Executive Summary / Key Takeaways

• Goodyear is undergoing a significant transformation under its "Goodyear Forward" plan, aiming to optimize its portfolio, reduce costs, and focus on higher-margin segments to achieve a 10% segment operating income (SOI) margin and net leverage below 2.5x by Q4 2025.
• Recent strategic asset sales, including the Off-The-Road (OTR) tire business ($905M proceeds, $260M Q1 2025 pre-tax gain) and the Dunlop brand rights ($526M purchase price, $105M transition fee, ~$395M Q2 2025 estimated pre-tax gain), are key to deleveraging and sharpening focus on core brands. The Chemical business review is ongoing.
• Operational improvements and cost reductions are driving tangible benefits, with Goodyear Forward contributing $200 million in Q1 2025 and targeting $750 million in year-over-year growth benefits in 2025, supported by manufacturing optimization, SAG reductions, and purchasing initiatives.
• The company is strategically shifting towards premium tire segments (18-inch+ rim sizes) through new product launches (e.g., expanding Eagle F1, Assurance WeatherReady 2 lines) and modernizing U.S. capacity (Oklahoma facility adding 10 million premium units by 2026), aiming to capture higher profitability despite industry headwinds from low-end imports.
• Goodyear's significant U.S. manufacturing footprint provides a competitive advantage against rivals facing higher tariff exposure on imports, potentially offering upside opportunities in pricing and volume, though raw material volatility and market uncertainty remain key risks.

Setting the Scene: A Tire Giant's Strategic Pivot

The Goodyear Tire & Rubber Company, a name synonymous with mobility for over a century, stands as one of the world's leading tire manufacturers with a vast global footprint spanning 53 manufacturing facilities across 20 countries. From its origins, tied to figures like co-founder F.A. Seiberling, whose early 20th-century mansion is a historical landmark, to its iconic blimp program celebrating its 100th anniversary in 2025, Goodyear has navigated the evolving landscape of transportation.

Today, Goodyear operates through three primary regional segments: Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific. While historically a broad-spectrum provider, recent years have presented significant industry headwinds, including volatile OEM production levels, inflationary cost pressures across raw materials, labor, and transportation, and perhaps most notably, an unprecedented influx of low-end tire imports saturating key replacement markets, particularly in the U.S. and Europe. This challenging backdrop, coupled with the complexities arising from past strategic decisions like the 2015 dissolution of its alliance with Sumitomo Rubber Industries (SRI) (TICKER:TYO:5110) and the subsequent Cooper Tire acquisition, necessitated a fundamental shift.

In response, Goodyear launched the "Goodyear Forward" transformation plan in November 2023. This ambitious initiative is designed not merely to weather the storm, but to structurally reshape the company, aiming to optimize its portfolio, drive significant cost reductions, expand segment operating margins, and strengthen its balance sheet through deleveraging. The core thesis underpinning this transformation is a strategic pivot towards higher-value, premium market segments and leveraging operational efficiencies to enhance profitability and create sustainable long-term shareholder value.

The Engine of Change: Goodyear Forward in Action

The Goodyear Forward plan is the central engine driving the company's strategic direction and financial performance. It is built upon several interconnected pillars, each contributing to the overarching goals of margin expansion and deleveraging.

A key component is portfolio optimization through the strategic review and divestiture of non-core assets. This process has already yielded significant results. In February 2025, Goodyear completed the sale of its global Off-The-Road (OTR) tire business to The Yokohama Rubber Company (TICKER:TYO:5101) for $905 million in cash. This transaction resulted in an estimated pre-tax gain of $260 million recorded in the first quarter of 2025. Ancillary agreements, including a 10-year trademark license and a product supply agreement for up to five years, ensure a managed transition. Following this, in May 2025, Goodyear finalized the sale of its rights to the Dunlop brand in Europe, North America, and Oceania to SRI for a purchase price of $526 million, plus a $105 million transition support fee and the acquisition of existing inventory. This is expected to generate an estimated pre-tax gain of approximately $395 million in the second quarter of 2025. The strategic review of the Chemical business is also ongoing, with management engaged with multiple interested parties, noting that the business's value has increased recently, partly due to its unique position as a major U.S. synthetic rubber supplier and the current tariff environment. These divestitures are crucial for reducing leverage and focusing resources on core brands and profitable segments.

Simultaneously, Goodyear is aggressively pursuing cost reduction initiatives across its operations. The plan targets a reduction of the cost structure by approximately $1.3 billion by the end of 2025, contributing to the expected segment operating margin improvement to around 10%. These savings stem from various work streams, including manufacturing footprint rationalization, plant optimization, enhanced purchasing leverage, and Selling, Administrative and General (SAG) expense reductions. Structural actions include the planned elimination of commercial tire production at the Danville, Virginia facility (expected substantially complete by end 2025, with total pre-tax charges estimated at $130M-$140M) and SAG headcount reductions. These build upon prior rationalization plans, such as factory closures in Germany and Malaysia. The Goodyear Forward initiatives delivered $200 million in benefits in the first quarter of 2025 alone and are projected to drive approximately $750 million in year-over-year growth benefits in 2025, contributing significantly to earnings expansion.

The third pillar involves a strategic focus on premium and profitable segments. Recognizing the intense competition in lower-tier markets, Goodyear is prioritizing growth in higher-margin areas, particularly the 18-inch and greater rim size segment. This involves optimizing brand positioning and tiering to capitalize on premium tire pricing and volume, while reducing exposure to less profitable products.

Technological Edge and Product Innovation: Fueling Premium Growth

Goodyear's ability to execute its premium segment strategy is intrinsically linked to its technological capabilities and product innovation pipeline. While specific, quantifiable performance metrics for all technologies compared to rivals are not publicly detailed, management emphasizes that being a "premier tire technology leader" is crucial for capturing value at the high end of the market.

The company is actively investing in Research and Development (R&D) and modernizing its manufacturing processes to support this strategic shift. A key focus is on industrializing premium SKUs and consolidating parts through common product platforms to manage costs while expanding offerings.

The commitment to premium is evident in the unprecedented number of new product launches, particularly in the U.S. market. These new lines are specifically designed to increase coverage in high-end, high-margin SKUs, addressing historical gaps in Goodyear's portfolio that limited its competitiveness as a full-line supplier in the premium space. Examples include:

• The expansion of the Goodyear Eagle F1 Asymmetric 6 lineup to nearly 250 SKUs, positioning it as the largest ultra-high-performance (UHP) summer offering in Goodyear's history. This tire has received accolades, including being named Auto Bild's 2025 Test Winner, contributing to Goodyear being named top manufacturer for the 2025 Summer Season. This demonstrates a tangible, third-party validated performance advantage.
• The launch of the Assurance WeatherReady 2, a top-tier power line, which will introduce 60% more SKUs than its predecessor, significantly enhancing its competitiveness in the first and second replacement markets.
• The planned early 2025 launch of the Eagle F1 Asymmetric 6 and Eagle F1 SuperSport in the U.S., offering 150 unique SKUs almost entirely in the 18-inch and above rim sizes, representing new entries into the U.S. market for these specific high-performance lines.
• The late 2025 launch of the Eagle F1 all-season product line with about 70% more coverage than its predecessor.

The "so what" for investors is clear: these product initiatives, coupled with OE fitment wins on high-value vehicles like Chevy Silverado, Dodge Ram, and Ford F-150s, are designed to drive favorable price and product mix improvements, contributing to higher revenue per tire and expanding segment operating margins.

Supporting this product push is significant manufacturing modernization. The Oklahoma facility is undergoing upgrades to add approximately 10 million units of new capacity for premium tires in 2025 and 2026. This investment ensures Goodyear has the domestic capacity to produce the high-value tires demanded by the market and aligns production with the strategic focus on profitability and efficiency. The appointment of Don Metzelaar as SVP, Global Manufacturing and Supply Chain, and Alain Kohnen leading Americas manufacturing underscores the focus on driving higher output and lower costs through operational excellence.

The Competitive Arena: Leveraging Strengths Against Rivals

Goodyear operates in a highly competitive global tire market dominated by a few large players, including Michelin (ML.PA), Bridgestone (TICKER:TYO:5108), Continental (CONG.DE), and Pirelli (PIRC.MI), alongside numerous regional and low-cost manufacturers. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Goodyear holds a significant position, estimated around 10-12% globally.

Comparing Goodyear to its major Tier 1 rivals reveals distinct competitive dynamics:

• Against Michelin: Michelin is a leader in premium and high-performance segments, often cited for superior R&D and quantifiable performance advantages in areas like wet traction and tread life. Michelin's TTM Gross Profit Margin (28%) and Operating Profit Margin (10%) are notably higher than Goodyear's TTM Gross Profit Margin (19.47%) and Operating Profit Margin (4.75%), reflecting Michelin's stronger profitability in its premium focus. Goodyear competes through its broad distribution network, brand recognition, and increasingly, by expanding its own premium offerings and focusing on cost leadership in its core segments. Goodyear's TTM Debt/Equity ratio (1.78) is higher than Michelin's (0.40), indicating greater financial leverage.
• Against Bridgestone (TICKER:TYO:5108): Bridgestone is a diversified global player with strengths in both consumer and industrial tires and a growing focus on mobility solutions. While specific recent financial ratios for Bridgestone are not readily available for direct TTM comparison, historical trends suggest robust profitability and a strong market presence. Goodyear competes directly in commercial and passenger tires, leveraging its integrated retail network and service offerings.
• Against Continental: Continental is a major supplier of both tires and automotive parts, emphasizing integrated solutions and digital services. While specific recent financial ratios for Continental are not readily available, its strength lies in connectivity and potentially UUHP tires. Goodyear competes in traditional tire segments, where its operational execution and cost structure are key differentiators.
• Against Pirelli: Pirelli specializes in high-performance and luxury vehicle tires. Pirelli's TTM Gross Profit Margin (62%) and Operating Profit Margin (13%) are significantly higher than Goodyear's, reflecting its ultra-premium focus. Goodyear competes in certain performance segments but primarily differentiates through its broader market reach and value proposition across multiple tiers. Pirelli's TTM Debt/Equity ratio (0.67) is lower than Goodyear's (1.78).

A critical factor in the current competitive landscape, particularly in the Americas, is the impact of tariffs and low-end imports. The influx of low-cost tires, largely from Southeast Asia, has pressured pricing and volume for established players. However, Goodyear's significant U.S. manufacturing footprint provides a notable competitive advantage. Management estimates that Goodyear's U.S. tariff exposure on finished goods and raw materials, based on current rates, equates to about one quarter of the industry average. This lower exposure, while still representing an annualized cost of approximately $300 million, positions Goodyear favorably to potentially gain market share or improve pricing relative to competitors who rely more heavily on imports subject to higher tariffs. This advantage is a key element of the investment thesis, offering potential upside to volume and price/mix beyond current guidance assumptions, especially as channel inventories of pre-bought low-end imports clear.

Goodyear's strategic response to this competitive environment involves not only cost control and portfolio optimization but also a deliberate focus on strengthening its position in the profitable premium segments where its technology and brand equity can command better pricing and margins, countering the pressure from the low end. The investment in U.S. premium capacity is a direct response to both market demand and the evolving tariff landscape.

Financial Performance: A Look in the Rearview and Present

Goodyear's recent financial performance reflects the early stages of its transformation against a challenging market backdrop.

In the first quarter of 2025, Net Sales were $4,253 million, a decrease of 6.3% from $4,537 million in Q1 2024. This decline was primarily attributed to lower global tire volume (-4.8%), unfavorable foreign exchange rates ($140 million impact), and the impact of the OTR tire business sale ($49 million impact), partially offset by favorable price and product mix ($53 million benefit) and higher sales in other tire-related businesses ($19 million benefit, mainly chemicals).

Despite the lower sales, Goodyear Net Income saw a significant improvement, reaching $115 million ($0.40 per share) in Q1 2025, compared to a Net Loss of $57 million ($0.20 per share) in Q1 2024. This swing was primarily driven by the estimated $260 million pre-tax gain on the sale of the OTR tire business, partially offset by higher rationalization charges ($81 million vs. $22 million in Q1 2024), lower total segment operating income, and higher income tax expense.

Total Segment Operating Income (SOI) decreased by 21.1% to $195 million in Q1 2025 from $247 million in Q1 2024, resulting in a lower SOI margin of 4.6% compared to 5.4%. The decline in SOI was primarily due to higher raw material costs ($181 million headwind), higher SAG (excluding Goodyear Forward savings), lower tire volume ($33 million headwind), increased conversion costs ($18 million headwind due to lower production), and the OTR sale impact ($12 million headwind). These headwinds were partially mitigated by $200 million in benefits from the Goodyear Forward plan and $68 million in favorable global price and product mix.

Looking at the segments:

• Americas: Net Sales decreased 3.3% to $2,502 million. SOI decreased 13.4% to $155 million, with margin declining to 6.2%. Performance was impacted by lower volume and higher costs, partially offset by Goodyear Forward benefits and price/mix.
• EMEA: Net Sales decreased 5.2% to $1,277 million. SOI shifted to a loss of $5 million from income of $8 million, with margin at -0.4%. Higher raw material costs and SAG were significant headwinds, partially offset by Goodyear Forward and price/mix.
• Asia Pacific: Net Sales decreased 21.3% to $474 million, significantly impacted by lower volume (partly intentional exit of low-margin business) and the OTR sale. SOI decreased 25.0% to $45 million, with margin at 9.5%. Excluding the OTR sale impact, Asia Pacific's SOI increased slightly, and margin improved by nearly 200 basis points, reflecting the strategic focus on profitability.

Liquidity remains adequate. At March 31, 2025, Goodyear had $902 million in cash and cash equivalents and $2,623 million in unused credit facility availability. The OTR sale proceeds ($720 million investing cash flow) were used to repay debt, including the remaining $500 million of 9.5% senior notes due 2025. Pro forma for the Dunlop sale, net debt declined by nearly $1 billion in Q1 2025. While Q1 2025 saw a net cash use from operating activities ($538 million) due to working capital build ($750 million use) and rationalization payments, management expects working capital to be a source of cash for the full year 2025. The company was in compliance with its material debt covenants as of March 31, 2025.

Outlook and the Road Ahead: Targeting 2025 Goals

Goodyear's outlook is firmly centered on achieving its Goodyear Forward targets by the end of 2025: a 10% segment operating income margin and net leverage below 2.5 times. Management expects full-year 2025 earnings to be in line with the 2024 reported SOI level (around $1.3 billion), implying significant underlying growth excluding the impact of 2024 insurance benefits.

The path to these targets involves navigating a challenging first half of 2025, marked by expected global unit volume declines (approximately 2% in Q2 2025), higher unabsorbed overhead ($20 million in Q2), and significant raw material cost increases (approximately $180 million headwind in Q2). However, management anticipates these headwinds will be partially offset by favorable price and product mix improvements ($135 million benefit in Q2) driven by implemented pricing actions and raw material index contracts, as well as continued strong benefits from the Goodyear Forward program ($190 million in Q2).

The second half of 2025 is expected to show significant improvement. Management assumes global volume will be about flat year-over-year, prioritizing revenue per tire over volume growth. Raw material costs are projected to become less of a headwind, potentially even turning into a benefit in Q4 2025 based on current spot rates. The cumulative benefits from Goodyear Forward, coupled with price/mix gains, are expected to drive solid earnings growth and significant margin expansion, particularly in the fourth quarter, enabling the company to reach its 10% SOI margin target.

Key quantitative guidance for the full year 2025 includes:

• Working capital as a source of operating cash flows: approximately $50 million.
• Capital expenditures: approximately $950 million (a reduction from prior years).
• Rationalization payments: approximately $400 million.
• Interest expense: $450 million to $475 million (lower than 2024 due to debt reduction).

Management expects to generate positive free cash flow in 2025, consistent with its deleveraging objectives. The strategic asset sales, particularly OTR and Dunlop, provide significant cash proceeds to reduce debt and improve the balance sheet, supporting the net leverage target of under 2.5x.

Risks on the Horizon

While the Goodyear Forward plan provides a clear roadmap, several risks could impact the company's ability to achieve its targets.

• Raw Material Volatility: Natural rubber, synthetic rubber, and other petrochemical-based commodities are subject to price fluctuations. A further step-up in raw material costs later in 2025 could pressure margins if price and mix improvements cannot fully offset them in a timely manner.
• Market Demand and Import Competition: The saturation of the replacement market by low-end imports and potential shifts in OEM production levels could continue to pressure volume and pricing, particularly in the Americas and EMEA. While Goodyear's U.S. footprint offers a relative advantage against tariffs, the overall competitive intensity remains high.
• Macroeconomic Conditions: A prolonged economic downturn or uncertainty could adversely affect tire demand across all segments.
• Tariff Uncertainty: While current tariffs offer a relative advantage, the situation is fluid. Changes in tariff rates or trade policies could impact sourcing costs and competitive dynamics.
• Contingent Liabilities: Goodyear faces various contingent liabilities, including environmental matters, workers compensation, and significant general and product liability claims, notably asbestos litigation and the European Commission antitrust investigation and related civil lawsuits. The ultimate outcome of these matters is uncertain and could result in material adverse impacts exceeding current reserves.
• Foreign Currency Exchange: Fluctuations in exchange rates can impact net sales, operating results, and the value of foreign currency-denominated assets and liabilities.
• Subsidiary Distribution Limitations: Restrictions on the transfer of funds out of certain countries where Goodyear operates could limit access to cash held by those subsidiaries.

Conclusion

Goodyear is in the midst of a critical transformation, strategically repositioning itself to enhance profitability and strengthen its financial foundation. The "Goodyear Forward" plan, driven by decisive actions in portfolio optimization, cost reduction, and a focused shift towards premium tire segments, is yielding tangible benefits and provides a credible path to achieving the company's 2025 targets of a 10% SOI margin and net leverage below 2.5 times.

The successful divestitures of the OTR business and Dunlop brand rights are significant milestones that provide crucial capital for deleveraging and allow for a sharper focus on core, higher-margin opportunities. Coupled with aggressive cost reduction initiatives and investments in modernizing U.S. manufacturing capacity for premium tires, Goodyear is building a more efficient and profitable operational model. The emphasis on technological leadership and a robust pipeline of new product launches in larger rim sizes is key to capturing value in the premium market, countering the pressures from the low-end import segment. Furthermore, Goodyear's substantial U.S. manufacturing footprint offers a distinct competitive advantage in the current tariff environment, potentially providing upside opportunities. While macroeconomic uncertainty, raw material volatility, and ongoing litigation present risks, the consistent execution demonstrated under the Goodyear Forward plan, combined with a clear strategic vision and a favorable competitive position relative to tariffs, underpins the investment thesis. The focus now shifts to sustained execution through the challenging first half of 2025 and realizing the anticipated benefits in the second half to deliver on the targeted financial outcomes.