Goodyear Tire & Rubber Co (NASDAQ:GT) reported its second-quarter financial results after the closing bell on Wednesday.
Below are the transcripts from the Q2 earnings call, which took place Thursday morning.
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David (Operator)
Please stand by. Your program is about to begin. Good morning. My name is David and I’ll be your conference operator today. At this time I’d like to welcome everyone to Goodyear’s second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session. You may register to ask a question at any time by pressing Star and one on your telephone keypad. You may withdraw yourself from the queue by pressing Star and two. Please note this call may be recorded and it is now my pleasure to turn the conference over to Ryan Reed, Senior Director of Investor Relations.
Ryan Reed (Senior Director of Investor Relations)
Thank you and good morning everyone. Welcome to our second quarter 2025 earnings call. With me today are Mark Stewart, CEO and President, and Christina Zamarro, Executive Vice President and CFO. Couple notes before we get started. During this call we’ll make forward looking statements that involve risks, assumptions and uncertainties that could cause actual results to materially differ from those forward looking statements. We’ll also 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. With that, I’ll hand the call over to Mark.
Mark Stewart (CEO and President)
Thank you Ryan. Good morning everyone and thank you for joining our call today. Let me start by saying our second quarter results were below our expectations and reflect an unprecedented level of industry disruption given changes in global trade that negatively impacted our consumer and commercial businesses globally. At the same time, the midterm outlook is also turbulent given what we’re seeing in terms of industry environment. I’ll talk about what we’re seeing in detail before we move on to the financials and to your questions. While the near term has proved to be significantly more challenging, I am confident in our ability to regain our momentum once the market stabilizes and we worked through some of the transitory headwinds we’re seeing today. Within the current environment, our focus continues to be on controlling that which we can control.
We have executed consistently on Goodyear Forward where P and L benefits continue to be achieved ahead of schedule. We’ve increased pricing in the US and Canada in response to the tariffs. We’ve won significant share in consumer OE in the US as well as in Europe. We’ve increased the vitality or the refreshing of our product portfolio we grew in the greater than 18 inch segments of the market and we’re on track with our new 18 inch plus SKU developments and launch timing. We’ve expanded our margins in Asia Pacific, our SGA or SAG costs are down and finally we’re on pace to deliver a strong balance sheet by the end of the year supported by the three divestitures we committed in Goodyear Forward Net Net, we’re paving the way for our organization to deliver increased value and focus on becoming number one in tires and service market factors, the things that we don’t control. They certainly had an impact during the quarter and I’ll share more about that shortly as we look ahead. Once this turbulence around the pre buy in the first half of the year settles down, we are well positioned with our US footprint, with our products and with our distribution and we’re also looking at raw material benefits beginning in quarter 4. If we turn to the industry environment in the second quarter, several factors limited our ability to mitigate rising costs. First, the market continued to feel the effects of OES navigating new complexities of the global supply chain.
Specifically, we saw the consumer OE industry contract more and more than we anticipated in both the Americas and in Europe. In addition, we continue to see weakness in Our Asia Pacific OEM’s volume given our own premium mix of customer and fitments. Consumer preferences in Asia Pacific, continued OEM price discounting and favorable government incentives in China are leading to a disproportionate amount of sales of opening price point vehicles which is well below where we focus in our targeted segments of the luxury and the SUV EV segment. Having said that, even while our OE volume was weaker than expected, we continued to register significant OE shares in the US and Europe which is a relative sign of strength highlighting our industry leading technology and service. Moreover, we’ve recently seen increased demand from our OES as they’ve sought to rebalance their tire supply with with more focus on USMCA capacity. We believe we’re in the early innings as it relates to this opportunity and see positive momentum. Second, the consumer replacement market was characterized by increased competition, particularly in the Americas and in emea which impacted our volume. Despite new installed tariffs the second quarter US non member growth in imports was actually higher than in the first quarter as dealers and distributors prioritize shelf space and liquidity to stockpile the imports. What’s more, we’ve already seen some of this excess volume materialize in the US sellout market. As you all know, we’ve announced broad based price increases in the U.S. and Canada that became effective in the second quarter and remain intact today. It’s clear that our relative positioning impacted our overall consumer replacement volume and the price mix. Our although we did continue to record gains in the 18 inch and above rim sizes, another contributing factor influencing our views on the US Consumer replacement market is related to distribution. As many of you know, we made a strategic decision earlier in the quarter to rebalance our U.S. distribution to ensure high levels of customer service and mitigate credit risk following the second bankruptcy of atd. Other manufacturers have taken similar actions as distributor relationships are important for reaching end customer accounts.
Some manufacturers as well as distributors operating in the US Market introduced new and meaningful incentives during the quarter. These programs presumably shift retailers to new distribution networks. These actions serve to further increase competition in today’s markets. There are two additional developments to highlight as we think about the outlook for our consumer business. First, North America consumer replacement margins steadily improved throughout the quarter as we implemented price and mix actions into the market. Second, US Growth in non member imports started to ease recently and we expect to see declines in the level of imports beginning as early as the third quarter. On a related note, the EU recently launched an investigation on imported tires from China. While we don’t have any final second quarter data yet, we believe the announcement led to an increase in imports over the last several months. As we have seen distributors prioritize liquidity and warehouse space for the imports. Our EMEA business is well positioned and should tariffs ultimately be implemented in Europe. Finally, turning to our commercial business, the truck tire market, which had been running at recessionary levels for the last couple years, took another significant leg down during the second quarter, positioning us now at a point where we expect our full year volume and mix to register below Covid year levels. As many of you know, the US OE industry fell nearly 30% on the back of uncertainty related to the implementation of the 27 EPA mandates. In addition, global replacement demand also contracted relative to our expectations as truck tire customers remain cautious about freight conditions and broader economic trends. In spite of these dynamics, U.S. non member imports increased over 30% in the quarter and European imports rose as well.
In summary, in the coming quarter we expect market headwinds to persist as U.S. dealers work through elevated levels of low end import inventory and weak demand in the global commercial truck market. We’re making the necessary internal changes to drive performance and control the working capital as we look at the second half. While global trade disruption is weighing on our full year outlook, I assure you our team is positioned to win with customers and consumers as the turbulence dissipates. It isn’t a matter of if, but when. As our fundamentals are strong and we have firmly positioned our business to deliver our targeted margin once the market conditions improve and our organization isn’t waiting passively for the upswing, we’re continuing to develop new premium products to generate our own organic growth tailwinds. In May we introduced the Eagle F1 Asymmetric 6 and in July the Assurance Max Life 2 in North America. In Europe, we’ve extended the lineup of our premium winter tire, the Ultra Grip Performance 3. We will increase its total offering to over 250 SKUs this year, making it our most extensive winter offering to date. Additionally, within all season, we were recently awarded the top rating by Europe’s largest auto association, ADAC, for the Vector Four Seasons Gen 3 tires. These new product introductions and third party reviews are crucial because ultimately we expect the recent challenges we’ve experienced in our markets will give way to the opportunity we continue to expect to realize benefits from trade policy changes over time as well as to capitalize on our organizational focus on winning in the premium segment of the marketplace. Now I’ll ask Christina to take you through the second quarter financials and we’ll move on to the Q and A.
Christina Zamarro (Executive Vice President and CFO)
Thank you and good morning everyone. Mark has shared important context for what impacted our second quarter relative to our expectations. Looking at the financials, about half of the miss in the quarter came in our commercial business given materially weaker OEM replacement demand globally. The other half was driven by lower consumer OEM replacement volume. Second quarter sales were 4.5 billion, down 2% from last year given lower volume in the sale of OTR, partly offset by increases in price mix. Unit volume declined 5% reflecting the impacts of global trade disruption on OE production, distributor and fleet buying patterns and consumer sellout Trends. Gross margin declined 360 basis points. SAG was lower by 39 million, consistent with results in Q1. Segment operating income for the quarter was $159 million. Goodyear net income increased to 254 million, driven by a gain on the sale of the Dunlop brand. Our results were impacted by other significant items including rationalization charges of 59 million. After adjusting for these items, our loss per share was $0.17. Turning to the segment operating income walk on Slide 10 the sale of the off the road business reduced earnings by 23 million during the second quarter. After this change in scope, our SOI declined $152 million versus last year. Lower tire unit volume and factory utilization were a headwind of $51 million. Price mix was a benefit of $91 million driven by our recent pricing actions in the U.S. and Canada.
Price mix came in $44 million lower than we guided on our first quarter call driven by headwinds in commercial truck of about 30 million and lower mix in the Americas as US dealer and distributor demand was our lower price point. Products in advance of announced price increases. Raw material costs were a headwind of 174 million and goodyear forward contributed 195 million of benefit during the quarter. Inflation and other costs were a headwind of 127 and other was a headwind of 18. The second quarter also included the non recurrence of 2024 net insurance recoveries of 63 million. Turning to the cash flow and balance sheet on slide 11, our second quarter use of free cash flow was stable versus last year despite increases in working capital. Our free cash flow includes benefits of $191 million in the quarter and $376 million year to date from proceeds from the sale of OTR and Dunlop. This amount includes $86 million of inventory held for sale that will transfer at the end of the year and $290 million for long term supply and transition agreements that we are amortizing into SOI. Over roughly five and a half years, net debt declined over $600 million which reflects the proceeds from asset sales this year net of cash used for working capital and restructuring as part of Goodyear Forward over the last 12 months. We continue to expect to receive gross proceeds of $650 million from the sale of our chemical business later this year. Moving to the SBU Results on Slide 13, America’s unit volume decreased 2.6% driven by headwinds in consumer OE and replacement while the US consumer replacement markets were up 5%. Low end imports continued to outperform and grew approximately 15% during the quarter which was an all time high following a record quarter in Q1. US industry sellout is about flat year to date. In addition to the churn we’re seeing in the consumer business, America’s commercial OE volume declined 22% where speculation surrounding changes to the implementation of 2027 EPA mandates negatively impacted demand. At the same time commercial non member imports grew 32% during the quarter. America’s SOI was 141 million or 5.3% of sales, a decrease of 100 million compared to last year driven by higher cost net of Goodyear Forward Benefits On Slide 14, EMEA’s second quarter unit volume decreased 2% driven by declines in replacement volume.
Where we saw channel destocking in summer tires. This trend was driven by distributors prioritizing imports ahead of potential tariffs. In late May, the EU announced it had launched an investigation on Chinese passenger tire imports with potential for applicable rates to be between 41 and 104%. The investigation should be complete by the end of the first quarter next year, although the EU has begun to register the imports beginning in late July for potential retroactive tariffs. This change led our distribution channels in EMEA to prioritize deliveries of imports during the quarter, similar to the actions we saw in the U.S. on the other hand, EMEA’s consumer OE volume grew 11% and registered share gains of about 2.5 points despite …