Q3 2024 Goodyear Tire & Rubber Co Earnings Call

Christina Zamarro

Thank you, Mark. We’re on track to exceed our original target for 2024 Goodyear forward benefits by 100 million and as we look ahead to next year, we expect to achieve another 750 million in year over year growth benefits from the program.
We’ll provide more detailed 2025 guidance in February but these commitments are a testament to our ongoing commitment to transforming the way we work, improving operational efficiency and managing our costs.
I’ll begin with the income statement on slide, nine Q3 sales were 4.8 billion down 6% from last year driven by lower volume and the negative impact of translation resulting from the stronger US dollar, unit volume was 6% lower than last year with gains in one partially offsetting declines in replacement volume was lower than what we expected given the continuation of increased low-end imports in the US and Europe segment operating income for the quarter was 347 million and so I margin increased 70 basis points.
Goodyear net income includes charges related to planned rationalization programs under Goodyear forward and a noncash impairment charge related to a reduction in the balance sheet carrying value of lower tier brands including Mastercraft and Roadmaster. Stemming from increased competition in opening price points in the US market.
After adjusting for significant items, our earnings per share were $0.37.
Turning to our segment operating income walk on slide 10 lower tire unit volume and factory utilization were a headwind of 94 million in the quarter net price mix versus raw material cost was favorable. 7 million sequential pricing from the second quarter was stable.
Goodyear forward initiatives contributed 123 million with benefits driven across all of our work streams including purchasing supply chain R&D and SAG, inflation and other costs were a headwind of 59 million.
Insurance proceeds net of current year expenses primarily related to last year’s storm damage at our Tupelo factory were a benefit of 17 million. Other so I was favorable 25 million driven by higher earnings in our chemical business and better miscellaneous cost performance.
Turning to slide, 11 net debt was 8.1 billion at the end of the third quarter and was up about 450 million compared to last year. Reflecting increases in working capital, higher working capital was driven by declines in our account’s payable balances, while inventories remained high on a relative basis, reflecting reductions in our full year volume outlook in the fourth quarter. Given our normal seasonality, we expect significant cash inflows in working capital as we reduce finished goods, inventories and increased collections.
With respect to our leverage, we expect to close on the sale of the OTR business in early 2025 and we continue to make progress on our two other strategic reviews. While there’s not a lot we can say while we’re in process, we will keep you updated as we have more information to share.
One final note on our capital structure, we have 500 million outstanding on our 9.5% coupon notes due May 2025. This maturity is supported by a backup credit facility that would replace it through mid 2026 if needed.
Having said that we expect to use proceeds from asset sales to repay this maturity next year, which would reduce our interest expense by almost $50 million on an annualized basis.
Moving to our SBU results and starting on slide, 13 America’s third quarter unit volume decreased 1.9 million units driven by consumer replacement.
Low end imports in the US remained elevated during the quarter, reflecting a 17% increase year over year, the increase in imports was less so than what we saw in the first half including imports, the consumer replacement industry sell in in the US declined 1.5% and collectively industry members declined more than four times that amount.
On the other hand, despite weak industry trends in OE our US OE volume grew 6% reflecting share gains of 2.5 points and strong growth in light truck fitments. We also gained share in Latin America.
Americas segment operating income was 251 million or 8.8% of sales.
Americas earnings benefited from the execution of Goodyear forward initiatives including retail sales growth of 20 million in the quarter. This growth reflects the increasing scale of our fleet customer base.
These benefits were offset by the impact of lower volume and inflation.
Moving to slide. 14 EMEA’s third quarter unit volume decreased 3% or 300,000 units. Our volume reflects lower OE production and continuing pressure from low end imports, nonmem imports grew about 15% in the quarter.
Recently, two of EMEA’s premium tires were awarded the top spot by Europe’s largest Auto association ad ac in their annual offseason and winter testing, which we expect to support our winter value proposition to consumers. segment operating income was 24 million and stable from a year ago. Goodyear forward actions and favorable price mix versus raw materials offset inflation and unfavorable fixed overhead absorption.
Turning to Asia Pacific on slide 15, 3rd quarter unit volume decreased 5% driven by declines in several of our key countries, industry volume in China was down 6% in OE and 4% in replacement driven by overall weak consumer sentiment.
segment operating income was 72 million and nearly 12% of sales. An increase of 16 million compared to last year.
Asia’s earnings benefited from Goodyear forward initiatives including the redesign of our go to market model in Australia. We expect this initiative to continue to contribute benefits in 2025.
Now turning to our fourth quarter outlook on slide 17, we expect global unit volumes to decline approximately 4% reflecting elevated wholesale channel inventories and we sell out trends in the US, like we saw in the third quarter. We expect growth in our OE volume reflecting share gains in a weak us comparable related to the UAW strike. In 2023 we expect volume to be up about a million units on a sequential basis driven by stronger OE volume.
In addition, we expect higher unabsorbed fixed costs of 40 million driven by 1.1 million units of lower production during the third quarter.
Additionally, we expect our fourth quarter production to be about 1.5 million units lower than last year as we reduced finished goods inventory in line with our need.
This reduction will negatively impact our costs in the first quarter of 2025.
Price mix is expected to be a net headwind of approximately 15 million driven by higher oe volume.
Raw materials will increase approximately 100 million driven by natural rubber and carbon black at current spot rates. We would expect to see raw material cost increases of about $300 million in the first half of 2025.
Goodyear forward will drive benefits of 165 million reflecting the progress we’re seeing across all work streams.
Inflation and other costs are expected to be a headwind of about 35 million and other is expected to be a benefit of about 40 million. Reflecting higher earnings in our other tire related businesses. The recovery from the fire in our Dambisa Poland factory last year and better miscellaneous cost performance.
Other financial assumptions on slide, 18 have been updated to reflect our most recent expectations in total, there’s not a significant change to our free cash flow drivers from our last call.
I’ll speak to two of the more significant changes. With the first being that we’ve reduced our restructuring costs as we’ve seen lower cash outlays than expected in specific programs given higher levels of voluntary attrition.
Second, we’ve updated our working capital guidance from neither a source or use to a use of approximately 150 to $200 million.
This increase is partly driven by the timing of production cuts and partly by plans to increase finished goods inventory in advance of actions. We expect to take in early 2025 to reduce our structural costs.
We expect to recover this outflow next year with that, we’ll open the line for your questions.

Operator

(Operator Instructions)
John Healy with North Coast research.

John Healy

Thanks for taking my question. Mark, I just wanted to ask kind of a high level question on the margin targets that you guys have put out. Especially if you look at next year. I mean, you, you kind of call out 300 million headwind on raw mats. And, you know, the, the volume side has probably been a bit more challenging. I’d love to get more color on, on what’s incrementally better. And I imagine you’re going to answer it with good year forward, to get to those margin targets. But I was hoping you could kind of like give us kind of a look underneath the kind of surface a little bit of, of kind of where within the plan or where within other areas of the business. You know, you’re finding those incremental benefits. Thanks.

Mark Stewart

Thanks John. And yeah, just to, to, to cover what what we’re going through with, as you mentioned, a key part of it is good year forward. But one of the things we’ve been doing throughout the course of this year as we continue to refill the pipeline of projects in Goodyear forward and good year forward is a, is a, is a two year point in time, right? This year and next year. But what we’re doing is integrating that into to our annual operating plan as well as our long term strategies, John. And of course, we’ve got all the pricing dynamics associated with raw materials. So with the, the O ems and the natural flex up and down with indexation. But when we look at it, it’s, it’s far more than just a good year forward. And what, what is helping with those margins, right. We are fundamentally changing the way we’re doing our businesses as we shared earlier this year. We’ve got, and we’ve really broken manufacturing and we’re in the final stages of, of bringing on our, our Chief Manufacturing Officer for all three regions around the world. And what we’re doing there is really focusing on our plant efficiencies. We’re reducing our scrap. We’re driving our, our plant oe operating equipment effectiveness on a week-by-week basis by process. And, and so that’s a whole lot of the nuts and bolts of manufacturing 101. And then as I mentioned as well, we are strongly driving with dedicated teams that have been pulled out to make sure we are tackling the 18 inch and above rem size into the premium parts of the market, you know, and as I, as I shared in the in the opener, you know, one of the things when we take a look at it, it’s something that we’ve not done the best job overall globally to, to really tackle that situation. And so what we’ve done is we’ve pulled the folks out. We’ve established the teams, we are driving it from engineering. We have dedicated resources in the plant, dedicated machinery to bring those products to market. We’re leveraging our global footprint as well to, to move tires around the world in a very cost effective way. In the meantime, even as we speak, we’ve got 90 plus skews on the water on the way to the Americas market from a Maya to address the tier one high end, what we would call the tail skews, but the premium side of the greater than 18 inch and above. And so we have a very clear road map over the next 24 months of bringing those in as well as the coverage and the fitments we have across those. So we are making sure that we have got the right replacements coming into the market in the Americas. The May has been doing a really nice job of that of filling their gaps. And then on the AP side, we continue to have very strong wins with the right customers if you would say in the, in the EV space. So really focusing all three of those. So it’s, it’s it’s top line fitment wins, it’s top line premium segment wins and it’s really just good old fashioned manufacturing and purchasing one on ones. And the teams are doing a really nice job to make the, to make the progress.

John Healy

Great. Thank you. And, and then just one question, there’s been some media reports out there about you guys in, in a TD and, and some of the things they’re going through right now, was just wondering if you could give us a little color on kind of the exposure there and I imagine it’s with the Cooper brand. But secondly, I mean, if you see that kind of update in the market regarding what’s going on with them, you know, how does it make you feel about kind of your distribution strategy and, and how you might see, you know, the ripple effect of, of this, you know, news maybe playing out on the industry in the replacement market for, for 25. Thanks.

Mark Stewart

Yeah, maybe I’ll, I’ll start and then I’ll turn it to to Christina with some more details on it, John, but you know, we really maybe to start on the, on your comment to Tirehub, right? I mean, of course, a situation like a second bankruptcy with a tatd can be quite disruptive, but, but we really view that situation as a as a strong validation that the the team took and Goodyear took in forming Tirehub some years back as well as getting closer to our line distribution network. You know, we have restructured our our sales and go to market organization within the Americas within the last month to be even closer to our WD customers. And and from that standpoint as well as working on our Tirehub. But, you know, we’re going to continue to focus on the value propositions where we can deliver products to consumers, you know, right place, right time, right, cost structure and and from the A TD side, you know, we’ll let Christina cover about the receivable a little bit. But you know, we continue to evaluate any, any strategic alternatives in terms of what’s, what’s playing out right now. Christina.

Christina Zamarro

Yes, John, I’ll just fill in some of the, the history for folks on the phone who may not know about our past relationships with A TD. I think you’re probably well aware. So, A TD, one of our largest wholesale distributors filed chapter 11, as Mark just mentioned, this is the second time that A TD has filed for protection, bankruptcy protection since 2018. And back in 2018, Goodyear didn’t have a relationship with a TD. At that time, we had exited it. Just given that we saw a TD as increasing their focus on lower tier brands. But of course, through the acquisition of Cooper, we re acquired an ongoing relationship with a TD, which we’ve maintained. Now our current receivable base with a TD stands at about $135 million. And as is customary in these situations, the court did enter an interim order authorizing a TD to pay prepetition claims of certain vendors. And at this point, we have reached an agreement with a TD regarding the payment of substantially all of our prepetition claims. And so we don’t see a material impact on us at all from this situation. I think for context, what I would tell you is that the and you asked a little bit earlier, John that the majority of these tires that we’re selling to a TD today are private label branded. There’s a little bit of mastercraft, Mickey Thompson and Cooper there, but the majority, again, private label branded.

John Healy

Great. Thank you so much.

Operator

Thank you. We’ll take our next question from James Picarello with BMP Parabus.

James Picarello

Hey, everybody. So, I want to first, I want to first ask about the demand environment. You know, if we look at the last nine quarters in North America, your your replacement volumes are down on average 9%. I’m just curious if you could assess your, your market share over this period, right? Comparing now to the middle part of 2022 it’s just at a high level because I, I’m I’m just curious like, is this a generational type, you know, market share shift that we’re seeing which could be temporary, but like in terms of the magnitude and persistence of the weakness. And I know there’s an element of, of actively exiting certain business as part of your forward plan. So if you could contextualize, you know that as well, your relative these declines, that would be great. Thanks.

Mark Stewart

Yeah, sure. So maybe I can, I’ll start in the and then let Christina add some additional too. You know, when we look at at that period, as you said, as we mentioned, you know, there’s been a continued influx in the in the tier four market space with the, the Asian tires and and specifically, you know, when we look at the inventories of those at the moment, believe it could be a pre buy of people being concerned about tariffs that may or may not happen coming into the New Year. But one of the things was we look, we have, as you mentioned, we definitely have had a very clear plan to exit low margin, low value business and we’ve executed upon that. We’ve done re pricing in those areas as well. And the others I mentioned, you know, with the question with John as well, is really us focusing on that greater than 18 to increase the number of skews we’ve got in that marketplace. So we will, we will very meaningfully participate and grow our share in the upper part of the tier ones on it, James.

Christina Zamarro

Yeah, James, I’ll just jump in here just to say that as part of Goodyear forward. You may remember on the walk as part of our November announcement last year, we talked about a reduction in revenue primarily in the US of about $200 million which equates to about 2 to 3 million units of intentional volume loss and that’s fixing, you know, the unprofitable volume that was in our footprint as part of Goodyear forward. I think, you know, broadly, you know, your your question around, you know, we just said the generational shift, I’d say, you know that the sell in is way outperforming what we’re seeing on sell out. I mean, we’re seeing VMT kind of up, about 1% over the last year and sell in up 3 to 4 points globally. And so that’s a whole lot of prebuy going on with the low end products. I think that says a lot about distributor behavior because what we tend to see is distributors overstocking in and around inflationary environments, of course, which we’ve been in. But also, you know, there’s potential speculation related to the election here today. And so we’ll we’ll continue to watch the regulatory environment and the macro environment over the coming quarters.
So.

James Picarello

That’s, that’s super helpful. And then my next question is it going to be on price mix versus raw? So, for the, you know, the fourth quarter, right, the, the guidance is, is abundantly clear, right? Calling for a net 115 million headwind, right, which we haven’t seen a negative number since the second quarter of 2019. You know, and, and, and, and certainly not to this magnitude. So what’s what’s driving the, the fourth quarter delta?
And then, you know, how should we be extend that, that thought to to next year where we know in the first half at current spot, you’ll have that 300 million raw mats headwind. What does or what, you know, how could price mix look in, in that you know, in that equation for the first half. Thanks.

Mark Stewart

Yeah, it’s as we look to the first of it, as you know, as we said earlier, right? I mean, it’s, it’s more than just the raw material going into the pricing equation, right. We’ve got many factors going in. It is our product position in the marketplace. It is making sure, you know, through our, our public web scrapes and, and constantly viewing the market. And also the tech tech needed going to develop it in terms of what it’s costing to bring things to market. As you know mentioned with John James, we have, we have really been attacking that underlying cost structure of what it costs to bring products to market as well as the actual cost to convert on those. So when you add all of those things together, we we continue to take it on a skew by skew competitive level of where we will take pricing and where we won’t take pricing with that. So just as the normal course of business with that and that, that flows into, into our regular governance process for that, right? But we want to make sure that, that we’ve got the products competitive price for our end consumers.

Christina Zamarro

Oh, go ahead.
I was just going to jump into to say that as a reminder about 30% of our business cover through o M I contract so that can help you think about how to play that through without any new price increases, you know, announcements. You know, we, we don’t, you know, articulate what we’re thinking about for pricing in advance. And I’d say the other comment on raw mats still is, you know, just given the, the sell in and the sell out dynamics we talked about earlier with sell in being so much higher than sell out. I think that’s influencing raw material prices as well. And I would expect commodity pricing to normalize as pre buy of low imports stabilizes as well. But go ahead and ask your follow up.

James Picarello

Or should it? Yeah. So just on, on Capex. So I I thought the prior view might have been for 2025 Capex to trend similarly to the two this year at that 1.25 billion range, you did confirm or indicate in the in the deck that next year’s Capex should trend below a billion. So maybe that’s a 300 million type cut to your, to your Capex. So, what’s driving that? And then for this year’s guide, the working capital is now a use of cash of 150 to 200. Is that associated with the A TD receivable? And does that get made up, get made up next year? That’s it for me. Thanks.

Christina Zamarro

Yeah, I’ll take the cash question. So of working capital. You’re right. You know, there, the guidance would have been sort of a stable level in 2025. Now, we’re saying something lower than DNA or less than a billion dollars. I think part of that driven by the trends in volume. But I also think a part of that is driven by a lot of the good year forward work inside of the company as we’ve looked at how we’ve been allocating capital mark. And I have concluded that we need to reassess our standards and our processes to ensure we’re getting the best cost outcomes in all of our cases. I think we’re challenging a lot our assumptions around capital spend. That means, you know, we go back to designing for lowest cost as opposed to a process, maybe where in the past, there might have been more customization involved that wasn’t necessarily adding to the return. So all to say, you know, we’re focused on generating a very strong free cash flow next year excluding restructuring and we’re focused on moving to a more disciplined capital allocation process and I expect that to benefit our spend even as we move beyond 2025 as well.

Mark Stewart

Yeah, James, I’ll I’ll bolt on to it a little bit from a from a manufacturing engineering and procurement side of it. As as Christina mentioned, right, the the work streams of of the Goodyear forward teams across the five right are all helping to to show us different ways of working as well. Christina and I staff have been been out on the road in both Europe as Eastern Europe, Middle East and Asia over the last month and a half as well. Meeting with our equipment suppliers, purchasing teams going into the factories and looking at our best processes. And I’ll say the the procurement team is doing an excellent job of looking at at alternative 2nd and 3rd sources together with engineering and our standards team to redefine what our standards are and what the cost, a clean sheeting cost process. With some of the new folks we’ve brought in to to help our teams to to complete those processes and really make a big dent in what we would typically spend in a given year on the CapEx side. So all those things and coupling it with our, our product engineering teams, looking at bottlenecks in the process that we were just at the Tar Mold factory. One of them two week ago, looking at bottleneck operations and breakthroughs to, to bring some of our t mold capabilities up over 20%. So some meaningful changes in terms of the amount of CapEx needed to to, to bring the products to market James.

Christina Zamarro

Just to follow up on that working capital question. So our guidance is for a use of 150 to $200 million this year, I’d say that’s driven by two factors. One is the timing of production cuts and the second is just a, a planned build and finished goods inventories. Ahead of actions. We expect to take early next year to reduce our structural costs and no announcements at this time. But I think all related to Goodyear forward and we would expect to recoup that use of working capital in 2025. So no net change and good free cash flow generation again in 2025.

James Picarello

Thank you.

Operator

Thank you. Douglas Carson with Bank of America.

Douglas Carson

Great. Thanks guys. I want to maybe talk about the good year forward program a little bit. It’s, you know, impressive program and important strategic initiative. And maybe we can go to just to slide 6.
The biggest line item there is footprint and plant optimization and it looks like it could be a $500 million number annualized in 2025. Can you just give us a little thought around on, on, on what that plant optimization could look like and how you’re going to try to achieve that? And then I have a follow up on, on inventories.

Mark Stewart

Yeah, Douglas. So when we look at at Goodyear for our plan, you know, we’ve already executed two of the key restructuring activities when it comes to plant rationalizations. And that’s the folda and the first of all the, all of the government and and union discussions are completed and that is now moved into the execution mode for that. And we continue to look around the world. We’ve just finished the closure of our Malaysia plant, which you know, had was in September. I think when we have completely finished that activity and that’s in the sale process for the land at the moment. And and as we look forward again, we’ll continue to assess how much capacity we need around the world. Going through the modernization efforts as well as we’ve shared with you guys before. That’s a key part of the good year forward. And our long-term strategy, particularly in the areas of automation, as well as the equipment standards. We just touched on from, from James’ question around the Capex usage. So, we will long story short, we will continue to look and take the actions necessary to keep us competitive.

Douglas Carson

Great. If I could just ask one or two more, the net leverage target is, is a great target 2 to 2.5, net leverage by the end of 2025. Is there a reason you’re, you’re committed to such a low leverage, your number, that’s pretty low relative to your historic leverage for for many high you companies just want to maybe you take a look at that kind of big picture.

Christina Zamarro

Yeah, it does, I think. Yeah, the interest rate environment and our access to capital are big drivers of our goal to achieve a more investment grade credit rating or balance sheet. I think when we look across the tier one space, our major competitors also have balance sheets that are less than less than two turn leverage. So I think a lot of it’s, you know, the competitive dynamics, we want to be equally situated as we think about fixed asset coverage costs and interest coverage costs. And I&I also think that, you know, our, our goal after the acquisition of Cooper was to get drive net leverage down below three times. You know, when we went through the the review as part of our strategic and operational review committee last year, you know, we had identified, you know, at three different assets for divestiture that enabled us to drive to this lower outcome over just a couple of years. So put all those together and it, you know, it leads to, you know, a really nice healthy leverage for us by the end of next year.

Douglas Carson

That’s great. That’s great. And, and this last question for me, as far as inventory in the system or in the market, do you think we’re kind of heading towards normalization there? Do, how do you feel about the inventory picture? Looks, you’re doing some great changes on your mix and kind of going upscale to some more premium product, but just maybe a little color on, on inventories and and how that could affect global unit volumes.

Mark Stewart

Maybe to start with the EMEA, right? So last year was much heavier when it came to the inventory levels. And the overall channel inventory in AA is about 10% lower than the prior year. With the destocking that that happened. And then the winter inventories are also about 15% lower. But we’ve been really working hard to build that inventory for the for the winter as the selling season is beginning there. But the and the sell out trends have been really good from that side on the US side, you know, it is as Christina mentioned, the the channels overall channel inventory is is pretty heavy with the low end tiers of of an assumption of some pre buy that people did. But when we look at the from our inventory levels, right, I think that we are, we’re in an overall pretty good shape in terms of there’s not a big Overstock or a destocking situation, it’s pretty level set. Christina.

Christina Zamarro

No, I agree with that. I mean, doug that the comments that we made a little bit earlier, there’s been a lot of prebuy of low end inventory by a lot of distributors. But I think, and I think that will take a couple of quarters to to sell through, you know, our our inventory is generally very healthy, especially in EMEA where, you know, Mark was just discussing very low in, in winter, in particular.

Douglas Carson

Right. Very helpful. I think that that’s it for me. I appreciate the answers. Thanks

Operator

Thank you. Ryan Brinkman with JP Morgan.

Ryan Brinkman

Great. Thanks for taking my questions. It was encouraging to see the margin expansion in the Americas. Despite the 8.3% volume decline in the quarter. It’s clear you and other us T MA members, you know, continue to DTO but with the NON US T MA tires, you know, seemingly continuing to build there in the channel or at least, certainly not the stock. And I’m just curious what you think that those latest changes and channel inventory and demand imply for the industry pricing and shipment backdrop next year versus what backdrop might be needed for you to achieve your 2025 and margin targets.

Mark Stewart

Yeah, thanks Ryan. I think that when we look at the, you know, the, the pricing and, and in consumer behaviors on a on a tier one, upper tier two are, are different from the lower tier three, tier four types of entry level products. And the, and the value side as, as Christina mentioned from our, our side of it. And as I mentioned at the beginning, right, we are really focusing on adding to the skews in the upper part of the market, the those particular tail skews leveraging our global footprint. So on a best cost basis. And then from the standpoint though of, of having a product in the, we would call it the tier two level, right from our Mastercraft brand, we will continue on a cost on a cost effective basis to supply skews for our customer base who who want those products, but we will do it in a profitable way.

Ryan Brinkman

Great, thanks. And then you know, with the definitive agreement for the sale of the OTR business. Now behind you and understanding you are of course limited in what you can share with regard to the two other planned dispositions specifically. Are you may be able to update though, you know, with regard to your approach to the process generally. So, for example, would you say that the timing for the overall process is tracking roughly as expected? Or maybe if you might be more focused on maximizing proceeds or finding the correct fit versus completing a transaction within a set period of time or how should investors be thinking about the process generally?

Christina Zamarro

Hi Brian, I’ll jump in here and I think all of those variables you just talked about are important for us. You know, when we think about the other two asset sales, in general, I’d say we are where we expected to be at this point in the process and we continue to feel really confident about our ability to meet our objectives. We’re certainly focused first on driving the right value for our shareholders and we’ll take, we’ll take the time that’s required to that end.

Ryan Brinkman

Okay, thanks. And just finally, you know, I was intrigued by the comments in the prepared remarks about the retail operations, serving, you know, the retail customers by day. I guess I should call them the company owned stores, you know, and the fleet customers by night, maybe you could expand upon that. And I recall, you know, at the time of the good year forward plan, when it was first unveiled, you’d identified a number of opportunities to improve the operations and profitability of the company owned stores as a reason to not sell them. You know, with the fleet services including last mile delivery, you know, being maybe the biggest such opportunity, is there an update you can give on the profitability of, of your company owned stores or, or their relative success and, and as you continue to make progress here, hopefully, you know, does that, do you think makes the retail stores just to kind of dress them up, make them more attractive as a disposition candidate, given their greater greater profitability? And so, maybe implied greater potential proceeds or, or does it make them more attractive to retain, given their, you know, growing benefits to the to the core operations?

Christina Zamarro

So right now jumping on the profitability, we talked about a $20 million year over year lift in sales, which is almost all leverage. And so that’s a lot of that’s dropping to the bottom line. We don’t disclose retail profitability and I think, you know, I’ll, I’ll turn it over to mark to just talk about our opportunities even to further scale and grow retail. Because I think that comes into the calculus when you’re thinking about opportune times to sell, to sell, we have a, we have a ton of opportunity to grow in this footprint on our own mark.

Mark Stewart

Yeah. Sure. Yeah, Ryan, we have really been focused during this year on, on the retail opportunities coming in a little bit from, from my background in my former life side Ryan Waldron and myself together with with with Fred and John and the retail team and Alex have really been diving in on a week by week basis, making sure that we are leveraging those opportunities right when it comes to customer service. So let’s break it into the two segments, right? The the the normalized kind of Goodyear auto service center and then the the leveraging for the fleet business, both are going very well. So, so really great that we have, we’ve got our, our store managers out there performing very strongly with their teams. We have changed how we go to market with them in terms of the KPIS that we’re tracking in terms of the data and analytics that we’re we’re scraping and sharing with those teams. So they know where they stand in the market. We’ve increased our service on our base business, not only in, in just pushing tires, but really in improving our value add across the network, and, and really have those in a, in a great shape for that. Then you, you add on the, the locations that have already already doing double duty. Now, as I mentioned with a quote well known last mile fleet, to start and, you know, we’re talking 6, 700 appointments a day as we look at that and continuing to grow that. And we see that as a, as a great area of growth for us, a profitable growth for us. At the same time, we see our existing retail business also in very much a favorable growth mode in terms of the, the value add proposition and and the bottom line earnings. So, absolutely, it’s a, it’s a key part of our, our long term strategic growth and, and we’ll continue to reassess that as we said, right about where is the best home for that at the moment? That best home is absolutely with us. And and my plan is for us to, to get ourselves prepared and and get moving forward and do even more of what the team has been been successful at over these last these last eight months or so as as we’ve made the transitions there. So really proud of, really proud of our retail team.
Great, very helpful.

Ryan Brinkman

Thank you.

Operator

(Oprator Instructions) Emmanuel Rosner with Wolf Research.

Emmanuel Rosner

Thank you very much. My first question is on the free cash flow. It was a decently large use. This quarter. Can you talk to us a little bit about, you know, what’s going on? What the outlook is, not just in the near term, but just you know, into next year as well. I believe Christina, you mentioned positive free cash flow next year. Can you did I hear that right. And then what you know, what would be the levers and drivers to improve free cash flow and leverage from here?

Christina Zamarro

Hi Emmanuel. So, I’ll start on the, the quarter, you know, our third quarter free cash flow was a use of $340 million and that’s, that’s compared to a use of 41 million last year and really two major drivers of that change. The first is higher rationalization payments as part of good year forward. We we’ve obviously announced a lot of structural rationalizations as as well as an increased use of working capital. So I’d say rationalization payments and, and some of the Goodyear forward costs were about 100 million higher, working capital, 75 million higher. And the the rest is timing of tax payments and timing of interest expense payments and accruals also some other balance sheet accruals and payments, but no real significant changes here. Other than timing, I think we’re confident about our expectations for very strong free cash flow here in the fourth quarter in line with our historical seasonality and our full year free cash flow guidance for this year is stable compared to what we shared with you on our Q2 call. I think looking ahead to 2025 you know, a couple of major drivers relative to this year on free cash flow first, what we expect to recover the working capital outflows in 2024 next year, we also are reducing our Capex below a billion dollars. So that’s a swing of about $300 million on a year over year basis. And so I think we should expect really strong free cash flow next year. Right now, we’ve announced restructurings of $400 million which would subtract from all of that free cash flow. But I think, you know, our restructuring could go as high as 700 million. Some of that could be in that additional could be in 2025. Some of that could be in 2026. We’ll continue to keep you posted there on our plans around structural cost but still feel very good about cash flow.

Emmanuel Rosner

Okay. Just quick follow up on this restructuring span. Can you just remind us how much is sort of like le left to spend? After 2024 is done.

Christina Zamarro

So right now, we’ve we’ve said that we’ll spend about a billion dollars in restructuring over the course of the program. So that’s inclusive of the guidance today for 2024 next year, we’ve announced about $400 million in cash out. You know, there could be some other structural cost announcements that could add to that next year or in 2026. And we’ll just have to continue to keep you posted as to the timing of those outflows, but expect no more than a billion dollars under the total program between 2024 and 2026 maybe, early 2026.

Emmanuel Rosner

Got it. Thank you. And then maybe a follow up on the on volume. So II, I think I understand some of what’s going on in terms of drivers of volume weakness as well as the strategy you’re, you’re pursuing to go after some of the more profitable, the most profitable volume. At the same time, It, it, it’s a bit hard from in our vantage point to understand at what point will volume no longer be as large a headwind to the point that it offsets, you know, some of the benefits from your, you know, strong cost reductions. I think in the past, you anticipated that by now, you would probably have reached this point where volume would not necessarily underperform, you know, the industry, but it still does and still guided to do so. You know, how should we think about that? When will you, when will you be done? You know, with your own actions, what part of it is driven by Goodyear versus industry dynamics? At, at what point can volume no longer be the part that basically offsets, you know, the good stuff you do on the cost side.

Mark Stewart

Yeah, I think, and it, I think you put it exactly right. Emmanuel in terms of the industry, the industry piece versus the, the Goodyear and the, and the Goodyear brands piece. I I’ll give you a great example right on weather ready too, right. As we mentioned, we’ve got got, you know, I think it was 50 60% more skew coverage coming into this, the refreshing and the new, you know, award winners coming into the marketplace today. So at this moment, we’ve got 40 of those skus in the marketplace for sale. By the end of the year, there’ll be 58. By then, by the time we get into the end of the first quarter next year, we’ll be up to 78. So from 40 to 78 on that prior to right, we would have been sitting roughly in that 50 kind of range. So we’re covering more of the marketplace and what we’re doing very much from an analytical perspective from from our folks in data analytics for the marketing team and from our, our sales, our consumer sales teams that we used to call category, right? That are sales enablement, looking at the car park, looking at the 1st and 2nd replacement cycles and where we have holes in those fitments. So long story short to it is weather ready. Two is a great example of bringing that in and having the right places. The 90 plus skews that are on the water from AA on the high end fitments are a key part of that strategy that come into the marketplace between December and February of next year. It will be flowing all the way through next year and into early 26 to answer your question.

Emmanuel Rosner

And, and so timing was, I appreciate the call. Timing was you think that about a year and a half.

Mark Stewart

Process when it comes to the actions that we’re taking from the time we release development and the refresh of the vitality, we call it on existing Powerline Ks. So it’s the refreshing of SKs, it’s new skews to the market and still though being very cognizant of our platforming and you know, the both the carcass and the green tires to not clog up the plants. So, it’s, we’re doing that in harmony with the, with each other. So we don’t cause a backwards move on our plant side. But but it’s basically, it’s about a year and a half type of process. I think forced to get exactly where I would like force to be.

Emmanuel Rosner

Okay, thank you.

Operator

Thank you. We’ll take our last question from Ross McDonald with Morgan Stanley.

Ross McDonald

Yes. Thank you for taking my question. It’s Ross Morgan Stanley. A quick one on sku rationalization. Could you maybe help steer us in terms of the volume you’re currently doing in 18 inch and above in the US and how much open road you see for growth. There just be helpful. I think to understand where we are starting from and where you want to be in a couple of years’ time.

Christina Zamarro

Sure. Hi Ross. So I have the stats for North America and Goodyear branded products.
57% greater than 18 inch, but across the portfolio which would include Cooper and all of our family of brands. We’re at about 46% greater than 18 inch. So a lot of runway grow here in North America going forward. That’s in a pretty big contrast. If I go to the other end, like in China, for example, we’re, we’re already 80% greater than 18 inch and that’s just given the car park there more heavily skewed. Do we?

Ross McDonald

That’s helpful. Thank you. And then final question just on the disposals again, I appreciate you are slightly restricted in what you can say, but specifically on dunlop, you had previously guided us towards that business which is predominantly Europe focused, I believe doing annual sales of around $700 million. That still be the best estimate for 2025. Given the budget share gains that we’re seeing in Europe and related. You’d mentioned that business was doing something like a mid single digit margin, I guess. How should we think about the dunlop margin profile next year? Given the budget dynamics that you laid out earlier? Thank you.

Christina Zamarro

So, I would say, yeah, you’re right. Dunlop for us is about 5 million units mostly concentrated in IIA you know, over the past year, you know, we’ve repositioned Dunlop into the tier two space in the market. So we have been growing share their products performing very well. I I would expect that revenue to be up somewhat just given the unit volume increases we’ve seen since we last discussed the brand at the end of of last year. And I think, you know, the margins are still healthy, still very healthy relative to the rest of the portfolio. And I’m, I’m talking on a gross margin basis overall and, and you know, that is a clear area of focus for us growing, continuing to grow the strategic positioning of our brand families. And you know, continuing to work towards this process where, you know, we’re undergoing the strategic review for divestiture as well.

Ross McDonald

Thanks very much, maybe a very, very quick follow up just on the mix question would you consider in your EBIT bridge splitting out what is net price versus what is mix. I know some of your tier one competitors do that would just be helpful. Maybe to showcase what is structural mix benefits to help us see the evidence of that mix coming through. Thank you.

Christina Zamarro

Historically, when there’s been a a significant driver will make some qualitative comments, I think because of our market share in the US and some of the ongoing scrutiny around pricing conversations broadly, we tend to stay away from you know, really a pricing commentary.

Ross McDonald

Right. Understood. Thank you very much.

Christina Zamarro

All right, thank you.

Operator

Thank you. And it appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Mark Stewart

No, that is it guys. Thank you guys for calling especially. I know some of you guys are out at the fema show. It’s quite early for you, but we want to thank everybody for joining and, and thanks for the, the great questions today. Look forward to talking to you in quarter four.

Operator

That concludes today’s teleconference. Thank you for your participation. You may now disconnect.