The Goodyear Tire & Rubber Company (GT)

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Goodyear Tire & Rubber (GT)

Q4 2010 Earnings Call

February 10, 2011 10:30 am ET

Executives

Richard Kramer - Chairman of the Board, Chief Executive Officer, President and Chief Operating Officer

Darren Wells - Chief Financial Officer and Executive Vice President

Patrick Stobb - Director of Investor Relations

Analysts

Rod Lache - Deutsche Bank AG

Patrick Archambault - Goldman Sachs Group Inc.

Itay Michaeli - Citigroup Inc

John Murphy - BofA Merrill Lynch

Himanshu Patel - JP Morgan Chase & Co

Presentation

Operator

Good morning. My name is Latania, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear Tire & Rubber Company Fourth Quarter 2010 Financial Results Conference Call. [Operator Instructions] I would now like to hand the floor to Patrick Stobb, Director of Investor Relations for the Goodyear Tire & Rubber Company. Thank you, Mr. Stobb. The floor is yours.

Patrick Stobb

Good morning, everyone, and welcome to Goodyear's fourth quarter conference call. With me today are Rich Kramer, Chairman and CEO; and Darren Wells, Executive Vice President and CFO.

Before we get started, there are a few items I'd like to cover. To begin, the webcast of this morning’s discussion and the supporting slide presentation can be found on our website at investor.goodyear.com. A replay of this call will be accessible later today. Replay instructions were included in our earnings release issued earlier this morning.

If I can now direct your attention to the Safe Harbor statement on Slide 2 of the presentation. Our discussion this morning may contain forward-looking statements based on our current expectations and assumptions that are subject to risks and uncertainties. These risks and uncertainties which can cause our actual results to differ materially are outlined in Goodyear’s filings with the SEC and in the news release we issued this morning. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Turning now to the agenda. On today’s call, Rich will provide a business review, including full year highlights. After Rich’s remarks, Darren will discuss the financial results and outlook before opening the call to your questions.

That finishes my comments. I'll now turn the call over to Rich.

Richard Kramer

Thank you, Pat, and good morning, everyone. I'm very pleased with our fourth quarter and overall results this year, not only because of our financial performance, especially in view of record raw material costs, but because of the changes, both operationally and culturally, that we are successfully driving in our business. And as pleased as I am with our progress in 2010, I'm more encouraged about 2011 and beyond. Now before I comment further on 2010, I want to let you know that we plan on sharing more of our forward strategy with you at an investor conference that we are planning in March, and we'll talk more about that later.

Now let me give you some of our key highlights for 2010. Our momentum in North American Tire continues to get stronger, as we recorded positive earnings for the full year. Drivers of our progress include our continued cadence of innovative new products, achieving price increases against the significant challenge of raw material cost increases, significant improved brand channel customer mix with the Goodyear brand leading the way, increased productivity and output from our factories and an improving supply chain that resulted in fill rates of more than 90% on our core products. We have momentum, we are aligned and we are executing on or ahead of plan against all focus areas on our path to a 5% return on sales.

Outside of North America, all of our businesses reported significant improvement in segment operating income. Total segment operating income exceeded $900 million for the year, nearly 2.5x our total in 2009. And this is a significant achievement and more impressive considering what our Latin America region accomplished despite the business challenges in Venezuela.

In all regions, we effectively managed the impact of raw material cost increases, including skyrocketing natural rubber. Price/mix of $689 million more than offset the cost of raw materials for the full year. We achieved $567 million of the price/mix total during the second half of 2010, a record for any six-month period and certainly necessary as we head into 2011.

Our innovation engine, again, delivered in 2010. The percentage of new products in our overall lineup is the highest ever and is driving record revenue per tire increases, supporting a richer mix and increasing our ability to win in targeted markets.

Also our innovative new products continues to accumulate an impressive list of test wins and third-party endorsements. And from a manufacturing standpoint, we saw our cost performance in fixed cost recovery flow to the bottom line. In 2010, we produced about 22 million more tires that we did in 2009, resulting in improved overhead recovery of $278 million. Now combined with more than $460 million of cost savings actions, we saw a gross benefit of approximately $750 million and we have more to come in 2011.

Our focus on operational efficiency has begun to deliver tangible results. Our overall manufacturing productivity significantly improved year-over-year, resulting in increased output from the same equipment with minimum labor additions. And our advantage supply chain initiative has aligned our demand and supply process, resulting in a much more efficient supply chain, both for Goodyear, and our customers.

And we made progress on our global manufacturing footprint, with multiple actions that improve our competitive position. With today's announcement of the planned closure of our Union City, Tennessee plant in North America, we achieved our targeted reduction of high-cost global capacity by 15 million to 25 million units.

In 2010, we also were able to invest in our future growth. We had CapEx near $1 billion, including about $400 million focused on the profitable growth opportunities in both emerging and mature markets. Our investments support both capacity and capability improvements and are linked to our strategy of winning in our targeted market segments.

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