The Goodyear Tire & Rubber Company (GT) Q2 2025 Earnings Call Transcript

The Goodyear Tire & Rubber Company (NASDAQ: GT) Q2 2025 Earnings Call dated Aug. 08, 2025

Corporate Participants:

Ryan Reed — Senior Director of Investor Relations

Mark Stewart — Chief Executive Officer & President

Christina Zamarro — Executive Vice President & Chief Financial Officer

Analysts:

Ryan Brinkman — Analyst

James Mulholland — Analyst

Jake Scholin — Analyst

Emmanuel Rosner — Analyst

Itay Michaeli — Analyst

Presentation:

Operator

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. [Operator Instruction]. Please note this call may be recorded.

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. A 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 — Chief Executive Officer & 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&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 SG&A 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 four.

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 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 segments.

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 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 prioritized 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 US 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, 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 US 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 and 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, US 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 US 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 MaxLife 2 in North America. In Europe, we’ve extended the lineup of our premium Winter tire, the UltraGrip 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 4Seasons Gen-3 tire. 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&A.

Christina Zamarro — Executive Vice President & Chief Financial Officer

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 lowered 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 US 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 geared toward our lower price point products and 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 million and other was a headwind of $18 million. 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 costs 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 US. On the other hand, EMEA’s consumer OE volume grew 11% and registered share gains of about 2.5 points despite significant contraction in the industry. This growth helped to offset some of the weakness in the summer sell in season.

Like our experience in the Americas, we also saw significant weakness in Europe’s commercial business, with truck registrations declining 15% across the EU. Fleet replacement demand was also extremely cautious given the impact of tariff uncertainty on the flow of cross border logistics and steeper costs. Segment operating income in EMEA was a loss of $25 million consistent with results in Q1. Turning to Asia Pacific on Slide 15, second quarter unit volume decreased 16% driven by replacement volume, reflecting our strategic decision to rationalize less profitable SKUs.

Additionally, replacement trends were impacted by weak demand in China. OE volume was also lower despite overall industry growth given our customer mix, we expect that our China OE volume will improve over the course of the second half. Segment operating income was $43 million and 9.4% of sales, excluding the sale of the OTR business Asia Pacific’s south segment operating income was flat and SOI margin grew 150 basis points. Turning to the outlook and as we consider the industry environment more broadly, we expect the themes that we saw in the second quarter to remain with us through the near term.

In commercial truck we are seeing a recalibration to changes in global trade and based on what we know today, we would not expect a recovery for the truck business until 2026. Our current demand forecast would take our full year commercial earnings about $135 million lower than our prior forecast and to the lowest absolute level we have on record. This decline represents about 650,000 to 700,000 units less than our prior forecast. Reductions in price mix and higher inefficiencies in our factories given very low levels of utilization and the flattening variability of our cost curve.

In addition to impacts in lower truck tire volume, we also expect higher tariffs related to US Supply coming from our truck tire joint venture in Vietnam and supply of US Retreads products which are sourced from our Brazil operations. The near term outlook for the consumer business has also weakened since our first quarter conference call. We now expect global OE volume reductions beyond what we had accounted for in our prior forecast. More significantly, we expect consumer replacement volume to be challenging, driven by disruption in the US market.

We also expect increased risk in EMEA with the announcement of the tariff investigation in the EU creating risk as dealers and distributors may continue to allocate liquidity and shelf space for imports which could soften our selling of winter tires. We expect to mitigate some of the higher costs we will incur as a result of lower production with proceeds from business interruption insurance related the fire at our factory in Poland in late 2023.

At the same time, we’ll continue to execute on Goodyear Forward to best position our costs for when the environment stabilizes. As we look at industry factors influencing our outlook, we expect that it will take longer for us to achieve our 2025 year-end margin and leverage objectives. While we continue to expect to exceed the original goals of Goodyear Forward both in terms of cost savings and in gross proceeds from asset sales. The recent disruption related to tariffs and impacts on the global supply chain have overshadowed our success. We remain confident in our ability to recover and return to growth in earnings once this turbulence subsides.

Turning to the third quarter, we are expecting volume that is more reflective of our first half experience with global volume down about 5%. In addition, we expect higher unabsorbed fixed costs of $50 million driven by lower production in the second quarter, as we reduce inventories in line with our sales, we expect our unabsorbed fixed cost to increase in the fourth quarter. Price mix is expected to be a benefit of approximately $100 million, driven by the benefit of our recent pricing actions in raw material index contracts with our OE and Fleet customers. Raw material costs will increase approximately $50 million at current spot and currency rates, q4 would be a benefit of approximately $15 million.

Goodyear forward will derive benefits of approximately $180 million. Inflation tariff and other costs are expected to be a headwind of approximately $180 million reflecting higher costs given US tariff impacts and a global inflation rate of about 3%. This amount captures above average increases in freight rates and transitory manufacturing costs associated with announced facility closures. We expect this amount to increase in the fourth quarter. Based on rates in effect today, our annualized tariff costs are about $350 million up from our prior estimate, with increases in applicable rates in Brazil and Vietnam, both impacting our commercial truck business. Foreign exchange will be a benefit of $5 million and finally, the non-recurrence of insurance proceeds received last year is $17 million and the sale of OTR is $10 million.

With that we’ll open the line for your questions.

Questions and Answers:

Operator

[Operator Instructions] We’ll take our first question from Ryan Brinkman with JP Morgan. Please go ahead. Your line is open.

Ryan Brinkman

Thanks for taking my questions. I’d like to start by asking around the surge in low cost imports that you reference across your key markets, I mean firstly outside the US on your last call you did mention your more balanced near term view had considered the impact of tires originally destined for the US to be redirected to other markets. So, just curious if that was a more considerable headwind than you earlier expected. And then in the US just given that the 25% Section 232 automotive sectoral tariff in place for much of the quarter on consumer tires, I guess the 15% increase in non-US MTA imports is on the surface somewhat surprising. Maybe you could help us a little bit, I recall you mentioning on your 1Q call on May 8 something about tariffs beginning to be collected on May 3, whereas I thought they were to go into effect on April 3 at least for non USMCA compliant parts.

And so, maybe clarify that because if it was May 3rd then that could explain the ability for there to be a pre buy, was there a surge then in April and it’s already subsided, beginning in May and on commercial tires which get the reciprocal rather than sectoral rate, I guess did you see a pre buy there during the 90 day pause? And I know that pause only ended yesterday and but maybe based on your conversations do you expect that to be effectively over now?

Christina Zamarro

Yeah. So, good morning, Ryan, thanks for the questions and I’ll start on the first one which was an ask around the guidance for the second quarter where we had said we wanted to be balanced because we knew with tariffs in place in the US that might in fact send imports into other of our international markets. What in fact happened is that those the imports that were coming into the US still came in a big wave, and then we had a wave in Europe. Instead of seeing US imports redirected to another market, we just had a surge across our key markets, especially the US and Europe.

So, I think that’s the difference there. When it comes to the effective dates for Section 232 for tires, that was early May. And I think we are still seeing in the US market a very significant increase in imports here in the second quarter. It is counterintuitive what I would tell you, I think the order rate and the time on the water for tires coming out of Southeast Asia could be anywhere between three to five months. And so the, tires that are showing up I think now are more related to this on again, off again discourse around tariffs and speculation about tariffs actually potentially being pushed out further.

We’re at a point in time, where the tariff narrative seems to be settling down, and so, our expectations are that when we move into the third quarter we might begin to see some declines in the imports in the US. I think what that means for Europe though is the potential for some additional tariffs coming in because those — that investigation will not be complete until the first quarter of next year. Having said that, there is this idea that the tariffs might be applied retroactively back through July. So, we’ll just have to see how some of this plays out over the next quarter.

Ryan Brinkman

Thanks for that explanation. Second and last question is still on price mix, but from the perspective of any color that you could please provide on the relative contribution of price versus mix, are you seeing pricing tailwinds partly offset by mix headwinds? Given general consumer affordability angst issues and then how to think about that going forward? It seems like the pricing component of price mix can improve in a straightforward manner once the pre buys are finally over, but how should we think about mix? And is mix going to be helped by the fact that the lowest tier tires will increase proportionately the most because they’re the ones that are disproportionately imported? Or do you expect there to be a headwind to mix as consumers shift to lower feature tires to try to cope or compensate for the higher like-for-like tire pricing?

Christina Zamarro

So, I guess, what I would start with is just to say that the price announcements that we made in early May are effective, Mark mentioned this in his script, they are installed and effective, and that’s what you’re seeing show up in our second quarter walk, mostly offset by a couple of items, the biggest driver of the offset is commercial truck mix, just given the downdraft that we’ve seen in that industry.

And then there’s a little bit of an impact because when we implemented pricing, a lot of the demand in the US came at the lower end of the market, I think around speculation that there will be more price inflation in the industry overall, at the low end of the market, I mean we can’t really talk about forward pricing, what I would say is we do have some seasonal mix impacts, here especially as we head into the fourth quarter, we always tend to have a strengthening mix heading into the end of the year, and then as Mark mentioned also we are introducing just a ton of new products in greater than 18-inch rim sizes. We’ve got 11 new product launches in the back half of the year in North America in particular, that should really help drive a rich mix for us as well.

Mark Stewart

Probably we are — we mentioned the 230 SKUs on the rich winter mix in EMEA. In total, Ryan, we’ve got over 500 new Skus between the US and EMEA as well as AP, but all heavily focused on the 18-inch and above, that, as we’ve discussed in earlier earnings calls, are really about us participating and gaining share in that premium mix of the market.

Ryan Brinkman

Thanks.

Operator

And we’ll take our next question from Edison Yu with Deutsche Bank. Please go ahead, your line is open.

James Mulholland

Hey, good morning, guys. This is James Mulholland on for Edison. I have a question and then a quick follow up. Just on your walk in the quarter, if we look at it, there’s a significant headwind that came from this bucket of other costs. Just wondering if you could just double click on what that $74 million is and whether it’s something we should have in our models for the next few quarters?

Christina Zamarro

Sorry, what was the figure you quoted, James?

James Mulholland

There’s a $74 million other costs that’s sitting within your inflation and other cost bucket and I think it’s quite a bit higher than it has been in past quarters. So, I’m just curious what’s in there?

Christina Zamarro

Sorry, yeah, I’m sorry. I was focused on another basket on the SOI walk but when we look at all of the buckets kind of concentrated in and around manufacturing cost, I break it down into a few major drivers. The first is annualized inflation, that runs about $225 million across our cost base and that’s 3% annual inflation. Also included in that figure is about $350 million of annualized tariff costs, that’s new coming into the cost base. So, that’s probably the increase you’re noting. I’d expect that number to be on the order of magnitude of $60 million in Q3, $70 million to $80 million in Q4, as we continue to incur tariff costs across our global supply chain. And then we will expect to get to that run rate in 2026.

The third factor I’d point out, and this is a big part of our Goodyear Forward programs, is we’re carrying some incremental manufacturing inefficiencies that would generally just attract cost more than what we would normally expect because we are ramping down some factories, especially in Germany first, involved in Fulda. So, as we get to full facility closures on those, those costs will come out and those dates are public and announced for each one of those factories.

James Mulholland

Great, that’s helpful. Thank you very much. And then within that commercial vehicle headwind that we saw in the quarter, should we expect a similar SOI impact going forward for the next few quarters or was this maybe the peak of it and then as you ramp down a little bit to adjust for it, it shouldn’t be as significant?

Christina Zamarro

Well, the way I would have you think about it is we talked about a $30 million headwind in mix and that’s because the contribution from commercial truck profit is so significant, and I think about we didn’t give a robust outlook for the third and fourth quarters, so, I would think about having to lap that, but then there’s some additional that will come on top in Q3 and Q4 as we adjust production, and so I would think about that being an extra $25 million in unabsorbed over the course of this second half, and then I mentioned we’re also incurring some new tariff costs.

The Brazil rates have gone up from 10% to 50% and that’s where we source our retread products from our own operations. And then we’re also doing some sourcing from our truck tire joint venture in Vietnam that will increase our costs, that’s $20 million new on an annualized basis.

James Mulholland

Perfect. Okay, thank you very much, guys.

Christina Zamarro

Sure.

Operator

We’ll take our next question from James Picariello with BNP. Please go ahead, your line is open.

Jake Scholin

Hey guys, this is Jake Scholl on for James. So, it looks like tariffs are trending a little bit worse. So, do you guys have any mitigation efforts in the hopper as we think about the annualization to next year? And it looks like, at a higher level, this was a pretty significant reset to the full year with depending on your volume assumptions 3Q SOI running towards the $285 million to $290 million range versus the previous walk which would have put it at about $400 million and the full year at about $1.0 billion from the prior $1.3 billion so, can you just confirm if we’re thinking about those numbers correctly? Thanks.

Christina Zamarro

So, just a couple comments. You started with the note that our tariff costs are going up from about $300 million this year to about $350 million, just given some of the changes in rate I do think we will make adjustments to our supply chain to limit that risk on our P&L over the course of the second half and we’ll be able to come back to you at the end of the year, early next year with our plans but certainly have cost savings actions as well as sourcing actions that will help mitigate that number going forward, there’s obviously been a lot of volatility there.

I mean as I think about the outlook, I mean what we’re experiencing is really connected to an exceptional period of time in our industry and we’re delivering against what we can control, Mark mentioned that our Goodyear Forward targets are cost savings on path. And when I think about the fourth quarter, I mean I don’t want to be too positive or too negative. I think for us we want on volume in particular. I mean I’ve given a lot of perspective on how price mix is likely to play out in my script, I gave a lot of perspective on how you should be thinking about our cost.

And so, in the fourth quarter the variable that’s left is really all around volume and I do think that and potentially some additional price mix, but I do think the way that we’re characterizing the industry environment right now says that not a lot of visibility into when we’ll see this pre buy sell through. Our thinking is that will play out over the course of the third quarter, but we want to have, see through that experience before we give you our perspective on volume in Q4.

Mark Stewart

The other thing James I would add on is just reiterating Christina mentioned right and we talked about at the beginning which is really around the cadence the governance and the diligence behind our Goodyear Forward actions. And, we continue the robustness of our cadence of sessions with all the associates around the world continuing to refill our pipelines with projects and really focused on the ones that are value add or cost controlling all around the world, right? So, that’s been embedded in our DNA and we’ll continue to focus on the flex to make sure that we are controlling every cost possible during this period.

Jake Scholin

Thank you. And then for the — what’s the — the wind down of the Cooper brand’s relationship with ATD. Can you talk about just the potential disruption that may have had on volumes in the quarter? And when would you expect that to resolve? Thank you.

Mark Stewart

Maybe I can start and then Christina can pick up. I guess taking a step back, why did we exit ATD, right? Our very clear strategy at Goodyear is to make sure we’re working with aligned distributors that are representing our full product portfolio, right? And working together with us to build our Goodyear brands in the marketplace. We are constantly looking and doing super careful assessments around operational capabilities, the service rate stability and alignment. And we decided to strengthen our partnerships specifically with tirehub, which is our joint venture with Bridgestone and some other key partners who have longstanding aligned distributors that are in keeping with partnership with Goodyear.

And, we see a lot of benefit for us working with fewer but much more aligned distributors, building our Goodyear family brands and servicing our dealers and our retailers effectively, efficiency with a full product screen which we have available to the marketplace. We don’t want to work with individuals that aren’t representing our full portfolio. And, as we looked and as I shared in my comments at the beginning, right? We took risk assessments, we took service assessments, and again, we feel that it absolutely is the right thing to do there. By the way, ATD was less than 5% of our total consumer replacement volumes.

Christina Zamarro

Yeah, maybe I’ll just pop in to say we had a distribution, that we had to transition, retailers that we had to transition to new distribution. I would say by the end of July, nearly all and 95% of the retail base voluntarily made that switch and all of our orders are coming in through those new distributors. We do have some private label volume at ATD as well. That’s something that we expect to wind down over time in a very orderly way. And we expect to offset that volume through mutual commitments with other of our distributors.

Operator

[Operator Instructions] We’ll take our next question from Emmanuel Rosner with Wolfe Research. Please go ahead. Your line is open.

Emmanuel Rosner

Great. Thank you. Good morning. I appreciate all the elements of outlook into the third quarter, just curious if you could comment on how you would see, therefore, the full year play out on some of the main metrics. It doesn’t look like some of these issues are probably going to be going away super quickly. So, any sense where that sort of like leaves us on SOI or free cash flow on a full year basis or another way to ask potentially is what are puts and takes going to Q4? Are some things expected to get better or not necessarily?

Christina Zamarro

Yeah, sure Emmanuel, I’ll hit the fourth quarter SOI. I mean we’ve given you a lot of the different drivers for Q3 and these are the factors that we know Q4 raw materials should be favorable. Goodyear Forward should be a benefit of $175 million. I think unabsorbed overhead in the fourth quarter is going to be a little higher than the third quarter just given that we will be making appropriate ticket reductions in our factories in order to align with demand and manage for cost and cash other costs, I mean we’ve talked about this a little bit already.

Other costs in the fourth quarter will be higher due to new tariffs and some incremental factory inefficiencies ultimately depending on that production in the third quarter and we want to be again aligned with demand and the environment is very uncertain. Price mix I’ve made some comments about we have some seasonality benefit in the fourth quarter in mix in particular. And then what that leaves us is with volume and just having come through such a disruptive and challenging quarter, I think it’s hard for us again to determine exactly how that’s going to play out in the fourth quarter because we don’t know how long it’s going to take for some of this churn in the US market is going to take.

I think we’re looking for some data that will help us give you more of a forecast around stabilization in the US and that’s data to support things like import slowdown and import channel inventory sell through and we’re expecting that to come through over the course of the third quarter, maybe in the fourth quarter, but we just don’t have that data yet to guide on the volume. When I look at free cash flow Emmanuel, we’ve laid out those drivers as well last call. What we said is we would be slightly positive in free cash flow. Working capital has come down just a touch.

You’ll need to adjust the earnings and so your cash flow should be lower, and then there’s I talked about in my prepared remarks there’s an add-back related to supply agreements and at the end of the year the add-back in our operating cash flow should be $265 million and those are related to those supply agreements on both OTR and transition agreements on Dunlop.

I think overall, Emmanuel, I’d say our balance sheet position is going to be very strong at the end of the year, even with a little bit of this downdraft we’re seeing right now in the industry.

Emmanuel Rosner

Okay. And just clarification and a separate question, but these add-backs related to supplier agreement, those were not completed in your previous free cash flow walk?

Christina Zamarro

No, they were not.

Emmanuel Rosner

Okay. And then separately wanted to sort of just ask you a little bit about the longer-term view and picture. So, sort of like I heard your remarks around, look, it’s a question of when, not if, when things settle down, industry conditions, then you’ll be able to perform. Just, curious on, the drivers of your confidence there. It sort of feels that essentially whenever one market puts bears in place like the tariffs, then these imports still make their way to sort of another market where that is significant for Goodyear as well.

And so now, the US may be potentially stabilizing, but then you have Europe. So, I guess what gives you confidence essentially that sort of like at some points this would essentially stabilize and enable you to really show the benefit from your actions.

Christina Zamarro

Well, Emmanuel, I guess I’ll start and let Mark finish up, but I would say it’s an especially turbulent environment and we still should benefit. I mean we completely expect to benefit with the strength of our US manufacturing footprint and all at the same time. What’s a little bit new news that’s also really good for us is that there are these new contemplated tariffs in Europe to — and those rates are punitive 41% to 104% is what the EU has disclosed as far as those tariffs. I think it’s really hard for us to give you clarity on timing right now because I do think we’re going to have to work through some of this disruption.

But we’re as confident today as we were last quarter that as the market stabilizes, we’re going to be able to capitalize on those opportunities.

Mark Stewart

Yeah, exactly, as Christina said, right it’s the investigation into the pricing around Europe with the tariffs that should be ultimately backdated, right? To the start of that investigation for sure creates a bit of a churn in terms of speculative pre buy we assume from the folks there. But again working through that and as that would take effect, assuming end of year, start of next year, right? The goodness there would start to flow through. We’re also very encouraged right by winter sell off season from our side with that. In terms of the US as we said the on-and-off or the push outs and different things in the US marketplace created these gaps of opportunities for additional pre buy.

So, it’s speculative as to when that will work through or churn its way through. We’re starting to see those in the sellout in the marketplace. So, it’s a bit of a crystal ball of when that works through but again, we are definitely positioned very well with our US footprint. We’re having lots of conversations with various OEs that are already starting to flex to more USMCA based, which we certainly are a benefactor of that, particularly with the US footprint. So, again that’s why we are confident the timing of the start piece is the question mark, right? But we are absolutely lined up right for that. And as we mentioned as well, Emmanuel, the push that we have in developing, launching and bringing to market the 18-inch and above, higher performance and premium mix of tires, particularly in the Americas market, in areas that we did not participate in before in a meaningful way, gives us all of that confidence to things start flowing right? We are going to do it and we actually saw that as well though in the quarter in terms of our growth in the 18-inch and above.

We’re very pleased with that part of it and it will continue to be so with the new launches coming throughout the rest of this year and into quarter one of next year.

Emmanuel Rosner

Thank you.

Operator

And we’ll take our next question from Itay Michaeli with TD Cowen. Please go ahead, your line is open.

Itay Michaeli

Great, thank you. Good morning, everybody. Just to follow up to the last question, I know it’s early to really talk about 2026 in any detail, but I’m curious as you think about how the industry is progressing this year. What are the puts and takes to think about at a high level impacts on next year when we start to think about the SOI bridge and kind of how this year’s events may impact the bridge into next year?

Christina Zamarro

Good morning, Itay. I think Mark just touched on the difficulty in calling the timing with some of this disruption. Certainly would hope that by the fourth quarter some of this has rolled through, but we’re right now having difficulty in even calling volume in Q4 just given the level of disruption in the US market. But as we look into 2026 there are variables that we do know I mean raw materials have flipped to a tailwind at least right now and I realize it’s only August, but the baseline of that at current feedstocks would be a couple $100 million tailwind next year.

Goodyear Forward should be a benefit of at least $250 million, that’s just what’s going to be in the flow through and as we discussed a little bit earlier, we’ve got sourcing changes and other cost savings in the pipeline that we will share more with you about as we head into the end of the year, but again, just looking to see some of that stabilization as we firm up our thinking around 2024. The other pieces I just want to make sure I remind everyone of is that as we think about the ability to scale earnings next year, a 1% price increase in our US consumer replacement business is worth $55 million.

And so far, we’ve implemented 4% in the US market back in May. In the same way, a 1% price increase in EMEA is worth $25 million on an annualized basis. And then of course volume, I mean when we talked about benefits that we may — that we expect to see out of all of this, we may also improve the volume and that’s about $40 including sales margin and overhead absorption on a per unit basis. So, a whole lot of opportunity once we see some of this churn, kind of stabilize, sell through and stabilize in the market.

Itay Michaeli

That’s very helpful. Thank you for that. And then just given some of the near term challenges, I’m curious if you are thinking about additional cost cutting or even restructuring actions just given the asset sale proceeds and incremental cash you’ll be bringing onto the balance sheet. Not sure if you’re at that point, but just curious if there’s potential additional actions that you’re contemplating.

Mark Stewart

Yeah, I think, Itay, it would be super speculative at this point for us to make any comments around any additional restructuring to the cost base above and beyond what we’ve already committed to and are in process with.

Again, we don’t believe this current environment is reflective of the long-term part of the business or the normalized industry environment. With that said, we are in the process of closing the three factories in Europe. We announced the South Africa one last month or the month before. So, the two in Germany plus South Africa, we’re right sizing plants all around the world on a regular basis as just part of our flexing of our cost structure. So, again, we continue to aggressively manage the cost structure with the Goodyear Forward discipline keeping the pipeline full. So, as I mentioned earlier, right, we’re keeping those projects and new projects filled so, that, we are adding value by reducing the cost and continuing to look at that. But there’s no major one to be announced at this point. Above and beyond normal discipline.

Itay Michaeli

Got it. That’s very helpful. Thank you.

Operator

And there are no further questions on the line at this time. I’ll turn the program back to Mark Stewart for any additional or closing remarks.

Mark Stewart

No, thank you. Thank you, David. And thank you all for joining the call today. Let’s wrap up for Christina and I saying, well, while short term outlook definitely remains turbulent given the industry environment broadly, we’re staying very focused on what we can control and what we continue to deliver. We’re continuing to execute ahead of schedule on Goodyear Forward. We’re continuing to take the right cost control actions, we’re taking smart pricing actions in the marketplaces and we’re gaining share in the profitable premium segments of the market. We continue to sharpen that portfolio and at the same time strengthen our balance sheet, as we’ve shared, right? We are really focused again on refreshing the existing product lines, bringing the new power lines into the market, into the premium spaces. And despite these near term headwinds, I am very confident as the market stabilizes, our momentum will return. The Goodyear team is committed to execution and delivering results.

Thank you all for joining.

Operator

[Operator Closing Remarks].