourth quarter, consistent with our historical seasonality.

Moving to the SBU results on Slide 13. Americas unit volume decreased 6.5%, driven by consumer replacement. U.S. consumer replacement industry sell-in was down 4% during the quarter, with industry members declining and low-end imports up 2%. Importantly, year-over-year growth in imports has slowed from both Q1 and Q2. Our Americas consumer OE volume grew 4%, reflecting industry recovery in the U.S., where we continued to outperform the industry in our share of fitments.

Q3 marks the seventh consecutive quarter of OE share gains in the Americas. Americas commercial OE volume declined 33% as OEMs decreased production given continued weakness in freight market conditions and uncertainties surrounding the implementation of 2027 EPA mandates. The U.S. commercial replacement industry saw nonmember import growth of 64% during the quarter, just ahead of August effective date for IEEPA tariff implementation. Americas segment operating income was $206 million, a decrease of $45 million compared to last year, driven by lower volume and partly offset by Goodyear Forward benefits.

Turning to Slide 14. EMEA's third quarter unit volume decreased 2%, driven by declines in replacement volume given prebuy of low-end imports in the EU. We expect the EU to make its final tariff determination early next year. As a reminder, proposed tariff rates are 41% to 104%, and we expect that the tariffs may be applied retroactively through the end of October. During the third quarter, we announced the relaunch of the Cooper brand in EMEA to fulfill customer demand following the sale of Dunlop. The availability of the Cooper brand across our regional network will ensure our portfolio provides a comprehensive and competitive offering.

EMEA's consumer OE continued to be a bright spot, where volumes grew 20%, reflecting continued OE share gains. Like in the Americas, this is the seventh consecutive quarter of OE share gains in EMEA. Segment operating income was $30 million for the region, up $7 million, driven by price/mix benefits.

Turning to Asia Pacific on Slide 15. Third quarter unit volume decreased 9%, driven by consumer OE and replacement volume. Lower consumer replacement volume was driven by actions we've taken to reduce low-margin business and realign our distribution and retail strategy in the region. OE volume was lower, given our customer mix with aggressive new car promotions in China, mostly supporting opening price point vehicles. Segment operating income was $51 million and over 10% of sales. As Mark mentioned earlier, for Asia Pacific, we expect to return to volume growth during the fourth quarter, driven by the ramp-up of new fitments and higher replacement volume.

Turning to our fourth quarter outlook on Slide 17. We expect a meaningful sequential increase in SOI in the fourth quarter, with all regions contributing to the step-up in earnings. And on a year-over-year basis, we expect Q4 SOI growth in the mid-single-digit range, excluding the impact of this year's divestitures. In consumer, we expect replacement volume to be impacted by high channel inventories in the U.S. and EU. Consumer OE volume growth is expected to be consistent with the third quarter. Our expectation for commercial truck volume is extremely modest, given ongoing industry challenges. Overall, we expect global volume to be down about 4%.

In addition, we expect higher unabsorbed fixed costs of $70 million, reflecting lower production volume of 2 million units in the third quarter. In addition, with the industry volatility we've experienced this year, we expect our fourth quarter production to be as much as 4 million units lower than last year. Fourth quarter price mix is expected to be a benefit of approximately $135 million, driven by pricing actions taken earlier in 2025. Raw material costs will be a slight benefit, given current spot rates and Goodyear Forward will drive benefits of approximately $180 million during the quarter.

Inflation, tariffs and other costs are expected to be a headwind of approximately $190 million in the quarter, reflecting higher costs given U.S. tariff impacts and a global inflation rate of about 3%. This amount includes tariff costs of approximately $80 million and above average increases in freight rates and increased manufacturing inefficiencies related to lower production. Based on rates in effect today, our annualized tariff costs are expected to be approximately $300 million, which is $50 million lower than we cited last quarter as Canada eliminated tariffs on imports coming in from the U.S. effective September 1.

We continue to expect proceeds from business interruption insurance related to our fire at our factory in Poland in late 2023. This benefit should mostly offset the nonrecurrence of $52 million of insurance proceeds received last year. And finally, the sales of OTR and chemical will be a headwind of approximately $30 million in the fourth quarter.

Turning to Slide 18. Our other financial assumptions include some puts and takes, including an update to our assumption for 2025 working capital, given second half volume and an increase in restructuring given a new Q4 program. With all of the work we've done to improve the balance sheet this year, we are focused on driving strong free cash flow through the end of the fourth quarter.

Finally, as a reminder, the $2.2 billion in proceeds from asset sales will be reduced by fees and taxes. We previously guided total transaction fees including indirect fees related to carve-out administration as well as taxes at approximately $200 million, the majority of which will be paid this year. These costs will be included in operating cash flow. So as you think about how to account for asset sales and your modeling on our cash flow statement, we expect cash flow from investing activities to reflect proceeds of approximately $1.9 billion, and cash flow from operating activities to reflect $370 million of proceeds that will be amortized into SOI over roughly 6 years, offset by up to $200 million in fees.

With that, we'll open the line for your questions.

[Operator Instructions] Our first question will come from Itay Michaeli with TD Cowen.

First question, just on some of the consumer OE market share gains that you've been reporting. I'm just curious how we should think about that going forward? To what extent is it just a function of prior wins? And do you sort of have a view on kind of how your OE volume may track just relative to the industry going forward?

No. Thanks, Itay. As we look at it, OE has been one of the key focus areas since I joined the company and we looked across -- actually across the world and what was our current percentages of OE versus replacement. And so there was definitely an opportunity for us to move up in that and create that nice pull-through on those first and second replacement cycles. We had not had enough exposure to the premium, larger rim sizes. And the very best way for us to affect that change in a fast manner is through the enhanced OEM partnerships.

And it absolutely is about more premium pricing, larger sizes, larger margins. We know we can get out there and win with OE. We've been really pleased. As Christina mentioned, we've got 7 quarters in a row of growth in both the Americas and in EMEA on that consumer OE business. And as we look to the partnerships that we've gotten with our strategic OEMs around the world continues to get stronger on the technology road map as well as winning on the right fitments and the right platforms around the world.

The other piece as I mentioned in my opening part of the session, we've definitely seen a preference from the OEs in the Americas, specifically around the USMCA compliant. And so we've seen some nice tailwinds coming forward with that as well.

Terrific. That's great to hear. And just secondly, I appreciate the detail on the Q4 kind of SOI drivers. I was hoping we could talk a little bit about 2026 puts and takes particularly around kind of price mix and raws, and what that might look like at the current study state as well as any kind of early thoughts on some of the other cost movements we should kind of just be thinking about in our models for next year?

So we'll be able to be a lot more specific on 2026 on our conference call in February, but we do know a handful of factors based on our Goodyear Forward programs and as you mentioned, based on where current rates are today. So as we think about SOI, I'd say Goodyear Forward carryover cost benefits should be at least $250 million. Of course, we're looking at all levers to pull ahead cost reduction.

Flow-through pricing based on actions we've taken to date in the market will be around $100 million. That's before RMI indexed agreements kicking in next year, which will reduce that somewhat. Of course, Mark mentioned a lot of the new SKUs coming in. So we will continue to push price mix in a positive direction next year as well. Raws at current spot rates will be a benefit of $200 million, and that's inclusive of the chemical transaction, meaning the portion of internal supply that moves external is now included in our raw material base. But even with that headwind, raws should be a benefit of $200 million. And then inflation typically sits around on our cost base, $200 million to $225 million of headwind.

I'd also expect tariff carryover costs at current rates. Of course, a lot is moving around, but tariff carryover in the range of $150 million to $160 million next year. And then we have an insurance collection we're expecting in the fourth quarter, which we would have a nonrepeat. I think that gives you most of the puts and takes, excluding the asset divestitures, which there are different impacts from most notably, EMEA will have a headwind related to the sale of Dunlop in the range of $65 million. Reduction in our earnings related to chemical is going to be about $35 million plus some stranded overhead of about $15 million.

Now all of that will be partly offset by amortization of that $370 million that we talked about earlier in the prepared remarks, that should be a benefit of about $60 million next year. So a lot of puts and takes, a lot of reasons to believe that we have some tailwinds that we'll be able to capitalize on in 2026.

Our next question will come from James Mulholland with Deutsche Bank.

I was wondering if you could give us an update on the commercial vehicle environment and whether you've seen any kind of improvement or stabilization? In the deck, you mentioned that U.S. commercial replacement was up, but it was driven pretty much entirely by low-cost imports. So I guess the question is, is the similar dynamic playing out there as in light vehicle for the last few years where low-cost imports are coming in, they're taking significant share. And would I guess, you expect that to eventually put margins on commercial vehicle, which has traditionally been very strong?

Yes. Maybe I can start and then we'll turn it to Christina. When we think about the commercial PV, you're right, right? There has been some trade down, particularly with smaller fleets or the 1z or 2z types of ownership, if you will. Our overarching fleet business, though, remains very strong, right, in the subscription market that we have as well as our rollout of the tires-as-a-service that is a little bit ahead of schedule when it comes to Europe and it's just coming to the U.S. market.

But we think about in '24 overall unit sales of about 11 million units, including OE and replacement in that commercial market, we continue to focus on premium fleet customers that really drive that pull-through through the OEs. But we have seen as well through the marketplace, the typical prebuy we would see on the emission changes on engines, on the commercial truck world has been very low, right? And it's -- with the questions around the emissions and what is really happening with that. So a lot of the large fleets -- most of the large fleets have opted to extend the life of their current and some of the feedback we've gotten from customers that the cost of ownership for them at this moment is to hang on to those trucks that they have for an extra period of time, which in terms of our subscription modeling actually is okay for us for that side, right?

But when we look at it over the last several years, peak margins were kind of high single digits during a 13.5 million to 14 million unit volume. And just given the current freight environment and this regulatory uncertainty I mentioned, it's been definitely a challenging marketplace for the entire industry globally, probably unprecedented, actually.

Got it. Okay. So I guess my second question is, I was wondering if you could just double click, I guess, on the broader channel dynamics and what you're seeing. A few months ago, we were sitting here, we were talking about the eventual low-cost inventory digestion following that massive inflow that we saw around tariffs on, but it doesn't feel like that digestion is really materializing yet. I know Christina said, we're probably going to see at least a little bit further before that starts to hit. Do we have any line of sight on when you think that might start to flow through? Or is that really going to be something that could be here for quite a bit longer?

Thanks for the question. I would say just given the fact that the U.S. industry was negative in the third quarter, sellout continues to trend more positively. We're beginning to see some of the channel inventory sell-through at our -- with the current data that we have, we'd say that the remaining excess in the channels would take at least through the end of the fourth quarter to sell-through in consumer replacement to your point a little earlier in commercial, there's just been this continued glut of prebuy in through the third quarter. And I think that will take longer on into Q1 of 2026.

I think the commercial side of the business, as Mark was just mentioning, actually tends to see a significant portion of supply on a run rate basis coming from imports. And so over the longer term, I think commercial trends will be healthier, but we will need to work through the excess imports over the course of the next couple of quarters in commercial.

Our next question will come from Ross MacDonald with Citi.

It's Ross MacDonald at Citi. Two questions for me. First one on EMEA. It looks like very strong OE performance. I know Itay already asked on this. But given the 20% volume growth in EMEA original equipment in 3Q, could you maybe just drill into if there's any specific platforms or products that are taking the lion's share of that volume growth? Or is this broad-based market share gains you're making in OE, it'd be very interesting, I think, to understand what's underlying that?

And then, Mark, you mentioned that the profit per tire in EMEA is improving. Could you just elaborate on how much of that reflects specifically the winter tire strength that you've called out in Europe versus how much of that improving profit per tire in EMEA should we reasonably expect to carry over into 2026. So that's my first question on EMEA.

And then secondly, I see in your Q4 indications, a comment around potential further rationalizations. Could you maybe elaborate on if there's a new plan that we should expect in the fourth quarter? Any details of what that might look like and if that's focused on any 1 particular region.

Sure. So maybe just to start, I would say that to the first part of your question -- I think you got 3 in instead of 2, Ross, by the way. But I don't know No worries, all good. When you look at the EMEA market, it's actually broad. We have been moving up with the players. One of the differences that when we rolled into our longer-range planning coming into the start of '25, when we put David Anckaert in over our product tech and product planning road map in conjunction with Chris Helsel in engineering was really making sure that we've got the right relationships, the right OEM strategies and the right technological partnerships with those OEs.

And again, we're seeing the benefit of that on the go forward. But in the here and now, as well as we look at some of the OEMs coming back stronger in EMEA that we're actually on some really good fitments broad-based across Europe, which is why I think you see that 7 quarters of growth in EMEA on the consumer OE as well as it's a conscious decision as well, right?

We are continuing, as we mentioned, not only in Americas but around the world as we globalize our product development to fill the blank spaces with premium product. And specifically the larger rim sizes and we're deprecating the SKUs that are lower margin that we don't make money on. And so we're seeing a partial lift from that as well as the new SKUs coming in and also some of the OEs coming back in the second half. But as well, you are right. The second half and the winter mix, we've been really pleased with our order performance from our customers on the winter mix as well. So all of those are looking good.

On the second piece, the rationalizations, we've completed basically, call it, 4.5, I think, is the right way to say that, 3 in EMEA, 1 in Asia and a significant restructuring in one of the U.S. plants to really focus from that side of it. So all of those actions are on track as we committed to the Goodyear Forward Plan and the restructuring activities. As we get into quarter 4 and get ready really as we go to probably the February results as we come and share that with you all, we're continuing to top off and refill our Goodyear Forward as we look to a 2.0, and it's just embedded in our DNA of how we're running the business, and we continue to look and scan at what other things we do to move things from a fixed cost environment to a flex cost environment. So we're working very diligently with that around the world.

With respect to the guidance, the increase in the restructuring basket was for a new program in the U.S. in the fourth quarter.

[Operator Instructions] Our next question will come from James Picariello with BNP Paribas.

Just hoping to clarify the insurance collection in the fourth quarter. Is this a new item? Or was this always embedded in the full year outlook?

So James, we first brought up the insurance recovery in the fourth quarter on our second quarter conference call. So it's not new. We didn't have line of sight to it at the beginning of the year, however.

Okay. And it's about $50 million or so.

Correct. Yes. That's related to business interruption from the Debica fire back in 2023, and we had called out about that amount as part of the disruption related to the fire.

Understood. Okay. And then with tariffs at an annualized rate of $300 million, can you just help us better understand what drives the seasonality to this? Because the third quarter was a full clean quarter of all tariffs and only came in at $40 million. The second quarter was, I think, $10 million. Like what's implied for the fourth quarter? And then, yes, just help us understand the seasonality to this.

So broadly, the seasonality should follow our volumes, which tend to be a little lower in the first half, particularly in the first quarter and then seasonally stronger in the second half of the year. What I would say about the third quarter tariff amount coming in right around $40 million, a little bit less than we had expected. Some of that was a basketing issue as we look to pull tariffs out of raw materials. We overestimated the amount of tariffs for Q3 and underestimated raw materials, you can see it's a net there. Also, because of days inventory, lower volume in Q2, lower volume in Q3, tariff costs are little pushed into Q4.

So James, what I would say right now, based on rates we see today, fourth quarter tariff costs should be about $80 million. And then the flow-through into next year, looking around $160 million, mostly weighted to the first half. And so I'd say something on the order of $60 million to $65 million each in Q1 and Q2.

Got it. If I could squeeze in 1 more. I appreciate that. In regards to the chemicals divestiture, I could see the guided $7 million of lost EBIT for the 2 months post sale. Can you just clarify what the expected annualized impact is for that chemical sale? Because it sounds as though there is an involvement of the divestiture, and that will show up in a raw material headwind for next year. So just hoping to clarify what those [ headwind ] versus internal buckets look like.

Yes. No, that's right. So it's going to show in a couple of different baskets, part lost earnings in SOI, part increase in raw materials as we move to third-party sourcing. I think about this total impact of being something in the order of magnitude about $120 million all in. Just the earnings, the lost earnings, James, will be about $45 million of a headwind on an annualized basis. You can think about doubling that. And the other portion would then show up in raw materials, maybe with some additional margin for our new supplier, and then stranded costs will be about $15 million in conjunction with the transaction. Of course, we're going to look to flex costs as part of our ongoing savings initiatives next year.

Our next question will come from Ryan Brinkman with JPMorgan.

You've gotten the one about low-cost tire imports into the U.S., maybe a similar one, but about Europe. What I think can you provide there with regard to what you're seeing, with regard to potential tariffs that could be implemented in that market? And then as well as what might be happening with regard to the prebuy of those tires? Is it tracking any differently to what you saw in the U.S. given the potential, I think, for tariffs to maybe be made retroactive to the date of the opening of the antidumping investigation?

Ryan, I would say what we're seeing in Europe feels a lot like the U.S. just on a quarter or 2 lag because the tariff announcement came a little bit later. We have seen over the course of Q2 and on into Q3 a lot of prebuy of lower-end tire imports. And what this means is that our dealers and distributors are saving warehouse space and saving liquidity in order to stockpile these imports. I think as we look to the fourth quarter, not expecting so much of an impact. We do not see the same competitive dynamics necessarily on winter tires that we do in summer or all-season.

I think we still would say that the EU consumers are very sensitive to making sure that their winter tires come with a very high quality and performance. Expect that it will take on into 2026 to sell through some of that all-season and summer prebuy because it's, again, not really for winter tire selling.

Okay. And on the look ahead, thank you for 2026. I heard Christina, I think you said $250 million of savings from Goodyear Forward. I mean, just looking at the numbers, from Slide 6. It seems like with Goodyear Forward savings expected to be at an annualized run rate of $1,500 million by 4Q this year and with $750 million of SOI benefit in '25 on top of $480 million in '24. You should have like $270 million, I think, year-over-year benefit in '26 just from the anniversarying of what you've already accomplished without any incremental action required on your part. Is that the right way to think about that?

And then because I heard Mark reference, I thought, 2.0, I think Goodyear Forward 2.0, I presume and Christina, did you say something about an incremental cost save program here in 4Q. So just curious if the overall cost saves could be maybe substantially greater than $250 million in '26 to help defray that $250 million -- or $200 million of inflation, general inflation headwind to help ensure that some of these savings go through to the SOI line?

Well, certainly, looking ahead, our goal is to make sure we're never done with self-help. And the $270 million flow-through is exactly the right number based on the math and the calculations for flow-through. And as I mentioned earlier, we're going to look to accelerate cost reduction into next year. I think we'll be able to share more about our plans as part of our February conference call for 2026. But as Mark has mentioned in the past, this is a lot about making cost savings a lot about the way we work, making it part of the company's DNA and how we will position growth for the company going forward.

That's helpful. And just lastly, I know you said strong cash flow in the fourth quarter. You always have extremely strong cash flow in the fourth quarter. Is there any sort of way to dimension that or provide an update on the puts and takes, how you expect the full year to shake out in '25?

Sure. So if you're looking at the drivers of SOI, I think you should get to a level of about $370 million, $375 million in the fourth quarter. That should bring you inclusive of corporate costs and D&A to an EBITDA of about $1.8 billion. On the operating side, and our free cash flow drivers, there were several puts and takes, but everything we've laid out pretty much is a net. So on an operating basis, I would say free cash flow is about breakeven.

And then what we said as part of this call is that our asset sale fees, which we've indicated will be about $200 million are going to flow through operating cash flow this year. And so as you think about the geography, we should show cash flow from investing activities, proceeds from our asset sales of about $1.9 billion and then breakeven cash from operations excluding $200 million of fees that will also flow through there as well.

Our next question will come from Emmanuel Rosner with Wolfe Research.

I was actually hoping to pick it up right here, which is you were very helpful with the puts and takes -- early puts and takes of SOI into 2026. Just curious about how to think about the early puts and takes on the free cash flow compared to what you just described for 2025. It sounded like, at least on an SOI basis, the expectation of modest growth this year when I quickly added your puts and takes. But anything to think of in terms of the free cash flow items. And in particular, that portion of the asset sales that flows into the cash flow from operations this year, would it be missing next year?

So Emmanuel, on cash for 2026, we know that restructuring flow through from Goodyear Forward would be about $200 million to $250 million, so significantly less cash outlay than we saw in 2025. Also, interest expense will be a lot lower. Obviously, we've been doing a lot of hard work to get to the lower leverage, and we would expect net interest expense to fall in the range of $425 million. That's down about $100 million since the end of 2023 and since we first started Goodyear Forward. When I look at the amortization of the $370 million, I'd expect about $60 million beginning in 2026.

Okay. And so I guess putting that all together compared to that breakeven on an operating basis that you're speaking about for 2025 directionally, where would that leave us for '26?

So Emmanuel, we'll be able to be a lot more specific as to our drivers of -- SOI drivers of free cash flow on our February conference call. We have volumes down in the second and third quarter also anticipating that in the fourth quarter, wanting to see some of this industry disruption work its way through the channels before we guide into next year.

Understood. And then one question on tariff, please. So I appreciate all the color around the impact this year and sort of like the annualization into next year. Can you talk about -- is there any room for mitigation efforts in terms of either moving things around or just sourcing it differently? Just a quick update, please, on any way to sort of like reduce that load on a go-forward basis.

Yes. So we're really working on it on all fronts on it when you think about Emmanuel from we're -- first of all, we're super active in D.C. on a regular basis, making sure that we've got our viewpoints and fact points in. And we've got really strong working relationships with the right folks in D.C. around that can help us on the right implementation of the tariffs and how to do that to have best foot forward for Goodyear and our strong U.S. footprint.

On the EMEA side as well, I think our lobbying efforts there also to the -- really the antidumping, I would call it, but really the tariff impact there. The teams have been working very hard with the EU on that. And cooperating with that aspect.

When it comes to the rest of your question, right, we absolutely -- it's one of the reasons we created and I did the move to get us set up under Don Metzelaar for global manufacturing. So that we can constantly be pulling and looking at best landed cost around the world. As we've shared on earlier calls, right, we continue the journey of moving from a cost center approach to a P&L approach at each of our factories around the world to make sure that we're flexing cost structures that we are absolutely the most competitive we can be.

And so as I mentioned before, I think we saw a lot of positive momentum and sourcing from OEMs in the U.S. market, preferring that USMCA compliant footprint that takes effect going into next year and then in the coming years as well when we look at that sourcing of that preferential really more preferred to the USMCA side. So absolutely, we're doing all those things and relocating things to moving within the footprint to have the best landed cost in the region or in some cases, it is still shipping from other locations, but we try to preference for in the region for the region wherever possible.

This concludes our question-and-answer session. I will now turn the meeting back to Mark Stewart for any final or closing remarks.

Thank you all for joining the call today. So that's a wrap for Christina and I, and I'm sure we'll have some other conversations with you guys over the course of the week. Clearly, while the short-term conditions have been pretty turbulent, right, with a lot of global trade volatility, but we are absolutely laser-focused on controlling the controllables, right? That is absolutely our mantra. It is about us continuing to drive the Goodyear Forward to conclusion and keep the pipeline refilled, and making sure that we are staying absolutely on our toes and all of our folks around the world continue to implement and make sure that we're monitoring our costs.

At the same time, making sure that we are being absolutely focused on bringing the new SKUs into the marketplace around the world of the higher rim size, the premium rim sizes and deprecating low-end volume in terms of the margin play. We've completed our planned divestitures. We've restored our balance sheet to health, and we for sure are driving sequential earnings growth through our cost actions as well as our share gains. Our OEM volume growth, as we've talked a lot about on the call today, outpacing our 18-inch and above around the world, particularly in China.

And then we're really excited about the new Wrangler and the Eagle F1 launches here. in the U.S. marketplace and the strength of our winter tire orders in EMEA, as we mentioned. So we're sharpening the portfolio. We're expanding our retail operations, and we continue to position ourselves to leverage as the markets resume a normalcy. So thank you guys for joining today.

That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.