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I guess my main question is just was hoping you could just characterize pricing conditions in North America, and I wanted to ask you whether you think it’s time to reexamine pricing just given the recent raw material price increases plus the fact that you really haven’t fully recovered everything that you lost in terms of the spread over the past 2 years.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [3]
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Yes. So Rod, it is an ongoing matter for us to look at what we need to do in order to recover the lost margins that we’d experienced from the increased raw material costs over the last couple of years, and it’s something we’re confident we’ll be able to do over time. I think if we look at where we were in the first quarter, we were able to — we achieved price/mix of $42 million, which compares to $35 million in Q4 and negative numbers for several quarters before that. So I think we feel like we’re making progress. And in particular, it was good for us to see price/mix in the Americas turned positive after having slightly negative in Q4. So in the Americas, we’ve got good momentum on price and we’ve got mix improving as we enter Q2. And this is at the same time when raw material — year-over-year material cost increases are getting a little more moderate, so that’s a good combination. So that — I mean that’s kind of how we feel about the Americas.
And just to hit on Europe and Asia Pacific, I think where we have good momentum on pricing in the Americas, not as clear in EMEA and Asia Pacific as price/mix in Q1 for both of them was a little lower than Q4. So there’s some seasonality in it for the EMEA business. But I think it’s fair to say the momentum there is not as good as it is in the Americas. But overall, I think I mean, we feel like we’re making progress. We’re still working toward that crossover point where we can start to recover the lost margins that we’ve experienced from rising raw materials. I didn’t include the cyclical price versus raw materials chart in today’s deck. It hadn’t really changed very much as you can — as you might imagine. But we will come back to that later in the year to do a progress check and to talk some more about that. But that’s obviously an ongoing point of focus for us.
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Rod Avraham Lache, Wolfe Research, LLC – MD & Senior Analyst [4]
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Well, maybe I could just ask this a little bit differently. What would be the key metrics or indicators that you would analyze to determine that the time is right to implement additional pricing?
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [5]
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Rod, I don’t think — I’ll jump in. I don’t think they’re a lot different than what we’ve done in the past. It’s a combination of where our input — the change in our input costs and we go as well as other market conditions that are relevant to each of the particular areas that we deal with. So I don’t think the things that we look at are going to be any different. It’s going to be the environment, and it’s also going to be — we’ve said this consistently in the past and we believe this and Darren just said it again that we believe we can recover over time not just on market conditions and input costs but also the value we’re putting out in the marketplace, whether it’s the new products that we put out. And we highlighted again where our product portfolio is, that’s an opportunity for us to continue to go back and look at what we can offer in the marketplace and the price at which we’re offering it. So we look at our portfolio, we look at the services we’re providing, and we look at the value we’re bringing around all the programs, whether it be advertising, whether it be some of the distribution programs we have, whether it be some of the new products. All those type of things that we bring to market are all things that go into the mix of what we do.
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Rod Avraham Lache, Wolfe Research, LLC – MD & Senior Analyst [6]
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Okay. And just lastly, could you just remind us, in North America, how big is your truck and bus radial tire business? And has there been any benefit to you since the U.S. obviously implemented some pretty significant tariffs starting February 15?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [7]
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So Rod, when you’re asking about the commercial truck tire business, you’re just asking for the relative size of the business?
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Rod Avraham Lache, Wolfe Research, LLC – MD & Senior Analyst [8]
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The relative size to you. Right. The size to you within the North America business, and obviously, a lot of tires imported from China in that segment. Maybe it’s more lower end, but I think the tariffs are like 40% or something like that on those imports. Is that something that you’re seeing as a positive? Is it domestic manufacture?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [9]
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Yes. You’re really just trying to get the — you’re trying to get the tariff impact more than anything else, Rod, is that — that’s kind of where you’re going with it?
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Rod Avraham Lache, Wolfe Research, LLC – MD & Senior Analyst [10]
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Well, presumably not much direct tariff impact for you, but maybe indirect.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [11]
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Right.
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [12]
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Right. Yes, so Rod, I think the size of the business, just use the overall size we use in North America to — for the total businesses relative to North America as well as we look at it. So — and I think you’re right. I mean I’ll kind of — I’ll jump to the end and maybe add a little bit more color, but our focus is typically on the OEs and the fleets, and that’s between product and product performance as well as our fleet solutions and Proactive Solutions. Our brand technology and those type of things is what drives our business as opposed to the low end. But as we look at it, there is now, as you know, a 4% standard tariff in place as we look at it. Then there’s a 10% section, if I get a little technical, Section 301 tariff that went into effect in the middle of 2018. And the increase to 25%, as you may remember, was supposed to occur at the start of the year, that’s been delayed. And then also, there was the ITC announced antidumping and countervailing duties that went into effect in mid-February, and those amounts can differ by company, as you probably know. But the combined sort of effective rate for most manufacturers, call it between 42% to 45%, and those rates then are applied to the import price of those tires coming in. So — and as an example, a standard sort of commercial truck tire coming in from China on average is about — import value about $120. So the importer of record would need to pay approximately an incremental, call it, $70 to cover all the duties. So that’s sort of how to think about the tariffs coming in. Remember, for us, nearly all our commercial truck tires that we sell in the U.S. are made in the U.S. and they’re made to support that business model that we spoke of. So clearly, it has an impact there. Darren made reference to that in his formal remarks about what it does to the industry, but our focus is going to continue to remain on where we add value to our customers and the OEs and the fleets.
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Rod Avraham Lache, Wolfe Research, LLC – MD & Senior Analyst [13]
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Okay. Great. Sounds like you’re seeing some benefit, I guess, in a nutshell just given what’s happening competitively there.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [14]
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Yes. I think we’re at a point where the — it’s an industry that is in good shape, and we’ve got a very competitive offering. So I think the commercial truck business is a strength for us right now.
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Operator [15]
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We’ll take our next question from John Healy with Northcoast Research.
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John Michael Healy, Northcoast Research Partners, LLC – MD & Equity Research Analyst [16]
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I wanted to ask a big picture question. When I think about everything that’s going on operationally, I feel like there’s 2 sides of the coin. You’ve got the U.S. business where you’ve made some pretty significant moves in terms of changing distribution and exciting launch in June with the e-commerce on the commercial truck side. And then if you go over to Europe, and it seems like you guys are really digging in on the operations in terms of being effective with your production capabilities. As you look at those 2 things, do you see things in Europe that you can bring to the U.S. maybe in 2020 on the production side? And then do you see things in the U.S. on the distribution side that you can take to Europe in 2020? And I guess the way I’m asking this is at some point over the next 2 years, do you see yourself pivoting where you take lessons learned and try to implement those across the sea back and forth? And can the business look like in the U.S., what you’re building, can that be the model in Europe and then vice versa on the production side?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [17]
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Yes. So John, I think it’s reasonable to look at what we’ve done in terms of distribution in the U.S. and think that, that is going to be instructive for the way we want to approach a line distribution in other parts of the world, and we are thinking about what it takes to establish that level of alignment in other markets where we operate. So I think it’s fair. Those are changes that take place — tend to take place over extended periods of time. So your specific question was about 2020. I think the work that we’ve done in distribution in North America has taken place over many years. So there was — TireHub was a significant event, but there was a lot of work done over a long period of time that led up to that. So I think directionally, we are looking to develop that level of alignment in other markets, but those changes take some time to accomplish.
In terms of production, certainly our European factories have had a longer — have had a lot of experience with high levels of product complexity and SKU proliferation. So I think inevitably, there are some lessons that can be shared. And I think we look at our manufacturing programs on a global basis. So our plant optimization program, including the efforts that we’re undergoing to address any sort of constraints that we have on producing the type and variety of SKUs that we’re now being asked to produce, those are learnings that we share globally. And to the extent we have factories that have greater levels of experience, then we’re going to leverage those learnings and we’re going to try to share those around the globe. So I think both the points you make are relevant points.
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John Michael Healy, Northcoast Research Partners, LLC – MD & Equity Research Analyst [18]
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Okay. Fair enough. And then I wanted to ask about one of the comments on the slides jumped out at me is you guys are calling out building a stronger OE pipeline for 2020 and beyond. Can you maybe talk to if that’s U.S, if that’s Europe? Is it new partners? Maybe potentially how meaningful that can be relative to the performance you’ve seen in ’18 and then the start of ’19?
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [19]
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Yes. I think, John, how I would look at it is really on a continuum. And you’ve heard us talk about this in the past as having a selectivity strategy where we’ve been very thoughtful about the portfolio and where it was and where we wanted to take it.
And I would tell you to think of what we’re doing now is very much in line with that. We have been on that journey and will be — will continue to be on it to make sure we’re getting on the right fitments and have the right pull with the right partners going forward. And what you’ve seen is certainly a lot of decisions to move away from products and pull — replacement pull that wasn’t there to improve our business and to be able to get our cost structure in line to do that. As we look ahead, I would say that this is not region-specific, I think it’s company-specific. I’m very pleased with the OE fitments and the win rates that we’re having in the Americas, including Latin America, in Europe as well as in Asia. In Asia particularly, both China and India where we’re having very successful win rates in getting on the fitments we want, and that means not only a particular country platforms but global platforms, and it means AVs and it means a lot of unique tires and characteristics that those manufacturers want not for the vehicles that we are seeing on the road today but as they are thinking about where those platforms are going forward. So we are having — I’m very pleased with the success we’re having on win rates and I’m even more pleased with the partnerships that we’re having with those individual OEMs to work together on bringing those vehicles to market.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [20]
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Yes. So if I — John, if I could just add one thing, because, again, you were focused on the year that the benefits might begin, I do — we did — we had a question on the year-end conference call when we were talking about the 2 million to 3 million units of OE volume that we expected to reduce this year because of selections that we had made in our portfolio, and there had been a question about whether or not that lost OE volume was going to be something that would go on for several years. Now I think we want to keep making the point that while we’re — our OE volume is expected to decline this year and now probably closer to 2 million than 3 million units, we’ve won fitments that’s going to start to bring that volume back in a significant way beginning in 2020. So we don’t see that OE decline in terms of our fitments as a long-term thing. It really is — it’s principally a 2019 thing and we’ll recover thereafter.
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [21]
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That’s a good point, Darren. Our pipeline to get those tires out is full right now, so we’re feeling good.
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Operator [22]
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We’ll take our next question from Ryan Brinkman with JPMorgan.
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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division – Senior Equity Research Analyst [23]
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Regarding the German plant modernization and restructuring program, should we think about this more as an LVA to HVA type conversion that is aimed at benefiting mix? Or is it more of a cost reduction action? And what are your related thoughts generally on cost saves versus general inflation? I think there’s been some anticipation you might be set to pull additional levers to try to ramp cost saves back up to the level of recent years. Where are you in that process? Is Germany part of it? And when might we expect to learn more?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [24]
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Okay. So Ryan, let me — I’m going to ask — answer your last question first regarding cost savings versus inflation. And the — I think we were pleased to see that in the first quarter, we were — we had cost savings that exceeded inflation by $10 million. And that was after a fourth quarter where if we exclude the one-time settlement we had on Brazil VAT, which was a benefit in terms of cost savings in the fourth quarter, if we excluded that, fourth quarter inflation and savings were about equal. Now in the first quarter, we’ve gotten some net savings, which I think we’re pleased about as part of what delivered earnings a little bit better than we might have been expecting in Q1. The cost inflation issue though is still very much in front of us. So our cost savings programs are going to have to ramp up. We’ve kept a lot of attention in that area. But inflation is continuing to build I think. Particularly in EMEA, particularly in emerging markets, we’re feeling that. And it’s going to be a struggle for us this year to deliver net savings. I mean that’s kind of — that’s where we’ve been. It hasn’t really changed. We’re 1 quarter in and we delivered a little bit more than we had originally expected. I think that’s good. We’re going to stay focused there. There’s no question. But not at the level of net savings where we — that we’d really like to see.
If I come back to the German restructuring, I think the way you phrased your question is right on the mark because you are separating the 2 different aspects of this project. And there are 2 aspects because, first, we are reducing some high-cost capacity that’s no longer capable of producing tires that are in highest demand, and that’s the element of it that you would think of as a restructuring. And rather than taking — reducing capacity by — I mean, between the 2 factories, we are, in fact, reducing high-cost capacity by the equivalent of about 1 factory. So it’s half of each of 2 factories, but we’re kind of taking out that level of high-cost capacity.
And then second, there’s an investment in new equipment that’s going to allow us to produce 2.5 million units of additional high-value-added tires or 17-inch and above rim diameter tires. And that is — that’s similar to some other upgrade projects and expansion projects that we’ve done. So I think that’s really the way I think about it is we’re going to take out a significant high cost — part of the high-cost footprint that’s no longer capable, and then we’re going to add that 2.5 million units as a CapEx project. And we’re going to get benefits from each one of those. The benefit — the strict benefit from the restructuring from the approximately 1,100 head count reduction is the $60 million to $70 million. So we’re going to get that benefit. We’ll get that over time, so over the next 3 years. And then there will be the additional benefit, which is the added margin on the 2.5 million incremental high-value units. So that’s a mix-up benefit that we’re going to get over about that same time frame. Now that — there’s about $120 million of capital expenditures that go into that. So we’ve got $125 million of cash restructuring, $120 million of CapEx, and what we get from that is $60 million to $70 million of cost savings plus the added margin on those 2.5 million of high-value-added tires.
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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division – Senior Equity Research Analyst [25]
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I see. And then just lastly from me, I think it’s encouraging that you are gaining share in U.S. consumer replacement market, including after the price increases in the back half of 2018. Maybe you can talk about the role that TireHub, if any, may have played in improving share? I’m curious to know also, though, if you think that you took as much price in the back half of 2018 as did your average competitor? Or if maybe you elected to invest in a little bit more competitive price point to try to recover some of that share that was lost when maybe you were in retrospect being too assertive in raising price in 2017?
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [26]
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Yes. I mean I’ll jump in. I would say our value proposition in the fourth quarter was what I thought and what we thought was appropriate for the markets at the time. So I think I would — I’d leave it at that in terms of how we went to market. We were very pleased in the fourth quarter, coming out of the fourth quarter in terms of how we were set up in the market, and I think you saw that come into Q1. I think you rightly pointed out, we were, I think as Darren mentioned in his remarks, we were 6% up in the quarter in the U.S. market. I think that’s reflective of that value proposition I talked about. Great products in the marketplace, new products in the marketplace and a strong demand out there. And as we look at it from — overall, we saw market prices sort of trending higher in the quarter year-over-year and sequentially. And again, as you said, our revenue per tire was up, our volume was up, our market share was up, and that comes off of the situations that we had in 2017 as well as 2018 with TireHub. So I’m very pleased with the way that we’ve worked through that.
And I might add, we don’t see any sort of a broad evidence that any inventory is really building up in the channel. Remember, sellout has been good, vehicle miles traveled is good, consumer confidence is good, so the industry is pretty good. And from our perspective, our inventories are certainly in relatively good shape at both the wholesale and retail level. So we feel pretty good about that.
And in terms of TireHub, TireHub is doing what we intended to do, right? This is — we started it last year. We did that as part of our initiative overall to drive our aligned distribution with our aligned partners to support our delivery of tires in the marketplace, to support the initiatives that we’re putting out there. It’s doing just that. We exceeded our transition plans last year. Yes, we’ve had some bumps in the road, but we continue to build momentum. We haven’t lost the customer, and we’re executing against those customer deliveries. So — and as I mentioned, inventories are in good shape, and we’re actually operating with less inventory than our previous national distributor had. And we’re doing that getting better visibility into the demand trends and consumer preferences that are out there. So I think I wouldn’t attribute everything to — certainly to TireHub based on our first quarter volume, I think that’s a lot of things. But TireHub certainly is doing what we intended it to do.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [27]
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Yes. The only thing I’d add to that, Rich, is the — there was certainly an effort early in 2018 to go back and get the volume and the market share that we had lost in 2017 when our pricing got out of phase with the rest of the industry. So I think that happened. But if I look at the fourth quarter and the first quarter, I would say that our pricing momentum there was strong. And the — I think and we’ve talked about this at the fourth quarter call, we had good pricing momentum in the Americas, but we had negative mix. Some of that related to the supply situation. There is still a bit of that in the first quarter, right? So we’re still looking to get to the point where we start to get some benefit from mix because the last couple of quarters, mix, in fact, has been a bit of a drag and is hiding some of the benefit of the pricing that we’ve gotten.
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [28]
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And Darren, that’s a great point. And maybe I’d add one final comment just to say we’ve put TireHub — we started TireHub sort of in the middle of 2018. A big decision for us to do, particularly coming off of 2017 as we described, and you’re seeing that momentum now come back into 2019. I’d say it’s just a view that we do — that strategy we have long term is something we’re committed to and we’re executing against.
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Operator [29]
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We’ll take the next question from Armintas Sinkevicius with Morgan Stanley.
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Armintas Sinkevicius, Morgan Stanley, Research Division – Associate [30]
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Question around raw materials. Last quarter, you said that the guidance was for $300 million of a headwind in ’19 versus ’18 based on forecasted rates, but it would be $150 million of a headwind based on spot rates. It looks like raw materials have been holding in fairly well since then, but the raw materials guidance is still a minus $300 million. So just wondering about the puts and takes, anything we might be missing there as to why we’re not seeing a tailwind to raw materials versus prior commentary.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [31]
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A good question, and as you pointed out, our forecast has not changed. And when we did our call in February, spot prices at that point would have implied — if they stayed where it was, it would have implied $150 million less cost than we were forecasting. As we expected, feedstock costs have actually risen over the last 60 days, and it — and that is true in natural rubber. Certainly, it’s true in carbon black. Obviously, a little bit of the effect of oil prices rising over that period of time. At today’s commodity prices and also taking into account some further strengthening of the U.S. dollar, what today’s spot prices would imply is about $50 million below the $300 million forecast that we have. So the picture at spot price has gotten $100 million worse than it was 60 days ago. So I guess we’re still at a point where we believe the $300 million cost increase is the right assumption for the year because we’re still expecting it — still expecting a little bit further increase, and it’s embedded in our forecast. If it doesn’t happen, obviously that $50 million of good news would still be there. But I think we’re feeling like we’ve done the right thing given that we’ve seen what we were expecting to see.
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Operator [32]
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We’ll take our next question from David Tamberrino with Goldman Sachs.
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David J. Tamberrino, Goldman Sachs Group Inc., Research Division – Equity Analyst [33]
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Two questions for you. Just the back and forth, a couple of questions. Does it sound like — from what I’m hearing, there’s potentially less pricing action on the horizon or we’re in a wait-and-see mode given how the market is shaping up from a OE consumer replacement demand and supply in the market?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [34]
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Yes. So I think that what we’re seeing right now is in terms of price/mix is really good momentum in the Americas, so I think headed in the right direction there. A little bit more of a mixed picture in Europe. So in Europe, we’ve seen — for the summer season, we’ve seen some manufacturers raise price. We’ve seen other manufacturers lower price. So kind of a mixed situation there. And obviously, the situation in China is — as that improves, it may change, but right, now very weak markets there and that’s having an impact. So I do think there are some regional differences there with the North American market probably being in the best position. So — but I don’t — I think our intentions are to recover the cost of raws over time, and we’ve got a ways to go before we achieve that. So it’s a constant area of focus for us.
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David J. Tamberrino, Goldman Sachs Group Inc., Research Division – Equity Analyst [35]
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Right. And then my second one, which I feel like is probably the key question for you for this year because if I’m not mistaken, your guide or your directional commentary was for SOI to be down slightly somewhat from ’18 to ’19. And I look at the free cash flow, TTM, look at where you were at — for 2018, just trying to get a sense of if you think, Darren, that 2019, you’re going to be able to achieve a positive free cash flow? And if not, let me just assume you’ll continue to fund the dividend from the balance sheet and cash.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [36]
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So David, I think that — I continue to be comfortable that at the level of earnings where we’re running today that we’re in a position to fund the investments we’re making in the business, which are principally some restructuring in our CapEx plan and cover the dividend without increasing our leverage, and that’s the balance that we are focused on. We are clearly focused on protecting the balance sheet. And we — so we’ve taken actions to make sure that we’re doing that. Our leverage ratios are up. And that is to some degree cyclical and related to where our earnings are, but we’re very focused on making sure that we’re not increasing our debt levels. So we’ve taken some discrete actions there, including discontinuing the share repurchases, but we’re also taking operational actions, including a lot of focus on working capital to look at opportunities to improve our balance sheet. And then, obviously, as the cycle turns and earnings and cash flow improve, we’ll be looking to take advantage of that to further improve the balance sheet.
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David J. Tamberrino, Goldman Sachs Group Inc., Research Division – Equity Analyst [37]
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Understood. But for this year, I mean, are you expecting positive free cash flow — OCF, less CapEx?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [38]
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Yes. So I think we — I’m comfortable that we’ll be able to cover our dividend payment, if that’s the question.
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Operator [39]
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And we’ll take our final question today from Anthony Deem with Longbow.
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Anthony J. Deem, Longbow Research LLC – Senior Analyst [40]
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First one, fixed cost absorption. So $18 million positive in the quarter. You’ve had lower volumes in the past couple of quarters. I’m just — so I’m just wondering is TireHub product a regional mix? Maybe the Americas plant, is this having a meaningfully positive impact on your overhead absorption? And certainly next quarter, it looks like you’re guiding to a positive outcome in the Americas segment, but you’ve seen flat or down volume in the past couple of quarters. So just wondering if you could share anything potentially abnormal going on in this line item.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [41]
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And that’s specific to overhead absorption?
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Anthony J. Deem, Longbow Research LLC – Senior Analyst [42]
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Yes.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [43]
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Yes. Okay. So I think we — it’s a good question because we do have — in an environment where our volume has been down, we’ve got favorable overhead absorption, which I think is — makes it a very natural question. Our — I think, though, as we look at a lot of the volume decline has been Asia Pacific. And our production — the reduced production has principally been in Asia Pacific, and that’s — our overhead for tire is the lowest there. So we’ve had our hot — our production has been actually up in the Americas and EMEA, notwithstanding the volume. And part of that’s been trying to catch up with our supply situation in the Americas. And it’s been up, and it’s been up the most in commercial truck. So it’s been up in some areas that have the highest overhead absorption. So there’s a bit of a mix among geographies that’s benefiting us there. The — so I think that is really what you’re seeing and I think we’ll continue to see a bit of that. So that is — if that’s the question — and you asked the question also about the increased production in our new Americas factory, and obviously we’re getting some benefit as that ramps up as well.
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Anthony J. Deem, Longbow Research LLC – Senior Analyst [44]
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That’s helpful. And so on the supply constraints update, so it looks like you did 12% HVA growth in the U.S. this past quarter and you took some share. So I guess the question we’re wondering is what could those numbers be without some of these supply constraints, and are you able to put a value or unit number towards that?
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [45]
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Yes. So I think 2 — I mean 2 benefits that we would get if we were able to supply better. Certainly we would have opportunity for those numbers to be higher because we’re not supplying all the high-value tires that we would be able to supply. And to be clear, that’s true in the consumer business, also true in the commercial truck business. And the 12% you’re referring to, that’s only a consumer business point, but the same effect is true in the commercial truck business. So you would see that. The other thing that it would help us with is it would help us supply all of our customers where we do have some customers who have first claim on supply, and obviously, the OEs are the clearest example of that. But we have replacement customers who also have sort of a first call on our supply, and they’re not always our highest margin customers. And that’s been one of the challenges we have in achieving mix is that we are selling more tires to some of our lower-margin customers. And we would be able to supply some of our higher-margin customers better if we could get supply situation in a better spot.
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Anthony J. Deem, Longbow Research LLC – Senior Analyst [46]
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If I could fit in one question more here, so advertising R&D sort of the other category in the SOI walk, net benefit in the quarter it looked like. So is it fair to assume — I know you’re not giving explicit guidance, but I’m wondering if it’s fair to assume if these were to remain tailwinds for the remainder of the year, perhaps this is just a savings lever that Goodyear is pulling.
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Darren R. Wells, The Goodyear Tire & Rubber Company – Executive VP & CFO [47]
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Yes. So I think — the fact that we’re very cost-focused, I think, shouldn’t be a surprise. I will say that there are — when it comes to advertising, there are some differences quarter-to-quarter. So I don’t know that I would look at first quarter as a clear indicator of where we’re going to be in the full year. The timing of product launches and some of our marketing pushes can change. And if, in fact, we start to see some recovery in some of our markets in the second half, that would have an impact on the investment we’d be making in marketing, advertising and SAG. So I guess I don’t read too much into one quarter, but I think it is fair to say that we’re going to stay very, very focused on cost for the foreseeable future.
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Richard J. Kramer, The Goodyear Tire & Rubber Company – Chairman of the Board, CEO & President [48]
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And all I would add is over time, I think we’ve demonstrated a very good sort of decision-making and timing of CapEx and R&D as we go through the cycle. So you would expect to do the same. We’ll make good decisions, but we’re no less committed to — or particularly, you mentioned our R&D expense, that remains a priority for us. But I would say we manage it very well in terms of prioritizing and executing our projects.
So — and I believe that was the last call, so I just want to thank everyone for your attention today. Thanks very much.
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Operator [49]
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And this will conclude today’s program. Thanks for your participation. You may now disconnect.