Goodyear Tire & Rubber Co (GT) 2014 Q1 法說會逐字稿

Good morning. My name is Tony and I will be your conference operator today. At this time, I'd like to welcome everyone to the Goodyear Tire & Rubber Company first-quarter earnings conference call.

(Operator Instructions)

I would now like to hand the program over to Tom Kaczynski, Goodyear's Vice President, Treasurer, and Investor Relations.

Thank you, Tony, and thank you all for joining us for Goodyear's first-quarter 2014 earnings call. Joining me today are Rich Kramer, Chairman and Chief Executive Officer, and Laura Thompson, Executive Vice President and Chief Financial Officer. Before we get started, there are a few items we need to cover. To begin, the supporting slide presentation for today's call can be found on our website at investor. Goodyear.com and a replay of this call will be available later today. Replay instructions were included in our earnings release issued earlier this morning.

If I could now draw your attention to the Safe Harbor statement, on slide 2. I would like to remind participants on today's call that our presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in our earnings release. 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.

Our financial results are presented on a GAAP basis, and in some cases, a non-GAAP basis. The non-GAAP financial measures discussed on the call are reconciled to the US GAAP equivalent as part of the appendix to the slide presentation. And with that, I'll now turn the call over to Rich.

Great. Thanks, Tom, and good morning everyone. Today, I will provide an overview of our record first quarter performance and offer my perspective on several factors affecting our business and the tire industry overall. Also, I'll talk about a few industry trends that continued in the quarter and how these trends aligned with our strengths. Then I'll turn the call over to Laura for more detail on our first-quarter results and to provide our outlook for the remainder of the year.

Now in the quarter, we delivered record segment operating income of $373 million, an increase of 24% over last year's strong first-quarter results. This is a great result for us and a great start to the year. While our global presence exposes us to significant foreign currency fluctuation, along with other economic volatility, the strength of our North American and European businesses more than offset several headwinds in our emerging markets including the impact of Venezuela on our Latin America business.

Our North America business was a major contributor to our success, delivering a record quarter with $156 million in segment operating income, a 23% increase over last year. Our Europe, Middle East, Africa business generated segment operating income of $110 million, more than three times last year's first quarter as our profit improvement plan in the region continued to gain traction.

Now as we discussed in our September investor meeting, our target of 10% to 15% annual increase in segment operating income is based on a balanced plan of growth and costs. With that in mind, I'll first address our volume in the quarter and then discuss our progress on costs as well.

Now as I comment on our volumes, I'd like to draw your attention to slide 5. Our volume in the quarter increased by 1% but this does not reflect our underlying volume run rate in the quarter as it was largely skewed by the impact of unusually cold January weather in North America.

Additionally, first-quarter volumes were negatively impacted by the disruptions in Venezuela, including our labor contract negotiations which lingered for much of the quarter before being settled in early April. As the slide shows, the run rate of our volumes in February and March are in line with our expectations, and looking ahead, we feel good about our volumes in April. I'll elaborate on both, first on North America and then on Venezuela.

In North America, as you know by now, the extreme cold weather had a severe impact on sales of many companies across numerous industries. This affected some of our biggest OEM replacement customers as well and reduced our volumes by 9% in the month of January. Fewer new vehicles were produced than forecasted and many of our replacement customers were forced to close their stores. Distributors also were forced to close their warehouses and consumers simply stayed home because of bad weather.

This situation improved throughout the quarter with March volumes increasing 5%. That directional momentum carried into April, getting back to the strength we saw in the latter part of 2013. I would also note that our volumes were affected more than the industry, given our significant business with OEMs and certain large retail customers who felt the effects of severe first quarter whether conditions on their business.

Our streamlined supply chain, which is largely triggered by their sellout, makes it difficult to recover the weather related volume reductions within the quarter. So as we assess volumes in North America, we believe the first quarter was simply a pause in what we see as improving tire demand in 2014. Not only did we see strong shipments in March, but we also saw Goodyear brand share growth in the quarter.

Now regarding Venezuela, the combination of volatile economic conditions and disruption due to the labor negotiations had a negative impact of about one percentage point on our total company first-quarter volumes. While the situation in Venezuela will remain volatile, we expect our volumes to increase in the second quarter given the conclusion of our labor negotiations. We are already producing tires to near pre-negotiation levels and the demand for our tires is extremely robust, substantially exceeding our supply at this time. Laura will have details on our Venezuela outlook later on the call but second-quarter volumes will improve from the depressed first-quarter levels.

So overall we feel good about our momentum going into the second quarter which is in line with our expectations. We know the global economies don't grow in a straight line and that new headwinds and opportunities may present themselves. But we remain firmly committed to our full-year volume expectation of 2% to 3% growth. We will grow our volume with disciplined execution of our strategy, winning in targeted market segments where we can add value for consumers, for our customers, and for Goodyear as well.

Now I'll move on to costs, which is the other pillar in our plan. We are very pleased about our progress in cost savings. In the quarter, those savings were more than $100 million, not including the benefits of lower pension expense from fully funding our US pension plans, nor does it include the benefit of the closure of our Amiens, France factory. Those savings are on top of the $100 million.

I'm pleased with the fundamental changes we are driving in our operational excellence initiatives, from how we work with our suppliers to how we develop and engage our associates and how we maintain our equipment to significantly improve our asset reliability. The benefits of our global operational excellence initiative will be seen in our improved reliability and operating efficiencies, our ability to produce more of the right tires at the right time, to most importantly, improve our customer service. It's much too early to declare victory but we have good momentum and continue to gain traction. So in total, having delivered record first quarter segment operating income, we continue to be confident in our strategy and our commitment to long-term value creation focused on our balanced plan of growth and costs.

Looking back at the first three months of the year, we saw several overall trends that are relevant to our business and contributed to our performance, including strong demand for high value-added tires, growth opportunities in emerging markets, an advantaged supply chain to serve customers better, and effective marketing that builds brand value. Each of these trends continues to be very robust and matches our strengths.

Demand for high-value added tires continued to outpace the overall industry, especially in our targeted market segments, where we continued to set the industry pays with new innovative products. In North America, the new Wrangler All-Terrain Adventure for light trucks and SUVs has been selling extremely well in the replacement market and we anticipate continued mix improvement when the Assurance All-Season begins shipping to customers later this quarter. The new Assurance will join the already strong selling family of Assurance ComforTred, TripleTred, and Fuel Max products. Our customers tell us that they expect the Assurance all season will become a high-volume, broad-market tire enhancing the value of our mid-tier offerings.

In our EMEA business, we saw 6% consumer replacement growth. The increased volume reflected improve sellout and continuing recovery in the region as we are helping our customers grow their businesses by providing them more of our high-value branded products. In Europe, Goodyear EfficientGrip Performance and Dunlop's Sport BluResponse were ranked first and second in the German Automobile Club's recent summer tire tests. The combination of impressive third party rankings and industry-leading tire label grades across our portfolio has us very optimistic about the upcoming summer tire selling season. I can say confidently during my time at Goodyear, we have never had a stronger lineup of Goodyear branded products around the world than we have today.

Now another trend that remains strong is growth opportunities in emerging markets. Excluding the issues in Venezuela, our consumer replacement volumes increased 10% in the rest of Latin America during the quarter. Our investments to produce more high-value added tires in our Americana plant in Brazil have resulted in a steady cadence of new product introductions across the region. Goodyear Assurance Eagle Sport and Wrangler SUV tires were launched to consumers in Brazil during the first quarter and will be introduced to other countries throughout 2014. These innovative products illustrate our commitment to winning in growth markets.

Also, we continue to improve our customer service as Goodyear was named the 2013 Supplier of the Year by Walmart Mexico and Central America. Goodyear Mexico achieved this recognition through its innovation strategies, customer excellence in service, and production and customer support. This is a terrific honor for our team there.

As the Latin American market continues its conversion to HVA tires, our investments, new products, and distribution network are helping build our brand strength. More and more, we are capturing the opportunities for growth that this region presents, energizing our dealers and our associates alike.

Our advantaged supply chain is helping us win with customers in mature markets as well. During a recent visit to Europe, one of our major customers told me that Goodyear's fill rates were at levels he had never experienced before and well above other suppliers. In fact, he asked his team to double check the data, which of course, proved to be accurate.

This kind of real customer feedback is the proof for me that our initiatives are working. This is a specific on the ground example of the progress we've made in our EMEA business and confirmation that our focus on operational excellence is yielding results. We are driving efficiency across the supply chain to reduce costs and working capital while improving customer service.

We are extending our value proposition beyond great innovative tires. We've made progress but have much more room for improvement, and I can say that's exactly what we are intending to do.

And finally, we are helping grow the value of the Goodyear brand through increased marketing support, most visible in the United States. For example, this year marks the 60th anniversary of our supplier relationship with NASCAR. We often say that NASCAR drivers are our most demanding customers and superior performance on the track inspires confidence and trust in all of our products. Goodyear brand loyalty among NASCAR fans is as strong as ever.

We are also making great progress in driving consumer demand through digital platforms. Goodyear.com is now far and away the most visited North American tire manufacturing website. It's driving an already high and increasing volume of purchase-ready leads to Goodyear's preferred network of dealers. Our marketing strategy to drive demand to our preferred dealers has been very effective in improving tire mix, consistent with our focus on targeted market segments. I'm very excited about the progress we've made with innovative marketing technologies, and again, I can tell you we are only getting started here.

Now in addition to that, we recently unveiled the next generation of our world famous corporate icon, the Goodyear Blimp. With nearly 90 years of equity built into the symbol of dependability, the new state-of-the-art airship will embody the innovation that has become synonymous with Goodyear. Starting this summer, you'll see the first blimp in our new fleet supporting our brand, our products, and customers across North America. Our brand is our number one asset and you will see us continue to leverage it more and more to drive growth around the world.

Our first-quarter results offer further evidence that we are solidly on the path toward being profitable through the economic cycle, one of the keys to our destination of creating sustainable economic value. We had many positives in the quarter that helped us offset the challenges and will serve as fuel to continue our momentum. The underlying industry trends remain strong and favor our competitive advantages.

Clearly, we are pleased with our 24% year-over-year segment operating income growth. But as we said repeatedly, we are running our business for the long term, and this is just one quarter in a multi-year plan. Our emphasis remains on executing our strategy and staying on track to achieve our 2014 to 2016 target of 10% to 15% annual segment operating income growth. We are committed to our strategy road map and to our destination of creating sustainable economic value.

Now before I conclude, I'd like to acknowledge an honor our Company received last month when Goodyear was named the World's Most Admired Motor Vehicle Parts Company by Fortune Magazine. This recognition is a testament to the hard work of all 69,000 Goodyear associates around the world and the progress we've made together in taking Goodyear to a new level of performance. It validates the success of our strategy road map and serves as a meaningful mile marker on our journey toward creating sustainable value. And with that, I'll now turn the call over to Laura.

Thank you, Rich, and good morning everyone. First, I'll start with a review of the first quarter and then I'll provide an update on our outlook for 2014. We will then open the call for your questions.

Let's turn to slide 11 and review a few key items on the income statement. As Rich stated, we are pleased with the start of the year. In the quarter, segment operating income increased 24% versus a year ago, which is a great way to start the year. I'll go into more detail later on each of the businesses, but strong performance from our more developed markets in North America and Europe offset weakness in emerging markets in Latin America and Asia.

For the quarter, revenue was down 8% or $384 million and is primarily due to two items. First, lower non-tire related revenue of $202 million, driven by lower third-party chemical sales in North America, and second, the impact from unfavorable foreign currency exchange of $126 million, driven primarily by the weakening of the Brazilian real, Venezuelan bolivar, and Australian dollar. We generated gross margin of 21.3% and improvement of 250 basis points versus the prior year.

SAG increased by $22 million. This increase reflects higher incentive compensation cost, primarily driven by improved operating results and our higher stock price, which has more than doubled since March 31 of 2013. We achieved $373 million in segment operating income and 8.3% in SOI margin. This marks the fourth consecutive quarter where SOI margin has exceeded 8%.

Excluding the significant items listed on slide 21, our first-quarter tax rate, as a percentage of foreign segment operating income, was about 16%. Our earnings per share on a diluted basis for the quarter was a net loss of $0.23. Our results were impacted by certain significant items, including a change in the foreign currency rate, at which we translate the financial statements of our Venezuelan operations. You saw this in our April 10 8-K filing.

This change resulted in a foreign currency charge of $132 million or $0.47 per share. After allowing for those certain items, our adjusted earnings per diluted share was $0.56. A summary of those significant items can be found in the appendix of today's presentation on slide 21.

The step chart on slide 12 walks first-quarter 2013 segment operating income to first quarter 2014 segment operating income. Higher sales volumes and higher fourth-quarter production levels, resulting in an improvement in unabsorbed overhead, benefited our results by $50 million year over year. Strong cost savings for the quarter more than offset the negative impact of inflation for a net benefit of $36 million.

Lower raw material costs more than offset reduced price mix for a net benefit of $17 million. Our mix was negatively impacted in the quarter by significant reduction in off-the-road tire sales. These tires are used primarily in the mining industry. Foreign currency translation had a negative impact of $16 million year over year. Overall, our $71 million improvement in segment operating income demonstrates the ongoing success of our strategy, our ability to navigate through difficult political and economic conditions, and our focus on controlling costs as a key element to our balanced plan for achieving 10% to 15% SOI growth per year.

Now let's turn to the balance sheet information on slide 13. Cash and cash equivalents at the end of the first quarter were $1.9 billion, down from $3 billion at the end of 2013 as we utilized almost $1.2 billion to fully fund the hourly US pension plans in January. Our global unfunded pension obligations are now largely international pay-as-you-go plans. Our net debt totaled $5.3 billion at the end of the quarter, an increase of $2 billion compared with the end of last year. The change is primarily due to three things: first, the use of almost $1.2 billion in cash to fully fund the hourly US pension plans; second, a seasonal build in working capital; and third, the re-measurement due to the changes in Venezuela's currency rate.

As a final point, I also want to mention that we used approximately $23 million to repurchase 850,000 shares of Goodyear common stock during the first quarter. This repurchase is part of our shareholder return program announced last September.

Free cash flow from operations is shown on slide 14. As expected, during the first quarter of 2014, we used $513 million of cash, driven by a working capital increase of $590 million. We typically see a seasonal working capital increase in the first quarter as the normal timing of winter tire collections in Europe drive fourth quarter receivable balances lower. Additionally, we build inventory in the first quarter to support our strong forecasted sales in North America in the second quarter.

Moving now to the business units on slide 15, I will start with North America. Our North America business unit continues to deliver strong results. North America reported record first-quarter segment operating income of $156 million, over 8% of sales. This is an increase of 23% year over year. Our volumes were down 1% in the quarter.

As Rich described earlier, we were impacted more than the industry, even our significant relationships with OEMs and certain large customers who felt the effects of the severe first-quarter weather conditions on their businesses. Strong consumer tire shipments in the month of March contributed to Goodyear branded share growth in the quarter.

North America also realized a raw material cost benefit of $61 million that was largely offset by lower price mix of $58 million. Price was impacted by reductions provided through raw material pass-through agreements with OE, fleet, and OTR customers. Mix was negatively impacted by significantly less sales of off-the-road tires.

Our manufacturing cost were $47 million lower than the first quarter last year and benefited from improved factory utilization, lower pension expense, and lower profit sharing. North America segment operating income at 8% to sales results in a return on invested capital that generates significant economic value and makes growth in North America business an attractive investment.

Europe, Middle East and Africa delivered segment operating income of $110 million in the first quarter, a significant improvement over last year. SOI margin increased to 6.6% from 1.9% in the prior year. The first quarter 2014 was the fourth consecutive quarter with year-over-year earnings growth. Volumes increased 7% year over year in the first quarter. Our replacement and OE volume increases were mainly driven by improved industry conditions, continued focus on targeting profitable volume growth, and the progress that we have made on improving our customer service.

EMEA's performance in the first quarter also reflects continued success in the commercial business, where we had volume growth in our fleet business as well as in Eastern Europe. We also experienced positive price mix in our commercial business, demonstrating our strong product and service proposition. Factory utilization further improved in the first quarter and as previously announced, we closed one of our factories in Amiens, France.

We continue to closely monitor the situation in Ukraine and Russia. Thus far, the situation has not had a material impact on our overall EMEA business, as the scale of our Ukrainian operations is relatively small.

In summary, we continue to focus on our previously announced profit improvement plan to restore our Europe, Middle East and Africa business to historical levels of profitability. The significant improvement in the run rate of our profitability over the past 12 months is reflective of the economic recovery as well as the results of the actions we have taken thus far. EMEA is off to a good start in 2014, but of course, we have more work to do.

Turning to Latin America, operating income was $42 million for the quarter, $18 million less than the prior year. All of the year-over-year decline in earnings can be attributed to lower production and profitability in Venezuela, as a result of labor disruptions and the overall unfavorable foreign currency exchange for the business unit. Positive price mix and lower raw material costs offset the negative effects of inflation, lower volume, and the ramp-up costs of our Brazil plant expansion.

We saw 10% growth in our consumer replacement volumes in Latin America outside of Venezuela, driven by a strong response to our new products. This growth was more than offset by the temporary volume decline in Venezuela and the lower OE volumes in Brazil, where vehicle manufacturers reduced production significantly in the first quarter. As you may remember, we highlighted this lowdown on our year-end call and as expected, it has materialized.

In addition to the foreign currency change previously mentioned, we expect government price and profit margin controls and the reduced production during the first quarter to adversely impact Latin America's segment operating income by $40 million to $60 million for 2014 with about $10 million of that impact having already occurred in the first quarter. We will continue to monitor this situation closely and adjust to changing circumstances as needed.

Our Asia-Pacific business reported segment operating income of $65 million for the quarter, a $19 million decrease year over year. The decline in operating income is driven by unfavorable foreign currency exchange of $8 million and a significant decline in our off-the-road tire sales. Unit volumes of 5.2 million in Asia were about 2% higher than a year ago given strong growth in India and modest growth in China, which more than offset the impact of weaker demand in Australia.

Relative to China, we remain optimistic about the long term but we anticipate more short-term demand fluctuations as the Chinese economy continues to evolve. We have successfully navigated volatility in this market before, and I am confident we will do so again in 2014. We realize growth in China will not be a straight line, as the quarter demonstrated. The long-term picture remains positive and we are committed to winning in China. In total, our four SVUs increased segment operating income by 24% year over year, a great way to start the year.

Now looking at the full year, the key segment operating income drivers are listed on slide 16. In line with our 2014 to 2016 targets, we continue to see sales volume growth of 2% to 3% for 2014 as the ongoing economic recovery in EMEA and growth in North America is expected to offset emerging market weakness, particularly in Latin America. For 2014, we are assuming price/mix and raw material cost changes will be slightly positive, reflecting the first-quarter benefit and continued lower raw material cost more than offsetting the negative mix impact of the lower OTR sales that are expected for the remainder of the year.

Since we last talked on our year-end earnings call, we have seen demand and price for OTR tires decline as mine operators control their costs and work down inventories. We now see more moderate growth in OTR demand for 2014 based on the mining industry reacting to lower commodity prices. That said, we expect increases in our tire production volumes will generate approximately $50 million to $75 million in benefits from lower unabsorbed overhead for the full year.

While our overall production volumes are essentially consistent to what we expected at the time of our fourth quarter call, the weakness in the global mining industry is having an impact on the mix of production. Given that large OTR tires carry a much higher per-unit unabsorbed overhead cost versus an average tire, we now see the remaining benefits of increased consumer and commercial production being attenuated by the impact of lower OTR units. We expect our cost savings initiatives to fully offset the combined impact of general inflation as well as our further investments in advertising, marketing, and R&D.

While our level of advertising was essentially unchanged in the first quarter from prior year, we expect advertising and marketing investments will increase during the remainder of 2014 to support our growth plans. Based on current spot rates, we expect a negative foreign currency exchange impact of approximately $60 million for the year. This includes the headwinds due to the change in exchange rates for Venezuela although it does not assume any further devaluation of the bolivar.

We expect the benefits from decreasing start-up expenses at our new state-of-the-art plant in China to be $20 million to $25 million year over year. This benefit will be offset by the increased costs related to the modernization of our plant in Brazil, which are also expected to be $20 million to $25 million in 2014.

The closure of our Amiens facility in the first quarter will generate approximately $40 million of savings in 2014. And as a reminder, the annualized benefit of this closure and the related exit from the farm tire business in Europe will be approximately $75 million. We have included the pension expense savings on the Key Segment Operating Income Drivers slide to highlight that $80 million of the overall reduction in pension expense flows through SOI.

Additional financial assumptions for 2014 are listed on slide 17. For the year, we expect interest expense in the range of $430 million to $455 million and financing fees of approximately $60 million. Our income tax is expected to be approximately 25% of international SOI.

As discussed on our last call, each quarter we assess current profitability and whether sufficient future taxable income will be generated to utilize existing deferred tax assets. The result of the analysis continues to lead us to believe that we may be in a position to release all or a portion of the US valuation allowance during the second half of 2014. If the valuation allowance is released in 2014, the expected increase in annual tax expense for 2015 and beyond would be approximately $150 million per year, although we do not anticipate any US cash taxes for at least five years and a significantly reduced rate for several years thereafter.

Including the positive benefit on earnings of pre-funding and freezing the hourly US pension plans, we expect global pension expense of approximately $175 million in 2014. We expect global pension cash contributions to be about $1.3 billion, including the recent almost $1.2 billion that was put into the hourly US plans. For the year, we expect our working capital to be neither a significant source nor a significant use of cash, and our capital expenditures and depreciation amortization outlook are unchanged from our last call.

Our financial targets for 2014 to 2016 are listed on slide 18. They remain unchanged and we remain committed to achieving these targets. Annual 10% to 15% segment operating income growth per year through 2016 delivered through a balanced plan of unit volume growth and cost savings, annual positive free cash flow from operations, and adjusted debt to EBITDAP ratio of 2.5 times by the end of 2016.

Our first-quarter performance confirms that our strategy is working and gives us further confidence in achieving our targets. As demand continues to improve, we are well-positioned with quality products, highly technical manufacturing capability, our well-established distribution network, and a trusted and respected global brand to create incremental value for our consumers, our customers, and our shareholders.

Based on our strong 2013 cash flow and recent funding of our hourly US pension plans, our Board is in the process of reviewing the balanced capital allocation plan that we shared with you in September of 2013. We remain committed to a plan that will ensure we achieve our leverage targets while continuing to invest in high return growth CapEx initiatives and providing for shareholder return programs. As always, we will be balanced in our approach with a focus on growing long-term shareholder value. We will present our updated capital allocation plan on May 29 as part of the KeyBanc Automotive Conference in Boston. Now we would be happy to take your questions.

(Operator Instructions)

We'll take our first question from Itay Michaeli with Citigroup. Your line is open.

Just a couple questions. One, just maybe you alluded to this just now, Laura, a few minutes ago, but on the financing fee of $60 million, that seems like it's a new item for the full year. Does that relate to this capital structure announcement that you're planning for late May or is that something different?

No, it does not relate to that in any way. It has always been an expense for us. It's in addition to the interest expense we show you on the outlook pages. But it's always about $15 million a quarter and we really just gave it to give more transparency. We've gotten some questions on it in the past.

Okay. So it's not like a new headwind but just a little bit more detail on the detail, okay.

Itay, just to be clear, it's Tom, those are financing fees that are amortized, the debt issuance fees and also factoring fees and they run $14 million to $15 million a quarter, so we've always had that in other expense but we want to provide just a little bit more transparency on that.

Great. Thanks for that clarification, Tom. And then just hoping you could talk about the cadence for the rest of the year, both for SOI and then also particularly for volume given the shortfall, the headwinds in Venezuela because of labor disruptions. I think you mentioned maybe that was a point of volume and the catch-up in weather.

Should we think about the second-quarter volume may be at the higher end of the 2% to 3% or above? Just hoping you can help us kind of better model the cadence for volume and any thoughts on the cadence for SOI as well would be helpful.

Itay, I'll start on volume. Laura can jump in on SOI as well. I would say the first quarter was, as we said, a pause. It had a number of anomalies in it, most significant were the weather, particularly the January weather in North America which we tried to depict for you in the slide included in the deck.

That was a really an anomaly that really impacted the full quarter but really wasn't reflected or indicative of the trend that we saw, particularly in consumer replacement. So I think number one, first quarter for North America, you really have to look at the trend coming out of February and March, and maybe to add even a little bit more color to that, we gave you sort of total reportable units on slide 5 in the deck. If I take that back to consumer replacement, January was actually more severe. It was down higher than the 9%, about 11%.

In February and March, we're actually stronger than the total in consumer placement. We were up 3% in February and up 7% in March. With the volume we had, I thinks it makes our North America earnings, you know, really very impressive in terms of what the team put forward, but I think if you look at those those run rates, I think it gets us back to the expected run rates of 2% to 3%. In terms of Venezuela, we will see second quarter units come back after we've got the team working back there in the factory. I mean, we literally have people stacked up at our stores to buy tires, so Q2 volume will improve in Venezuela.

The Brazil OE volumes that Laura mentioned, those will continue to be an issue forum for us probably for the balance of the year. You're very familiar with what's happening with the OEMs down there. And I might add even a little bit more color to China. In China what we're seeing again, we believe in it long-term for certain, but what we are really seeing there is a combination of sort of a little bit weaker economy. We see a bit of tightening credit for reasons I think everyone on the call is familiar with, and we see dealers holding back a bit because of decreasing natural rubber which flows through their inventory faster than other parts of the world.

So as we look to the balance of the year, we think that the China will also improve from a volume perspective. In terms of the 2% to 3% trend, moving ahead, I think that we really aren't going to get any more specific in terms of the high end or low end of the range. You know, there are so many things that we have to factor into it. I think we're happy saying 2% to 3% is the best guidance we want to give on that.

And as for the SOI cadence for the year, we are really pleased with the first-quarter performance, but as we look out, you've heard us talk about the headwinds, really for us all we can say is that the SOI are -- what we've reaffirmed, our target today is that for the year, SOI will be up 10% to 15%.

Perfect. Thank you both for the other classification. Just last question. Good to see that the price mix versus raws was revised to slightly positive for the year. The spread in Q1 was $17 million. Laura, is that a good way to think about, you know, is $17 million a good way to kind of model the -- what slightly positive would mean on a go-forward basis for the full year or there's other puts and takes that maybe suggest Q1 might not be an indicative run rate for the full year?

So to answer your direct question, Q1 would be indicative of how to look at the balance of the year. And included in that, you know, outlook is a sizable negative impact from our OTR business on mix. But what we did in the first quarter is a good way to look at the balance of the year.

Terrific. Thanks so much for the detail. Appreciate it.

Our next question comes from Patrick Archambault with Goldman Sachs. Please go ahead.

Thank you very much and good morning. I guess -- the slide 5 was very helpful and I'm very glad that you presented that. It helps us think about what sort of the undistorted run rate is, but I guess the question is is in aggregate, right, for North America, you were down a little bit because January was so weak.

Can you just help us understand how that contrasts to some of the quarterly data that comes out from things like the RMA and I guess Michelin, also. I understand that those are not perfect metrics. They may pull only certain members and have some timing differences, but maybe just a little color on that would be helpful.

Pat, I think it's actually a very good question. I tried to allude to this in my remarks as well. As we look at it, and I'll focus on consumer replacement specifically, we would say the industry grew about 1% in the quarter, and I think you're right to point out there's different views of that. Excuse me, 3% in the quarter, not 1%, but there's rightly different views on that as you look at others. We would say consumer placement up 3%.

Our volumes obviously didn't keep pace and in particular, I would tell you that we were impacted more significantly by the January weather than the overall industry. And that's by and large because we have both our OE and our replacement large retail customers are really serviced in sort of a real-time basis focused on sell out rather than stacking inventory, if you will. So when they get impacted by weather, it impacts us more significantly than others.

Let me give you maybe a couple quick examples, and I'll start with OE because I think it's a model everyone's familiar with. We ship really to a just-in-time cadence there which our OEM customers obviously take our tires and put them on cars as they use them for sale or they put them out for sale immediately. When they shut down, which they did in the quarter because of a slowdown in the quarter because of the weather as well, we stop shipping until they start again, and there's no inventory buildup and again, I think you understand that model. So while this isn't going to be a perfect analog, a similar situation happens to us with certain of our large retail customers because to a significant degree, we shipped to them really with a very efficient supply chain that's really there to support their sell-out.

And if their sell-out slowed down, again because of the weather like it did in the quarter, we get that direct impact to our volumes. And like the OEMs, we typically have a -- I think a very important point, we have a larger share of the OEMs as we do some of these large regional retailers, or excuse me, large retail customers so when they feel this impact, it impacts us disproportionately. And I would say, we did feel this in the first quarter because of weather which frankly was the first time I've ever experienced that since I've been with the Company, but for us, this is great business.

We serve it with an advantaged supply chain that focuses on their sell-out, getting tires for them to sell to consumers and we will endure this bumper pause in Q1 because it's really a better customer base for us to go forward and sell. We'd rather sell tires that go out to consumers than just get stacked up into inventory. So really a first quarter aberration, I will tell you, than a trend, and I think you rightly point out, focus on those sort of coming-out trends of the quarter rather than the going0in trend.

Thank you. That's definitely helpful. On slide 7, my follow-up question was just on Europe and specifically what you're seeing for the summer tire season. I think you had said that in the past sort of last year, you weren't as well positioned competitively. On your slide 7, you highlight a couple of new products there. So maybe can you address a -- like how you feel your position for this year ahead of the summer season? And also if you could give us some color on the level of inventories within EMEA for summer, that would be helpful as well.

Sure. I would say -- I was, in fact, just over there a couple weeks ago. I would tell you in terms of our preparation for the summer selling season, our team over there, including many of the people that have been with our Company for a long period of time, would say unequivocally that we have the best summer product lineup that they've had in their long tenured careers at Goodyear.

This gets to a combination of the industry-leading label grade portfolio that we have, as well as some of the new products that are out being rated by the summer magazines. As I pointed out, we won -- Goodyear and the Dunlop brand won number one and number two spot in a very important German magazine test. And remember, those tests are rated more than on just a label but on numerous other performance characteristics as well.

So as we head into the season, absolutely well prepared to do that. Pat, I would tell you that we referred to in the prior year, let's say, of some customer service issues where we weren't as sharp on and I would tell you we have made very significant improvements in our customer service, our advantaged supply chain is working better, much better for us over there. In fact, it's why I tried to highlight one of the examples in my remarks earlier.

I do think we're well-positioned. I think Europe inventories are generally in pretty good shape over there. So I think we should be in good shape going into the quarter -- into the summer selling season. We feel very good about it and I would tell you we're also already, as odd as it seems, getting ready for the winter season as well, and as you can imagine, we're putting a lot of effort to make sure we're well prepared for that coming into 2014.

Okay, terrific. Thanks for all the information.

Our next question will come from Rod Lache with Deutsche Bank. Please go ahead. Your line is open.

A couple things. One is it sounds like you're saying that the North American volume performance or market share this quarter was an aberration. So just to clarify going forward, would you expect the demand for Goodyear to track more closely to the industry? And just broadly speaking, obviously, we're seeing better data on replacement demand in North America and Europe both for light vehicle and commercial tires. Is there -- has there been any change associated with that in the level of discounting in the market or specials in the market just as it would seem that the capacity utilization would begin to tighten up?

Rod, I guess the first thing is we came out of North America in the last few months, as we look at this, we had very strong growth in our targeted market segments and we had an increase in our Goodyear branded share. I think those are two things to point out as we ask our volumes relative to the rest of the industry. Remember, we are focused on those parts of the market where we can add the best value for our customers, for our consumers, and for ourselves. I think that's absolutely the path that we're going to continue to go on.

We look at the market, I agree with you, the market environment in North America remains very good. The underlying demand for our tires is very strong and should even get better as we look at the introduction of the Assurance All-Season into our new product line and our customer service continues to improve and be very good. I think we feel very positive about how we'll fare versus the industry for the balance of the year. And relative to the notion of the supply demand equation in North America, I would tell you -- maybe the best way to continue to say this is we still see the demand and growth for HVA tires, in many cases, particularly when you bring OE into the picture, being a bit tight for those tires in terms of the supply.

So supply and demand probably are not equal yet in terms of where HVA growth is and we don't think, as we look for the long-term, that's going to balance itself out on a global basis. I think that's true a bit in North America. I think you'll see points in time where that may change, but over the long term, I think the growth in HVA will still be very significant.

Okay. And can you just clarify what you're thinking in terms of the outlook for raw materials going forward? here's obviously a lag between what we see in the spot markets and your P&L. Are you expecting some greater benefit on that line in Q2? And maybe also comment on the outlook for the other tire- related businesses which is obviously dragging down the results a bit in the first quarter? How should we be thinking about that for the rest of the year?

Okay, so I'll take the first one on raw materials first. So in the first quarter, as expected, our raw material cost declined 6% year over year. And based on current spot rates, we do expect that to continue for the balance of the year fairly evenly across the quarters. And then as for the other tire-related businesses, we have a neutral outlook as we put on page 16 of the presentation. The impact of the unabsorbed overhead for OTR tires is already built into the unabsorbed overhead outlook on that same chart.

Okay. So you're saying down 6% per quarter for the rest of the year for the raw materials and then neutral year over year for the chemicals business, just to clarify?

Yes, exactly.

The last thing. I didn't hear you comment at all on the commercial truck tire business, which obviously is a much higher margin business for everybody. It seems like that business has been pretty strong here both in North America and in Europe. Is that a meaningful tailwind for you at this point?

Rod, I think you're right to point out both things. One, we didn't focus on it as much in our remarks today, but both in Europe and North America coming out of 2013, we've done very well in the truck business and I would say we have -- it is a bit of a tailwind and I think part of that's driven by our product portfolio that is in very high demand as well as our service model, particularly in North America.

In fact, you see more and more companies trying to get into that service model, sort of fleet solutions business that we're in as well. And that's really driving volumes in the replacement market as we put together a cradle-to-grave value proposition that our fleets are really putting value on where they're looking at us to not just provide a tire but to keep their uptime moving and that's been very successful for us. From an OE perspective, we also see that the demand for new trucks continues to be strong, and I would say that's a benefit to us as we look ahead as well.

In summary, Rod, I think the truck business is something that's been going very well for us in our mature markets and as we look at the introduction of our truck products in China, we continue to see very good growth there. Remember, we are very fairly small player but we put in the equipment to make those truck tires. We introduced multiple new products there. It's working very well for us. And finally in Latin America, we have a significant truck presence there as well in those markets, even in tougher economies, particularly in Brazil, our truck products are still moving very well.

Benefit from that not quite as large as the negative from the OTR, is that why you focused on the OTR in your comments?

Yes, Rod. As an item, OTR clearly, given the mix that comes in from those OTR tires. Remember, our revenue per tire for an OTR tire can be anywhere from, you know, a couple thousand bucks to $50,000 or $60,000. So as you lose some of those 57-, 63-inch tires there, they're fairly significant to the mix item. We thought that's something that we needed to point out.

And our final question will come from Brett Hoselton with KeyBanc Capital. Please go ahead.

I was hoping to ask you kind of a conceptual question about Europe which would be with the assignment of Darren over to Europe, there's been some speculation I think in the investment community that you might make some additional plans or announcements with regards to your strategy in Europe, kind of over and above what you've already discussed. Is that a possibility or should we consider that assignment as just an execution on what your current plan or stated plans are at this point?

Brett, I would say from our strategic direction, I would point you back to what we talked about at the September investor meeting. There's been no changes from that. We've been trying to be very clear about that. We're committed to that.

Our team across the globe and all our business units each have their role as well as their functions in delivering that plan and I would say that's where Darren's focus is as part of his assignment as well. It's really about us delivering the plan and frankly setting ourselves up for future growth beyond that.

Excellent. Thank you very much.

Okay. Thanks everyone. We appreciate it and thanks for your attention today.

Thank you.

Thank you. This does conclude today's conference. You may disconnect at any time and have a great day.