The Goodyear Tire & Rubber Company - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered $4.95B revenue, GAAP EPS $0.26, and adjusted EPS $0.39; segment operating income (SOI) was $385M with 7.8% margin, aided by $195M Goodyear Forward benefits and $52M insurance proceeds, partially offset by negative price/mix vs raw materials and lower volume.
• Management reaffirmed expanded Goodyear Forward targets (run-rate $1.5B by end-2025; 10% SOI margin by Q4 2025; net leverage 2.0x–2.5x by end-2025) and detailed 2025 glidepath: H1 SOI down on raw material headwinds (~$350M in H1), H2 recovery on price/mix and Forward savings; consulting costs -$80M y/y; OTR sale reduces 2025 SOI by ~$80M (incl. stranded costs).
• Balance sheet de-risking: OTR divestiture closed Feb 3 for ~$905M; proceeds earmarked for debt reduction; Dunlop brand sale expected mid-2025 for ~$700M; company intends to repay $500M 9.5% notes and targets ~$70M annual interest savings; pro forma year-end net debt ~$6.1B (3.0x net leverage) post-OTR.
• Industry mix and tariff dynamics remain pivotal: low-end import share rose in the U.S., pressuring consumer replacement; management is engaging policymakers and modernizing U.S. manufacturing (Oklahoma capacity +~10M premium units across 2025–2026) to defend premium mix and margins.
• Wall Street S&P Global consensus revenue/EPS for Q4 2024 was unavailable via our feed at this time; therefore beat/miss vs estimates cannot be stated. We will update when S&P Global data is accessible.

What Went Well and What Went Wrong

• What Went Well

  • Sustained margin progress: SOI margin reached 7.8% in Q4 (vs 7.5% LY; 7.2% in Q3), with total SOI +$2M y/y despite volume/mix headwinds, driven by $195M Forward benefits and $52M insurance proceeds.
  • EMEA and APAC execution: EMEA SOI rose to $41M (2.8% margin) on winter demand and Forward benefits; APAC SOI rose to $82M (13.5% margin) despite volume declines, reflecting strong manufacturing/pricing and fresh products (notably EV fitments).
  • Cash generation and deleveraging: Q4 cash from operations was ~$1.3B; post-OTR, pro forma net debt ~$6.1B (3.0x), with planned $500M bond repayment and ~$70M interest savings; Dunlop sale proceeds (~$700M) targeted to further reduce leverage in 2025.

• What Went Wrong

  • Revenue and mix pressure: Sales fell 3% y/y to $4.95B, with negative price/mix vs raw materials (-$149M Q4) and lower volumes (-$42M) driven by U.S. low-end import share gains and weaker commercial replacement; Q/Q mix was also unfavorable given higher consumer OE and lower commercial replacement.
  • Americas softness: Americas SOI declined $47M y/y to $262M (9.1% margin) on lower volume and unfavorable price/mix vs raw material costs, despite Forward savings and $52M insurance recoveries.
  • Near-term outlook headwinds: Management guided to H1 2025 SOI down on raw materials (+~$350M in H1; +$175M in Q1) and lower volumes; additional Q1 drags include ~$25M unabsorbed fixed costs and FX (-$15M).

Transcript

Mark Stewart (CEO)

Welcome to our fourth quarter earnings call. I'd like to begin today by thanking our associates, our customers, and all of our suppliers for helping us to deliver an outstanding year in 2024. As I'm sure you've seen in our release, we delivered fourth quarter segment operating income ahead of expectations, and alongside of it, some exceptionally strong free cash flow relative to our past few years. It was a fitting end to the year marked by transformation as we set out to strengthen Goodyear's financial foundation and position the company for long-term success. Looking back over my first year with the company, I'm really energized by all we've accomplished. Across our organization, we put the emphasis and the full force of our talented team on Goodyear Forward, and together we executed nearly $500 million of transformation benefits through relentless program execution and follow-through.

It's a truly remarkable outcome given the program kicked off in November of 2023. To put this effort into perspective, we've now successfully delivered five consecutive quarters of margin expansion under our Goodyear Forward plan. We accomplished this growth by exceeding our Goodyear Forward targets each and every quarter this past year. The end result is together we've generated a turnaround in our earnings with full year segment operating income growth of $350 million, over $200 million excluding the benefits from the insurance recoveries. 2024 was the first year that Goodyear has grown segment operating income and margin since 2015, excluding the recovery year immediately following COVID. Our commitment to continued progress is clear throughout the entire company. We will continue to drive execution to unlock Goodyear's full potential as we move forward.

In addition to our progress on earnings, we have also completed the divestiture of our OTR, the off-the-road business, and announced an agreement as well to sell the Dunlop brand, both part of our strategic review process. It's a clear demonstration that we're focused on delivering the plan and positioning the company for future growth. As with all transformation, it hasn't come without some challenges. As we look at the top line this past year, we've seen growth in the low-end imports impacting the consumer replacement industry in the U.S., Europe, as well as Brazil. The inflows at the low end of the market over the last two years are unprecedented.

Looking to the US market, low-cost imported tires are largely sourced from Southeast Asia, including from a number of countries that are either not subject to anti-dumping or countervailing duty tariffs, or whether the production has been shifted to avoid the level of tariffs that the US has sought to impose in order to counteract unfair foreign subsidies in our industry. It remains to be seen how the tariffs and our markets will evolve this year and 2025. The tier one tire manufacturers, including Goodyear, source our volumes from factories located in all three USMCA countries to support both the OE as well as the replacement customers in the US.

As you would all expect, we have been quite active in our discussions with government officials, emphasizing the significance of Goodyear having the largest manufacturing footprint in the U.S., as well as the quality, the safety, and the technology that we bring to consumers with our products and our services right here in the U.S. marketplace. We look forward to continuing our collaborations with the leaders in Washington as we work to address these critical issues impacting our business. In the meantime, we're working across our operations to mitigate any potential near-term impacts of tariffs related to our Canadian and Mexican supply. As the tariff situation may be fluid and will be fluid, we'll remain agile and execute efficiency. We will also remain steadfast on our execution of the Goodyear Forward, which will bolster our top line and our cost performance with benefits of $750 million planned in 2025.

This is continuing on the foundation that we executed in 2024 and will allow us to continue the push forward on several fronts this year. We're going to take advantage of the strategic moves we made in 2024 to advance new products, modernize our manufacturing footprint, enhance our sales effectiveness, and evolve our regional operational models. In the U.S., we will accelerate the introduction of new products to more effectively compete in the premium tiers and capitalize on blank space opportunities. In our last conference call, I shared how we will refresh our U.S. portfolio of offerings while also increasing our coverage to a much broader spectrum of high-end, high-margin SKUs. We will introduce five new product lines in the U.S. this year, each with significant improvements in the large rim SKU coverage than the predecessor lines.

On the manufacturing side, we're increasing our capabilities in our Oklahoma facility with a modernization project that will add about 10 million units of new capacity for premium tires in 2025 and 2026. We will ensure we're running at the optimal level of output and efficiency, and we're running the products that will yield the highest opportunities for profitability this year. As we look to our new portfolio in the market, we're also investing in our sales capabilities, both in strengthening our customer service through global digital platforms as well as strengthening our overall value proposition for our customers, all with the clear objective to grow with the products our customers and consumers demand across the Goodyear family of brands. On the cost side, we're lowering our SG&A or SAG and optimizing our manufacturing assets as we look at both footprint as well as plant optimization.

In early January, we announced the addition of Don Metzler as our SVP of global manufacturing and supply chain, reporting directly to me. Don brings more than 30 years of experience in developing, transforming, and leading complex, multi-site, world-class manufacturing operations. He'll be instrumental in taking our global manufacturing capabilities to the next level. We have a significant opportunity as we look across our KPIs to drive both higher output and lower cost. In addition, Alan Colman has joined our organization from our European manufacturing operation. Alan has many years with the company and a demonstrated strength in leading manufacturing. Alan is now leading our manufacturing in the Americas. Don Metzler is one of six leaders I've added to the leadership team over this last year. These leadership changes have been crucial to our business transformation and creating a culture of high performance in the company.

In addition, with the right leadership in place, we will capitalize on opportunities to streamline our operating model and address duplication of effort and excess costs that inherently incur under our current decentralized structure model. Today, we operate from within three regions, meaning each region manages their own product portfolio, their product development, sourcing, and manufacturing. By aligning our structure and process globally, we will be able to innovate and operate with speed around the world, leveraging the benefits of standardization, optimization, and our key assets, meaning our people around the world. This new structure will translate to better products, lower costs, better service, and quicker refreshing of our products across the world. The transition will take some time, but the model is one that many companies are already leveraging and will shape the future of Goodyear as well.

Looking ahead, we will continue to prioritize Goodyear Forward and advance several strategic initiatives to ensure we're positioned for long-term growth for our shareholders. We successfully navigated a very challenging landscape in 2024, and our focus on discipline and execution will continue to support us as we work to further strengthen our financial and operational foundation in the coming year. Next, I'll turn it over to Christina, and she'll take you through the financials, and we'll move on to the Q&A. Thank you.

Christina Zamarro (CFO)

Thank you, Mark. 2024 was an important year for us as we've executed on our transformation plan while continuing to build our savings pipeline for 2025. We feel very good about where we stand with respect to our targets as we look at both the goal to attain 10% SOI margin in the fourth quarter and net leverage of two to two and a half times by the end of the year. I'll begin the year-end review with the income statement on slide eight. Fourth quarter sales totaled $4.9 billion, down 3% from last year, driven by lower volume. Unit volume was 4% lower versus last year, in line with our expectations, given growth in low-end imports in the U.S. SAG declined $77 million, driven by Goodyear Forward workstreams. As a percent of sales, SAG declined one full point versus last year.

Segment operating income for the quarter was $385 million, and SOI margin increased to 7.8%. After adjusting for significant items, including the final settlement of an insurance claim related to storm damage we incurred in 2023, our earnings per share were $0.39. Excluding insurance proceeds, SOI margin was 6.7%. Turning to the segment operating income walk on slide nine, lower tire unit volume and factory utilization were a headwind of $81 million in the quarter. Net price mix versus raw materials was unfavorable during the quarter, driven by increases in our raw material costs. Price mix was unfavorable, $36 million. Now, pricing was stable, but mix was negative, given declines in commercial replacement volume and an increase in our consumer OE volume. Continued strong execution on Goodyear Forward contributed $195 million against inflation that was $50 million in the quarter.

As I referenced earlier, we collected $52 million of insurance proceeds in the final settlement related to our 2023 tornado claim. Other SOI was favorable $41 million, driven by lower incentive compensation, the recovery from last year's fire at our factory in Poland, and higher earnings in other tire-related businesses. Turning to the cash flow and balance sheet on slide 10, free cash flow exceeded $1 billion in the quarter, driven by strong working capital inflows. As we shared in an earlier press release, we finalized the sale of OTR on February 3rd. Pro forma for that transaction, year-end net debt was $6.1 billion, and our net leverage was three times, down nearly a full turn from year-end 2023. We intend to repay the $500 million principal outstanding on our 9.5% notes later this month, and the remaining proceeds from the sale will reduce our variable rate debt.

Together, these actions should generate $70 million in annual interest expense savings. Finally, earlier in January, we announced a definitive agreement to sell the Dunlop brand to SRI. That transaction is expected to close mid-year, and the related upfront proceeds of about $700 million will be used to further reduce our leverage in 2025. The strategic review of our chemicals business remains in process. Moving to our SBU results and starting on slide 13, Americas' unit volume decreased about a million units, driven by consumer replacement. As we look at the industry, the U.S. consumer replacement industry declined about 2%. Low-end imports outperformed the industry and grew 11%, rising to an all-time high as a result of channel stocking and pre-buy activity related to potential tariffs.

On the other hand, our U.S. consumer OE volume grew approximately 20%, driven by new fitment wins and the recovery from last year's UAW strike, resulting in year-over-year share gains of approximately four points. Commercial OE and replacement volume declined following industry weakness. Segment operating income for the Americas totaled $262 million, or 9.1% of sales. Americas' earnings reflect unfavorable net price mix versus raw material costs and lower volume, partly offset by Goodyear Forward benefits and insurance proceeds. Moving to slide 14, EMEA's fourth quarter unit volume increased 2%. Our volume reflects growth in the consumer replacement market, driven by a strong winter tire selling season. The robust market was in part due to new regulations in Germany that require Three-Peak Mountain Snowflake labeling on both winter and all-season tires. Our OE volume was about flat in consumer, but was down about 10% in commercial, given industry weakness.

Segment operating income was $41 million. Goodyear Forward benefits more than offset net price mix versus raw material cost headwinds and general inflation. Turning to Asia-Pacific on slide 15, fourth quarter unit volume decreased 9%, driven by actions to reduce lower margin business in key markets and channel destocking in China. Segment operating income totaled $82 million and 13.5% of sales, an increase of $14 million compared to last year. Turning to our outlook, we expect that our first half SOI will decline based on prudent assumptions around our volume, carryover effects of production cuts in the fourth quarter, and significant increases in our raw material costs. In the second half, we expect modest volume growth and price mix to more than offset raw material inflation, which, when combined with Goodyear Forward benefits, should support earnings and margin growth, particularly in the fourth quarter.

In addition, we expect consulting fees and other costs related to Goodyear Forward to decline by about $80 million versus last year. As we look at risks to our 2025 plan, a further step up in raw materials later this year could limit our earnings growth in the second half, as it typically takes us time to offset increases in our raw material costs with price and mix. Similarly, potential tariff impacts related to Canada and Mexico are difficult to predict, including both primary and secondary effects. In any case, we'll manage near-term volatility with the benefit of the stronger cost base we've gained under Goodyear Forward. Sources of upside to our plan include growth in volume and price mix related to the potential for U.S. tariffs impacting countries outside of those currently contemplated.

Similarly, we also anticipate that the European Commission may make a tariff determination as to unfair competition related to consumer tire imports in the coming months. Finally, we could see raw material prices decline if pre-buy and channel stocking of low-cost inventory abates. As we look at the outlook drivers specific to the first quarter, we expect global unit volumes to decline approximately 2%-3% versus last year, reflecting elevated wholesale channel inventories in the U.S. and consumer OE declines as a result of lower OE production. In addition, we expect higher unabsorbed fixed costs of about $25 million, driven by lower production during the fourth quarter. Price mix is expected to be a tailwind of about $65 million, driven by pricing actions we have implemented and raw material index contracts with OE and fleet customers.

Raw materials will increase approximately $175 million, driven by natural and synthetic rubber price increases. At current spot rates, we would expect to see raw material cost increases of about $350 million in total in the first half of 2025, with about $50 million of that driven by transactional currency impacts. Goodyear Forward will drive approximately $200 million of benefits, reflecting continued progress across all workstreams. Inflation and other costs are expected to be a headwind of approximately $75 million, reflecting increases in transportation rates over and above core inflation. Foreign exchange will be a headwind of $15 million, and the non-repeat of costs related to the fire in our Dębica, Poland facility last year will be an $11 million benefit. Also, for modeling adjustments related to the OTR transaction, our full year 2024 OTR revenue was about $600 million, and SOI was $65 million.

Depreciation and amortization was $18 million. We expect the transaction to reduce 2025 SOI by approximately $80 million, inclusive of stranded costs, primarily in Asia. Other financial assumptions on slide 18 have been updated to reflect our expectations for 2025. Interest expense will be approximately $60 million lower than last year, driven by debt reduction. Higher restructurings reflect footprint actions announced under Goodyear Forward, including a recently announced plan in our Danville, Virginia facility. With major cost programs announced in three of our factories this year, we expect to incur some transitory manufacturing costs, approximately $30 million in the second half of the year. With inflows in working capital and lower CapEx spend relative to 2024, we expect to generate positive free cash flow in 2025, consistent with our deleveraging objectives. With that, we'll open the line for your questions.

Operator (participant)

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press Star 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing Star 2. And once again, that is Star 1 for a question. We'll take our first question from James Picariello with BNP Paribas. Please go ahead.

James Picariello (Managing Director and Head of US Autos Research)

Hi, everybody. My first question is just on your price mix expectation for the year. I know it's harder to call the farther out, but yeah, can you just confirm what the expectation is for the first half, if you already provided that? And then, yeah, thoughts on the second half, raw materials, should we assume neutral or an additional headwind potential based on spot pricing? And have you seen any pricing actions from your peers thus far, given the rather substantial raw material headwinds that the industry is facing? Thanks.

Christina Zamarro (CFO)

Yeah, sure. James, I'll start, and I'll let Mark follow up on the pricing environment. When we look at our SOI bridge for 2025, price mix should grow from the first quarter on into the second and third quarter. A part of that is the realization of our OE, RMIs, and our raw material index contracts with our fleets. Those generally reprice in six month arrears. And so we don't have nearly the full run rate here in Q1. There's also been pricing actions that we've taken in our key markets around the world in the first quarter as well. And I'll let Mark follow up on that. When we look at the raw materials, what I would say is the 350 is baked based on current spot rates for the first half.

If spot rates hold, we could see a headwind of about $100-$150 million in the back half of the year. Of course, spot prices have been pretty volatile, so we'll continue to update you on that. But again, looking for price mix to grow into Q2 and Q3 before leveling off or just depending on what happens the rest of the year with ROS. Mark?

Mark Stewart (CEO)

Yeah, James. Yeah, just talking through some of our pricing actions that we've already happened, as Christina mentioned, right? Since the third quarter call, pricing actions we've taken. We've done multiple rounds of pricing globally, commercial tires in Turkey, for example, across the Latin American countries, as well as consumer pricing in Europe, as well as Middle East. And then across the U.S. on specific product line, we've taken product actions both in quarter four as well as rolling into quarter one. So we'd expect to see the benefit of that going into the quarter two time period as that flows through the system. We continue to watch things to make sure that we are competitively priced based on our upgraded marketing intelligence.

As we've mentioned, it's a big area we focused on in 2024 was our scraping and making sure that we're benchmarking, that we're in the right price position across each of the categories, and really taking a look at that from a consumer-facing thing so that we are competitive in the marketplace.

James Picariello (Managing Director and Head of US Autos Research)

Got it. No, that's helpful. And then I just have a quick two-part question. One on volume, right? You have the full year industry volume assumption, consumer flat, commercial up 3% at the midpoint, again, at the industry level. Just your thoughts on Goodyear's volume performance for the year. We could see the down two to three for the first quarter. Just curious, yeah, what the expectation is for the second half? Is on easier comps? Is there a good pathway for likely growth given channel inventory levels at this point? And then just in your Goodyear Forward savings in the fourth quarter, there was obvious upside. So just had a question on what drove that upside. It seems like it might have been in the margin expansion effort. Is that just your pricing actions? Thanks.

Mark Stewart (CEO)

Yeah. Yeah. Let me talk about volumes to start, and then we can talk about Goodyear Forward with Christina. Again, as you mentioned, in the consumer replacement side, we expect overall global growth in 2025 with a stronger marketplace in Europe and Asia. And continued to see, we expect to see volatility in the U.S. market relative to the imports. In the South America or Latin American countries and Brazil, we expect to see some declines in the imports as new tariffs have gone into impact there starting in October. But for the consumer OE, we think there'll be a flattish first half with growth on the second back end, as you mentioned, on the U.S. side.

As we look at commercial, from a replacement demand, we think that's going to stabilize, progressing throughout the year, with non-imports declining as the tariffs that were recently announced begin to take impact, especially those coming out of Thailand. And then so overall commercial OE side, first half, I think will be relatively soft, continuing on from last year. And then second half being stronger with the new GHG regs going into place and the fleets beginning their pre-buy activities before those new regulations go into place. And then your second question and secondary part of that, how are we going to address those lower volumes? So we're doing that on multi-front. As we shared in quarter three, we are aggressively growing. This was an area that we were behind on. We took a step back.

We reorganized ourselves in terms of our engineering SWAT teams, our go-to-market teams, and have dedicated focus on bringing 100 and some, nearly 200 additional SKUs into the marketplace in the high-end, highly profitable segments of the market that are going to generate the returns and greater value for us and also at a premium price. So that's a key area of focus for us. We've got five new product lines coming into the marketplace around the world, our WeatherReady 2s, our Wrangler Workhorses, the ASIM 6s we discussed that are really on the premium side of our high-value UHP market, the Eagle F1 All-Season as well in the high segments, and MaxLife 2, right?

All of which are coming into the marketplace throughout this year, which again is why we feel good towards that second half as these all are coming into the marketplace at volume and the right number of SKUs in each of those power lines, James.

Christina Zamarro (CFO)

And James, just to follow up your question then, I mean, there's a lot of time, Mark, just spent on price mix actions, and a lot of that started in Q3 last year. And so you're seeing that in the Goodyear Forward programs, especially in the premium end of the market.

James Picariello (Managing Director and Head of US Autos Research)

Appreciate it. Thanks, guys.

Operator (participant)

We'll take our next question from Emmanuel Rosner with Wolfe Research. Please go ahead.

Emmanuel Rosner (Managing Director and Senior Research Analyst)

Oh, thank you. I was hoping to actually follow up on the same topics, which is volume, price mix outlook, first half versus second half. So it seems the outlook contemplates decline in SOI, at least in the first half, but then growth in the second half. Can you just maybe just go back over for both volume, price, and mix? What will be the anticipated drivers of improvement in the second half? And I guess, how much visibility and conviction do you have on this at this point?

Christina Zamarro (CFO)

Sure. Hi. Good morning, Emmanuel. I'll start out with the SOI bridge for 2025. And if you look at the puts and takes, as we've talked about them, our 2024 SOI was about $1.3 billion. If we adjust that for insurance proceeds, we are at $1.2 billion. Now, Goodyear Forward, of course, going to add $750 million for us against a base inflation of $225 million. We said we're also going to have headwinds in other costs outside of core inflation, and that's mostly driven by transportation. That's going to run $20 million a quarter. We also have three factories that we are ramping down or decreasing production in the third and fourth quarter of this year. So that will increase our manufacturing costs through some transitory inefficiencies in the third and fourth quarter by about $30 million.

We've talked a lot about raw material headwinds, about $350 million in the first half, about $100, maybe up to $150 million at current spot prices in the second half. And then spent a lot of time already on the call about how we're thinking around price mix. We've given you the first quarter, but that should grow pretty materially in Q2 and Q3 and get to a run rate by Q4. And that's driven by pricing actions that we've implemented in the first quarter already, pricing through our OE, RMI, indexed agreements with fleets as well. And then, obviously, Mark just spent a lot of time on the new product development, new product lines we're bringing into the market, which should also support our mix. OTR should be a headwind. We've outlined that in the presentation, $80 million on a four-year basis.

And then it does come down to volume. What we've laid out is a lower first half driven mostly by the U.S. channel stocking of low-end imports and lower OE volumes just following OEM production broadly. And then moderate growth in the second half for us, driven by very low comps and a recovering industry broadly in commercial and in consumer OE. And so once you put all of that together, I think it's safe to say you should be able to model a level of SOI that's in line with our current year, including the insurance, which means that we should be demonstrating a very strong level of underlying growth in the business, something on the order of 10%.

Emmanuel Rosner (Managing Director and Senior Research Analyst)

That is super helpful. Thank you so much. And then just so in line with current year, I mean, in line with 2024.

In line with.

2025 would be in line with 2024, including the proceeds you got last year.

Christina Zamarro (CFO)

Yeah. So like the 13-20 level.

Emmanuel Rosner (Managing Director and Senior Research Analyst)

Got it. Yep. No, that was our understanding as well. Perfect. And then if you could just help us out with the free cash flow walk as well. And then you called for positive free cash flow. I assume that this is before restructuring. How should we think about restructuring, which I think you quantify for this year, but also how much more is there to spend as part of the overall plan?

Christina Zamarro (CFO)

Yeah, sure, so the positive free cash flow includes $400 million of restructuring, so we intend to be positive, including restructuring. This is really driven by that SOI we just talked about, and you should get to an EBITDA of, call it, about $2.1 billion after you go through the model that we just talked through on SOI. Working capital will be a benefit. We've laid that out. Restructuring, of course, against that: taxes, a couple hundred million dollars, $400 million in restructuring. Sorry, and then interest expense is coming down on a year-over-year basis. Interest income will offset that. We'll have our normal financing fees, and then CapEx significantly lower than 2025. And all of that should get you to a fairly positive free cash flow expectation for 2025, and then as you think through to next year, we should see restructurings normalize.

There's a little bit of carryover from Goodyear Forward. Thinking restructurings next year will be on the order of $100-$200 million. We'll see further interest expense savings once we close on the Dunlop transaction and finalize the strategic review of chemicals. So we would be in a position next year to drive significant positive cash flow reflective of the underlying earnings run rate of the business.

Emmanuel Rosner (Managing Director and Senior Research Analyst)

Great. That's super helpful. Just final point. Is the overall spending on restructuring lower than initially anticipated? Maybe just my memory doesn't serve me right, but it sounded to me that the total budget could have been sort of like north of a billion dollars. Now we're talking about just $400 this year and maybe $100-$200 next year. So is it just an overall lower bill than expected?

Christina Zamarro (CFO)

I think, yeah. Emmanuel, we had set aside about $1 billion as part of Goodyear Forward for restructuring, and as I've just laid it out, we spent $200 million in 2024. The capital that we're going to allocate in 2025 is about $400 million and then up to $200 million next year, so we're probably going to land right around $800 million or so as part of the overall program. I think some of that is terrific negotiations with our constituents around the world. I think a part of that also is just the execution that we've seen in what Mark's describing about generating efficiencies in the factories to increase our volumes, and so no other announcements planned, nothing else in the pipeline. If anything changes, we'll keep you updated.

Emmanuel Rosner (Managing Director and Senior Research Analyst)

Great. Thank you so much.

Operator (participant)

Thank you. Our next question comes from Doug Carson with Bank of America. Please go ahead.

Doug Karson (VP and Quantitative Finance Analyst)

Great. Thanks so much for the detail in the slide deck. I want to maybe just turn.

Christina Zamarro (CFO)

Thank you.

Doug Karson (VP and Quantitative Finance Analyst)

Good morning. I want to maybe turn to the balance sheet for a moment here. Net leverage now, as it's three times, almost a turn below what you had last year. So the Forward program is certainly working. And I've just kind of pulled up your ratings at B1 and B+. Seem pretty underrated relative to the progress you've made on the balance sheet. Have you had a chance to kind of refresh with the rating agencies to have them take a kind of newer look at where the balance sheet's headed? That's my first question.

Christina Zamarro (CFO)

Yeah. Thanks, Doug, for the question. And certainly making a lot of progress on the balance sheet. We intend to close on the Dunlop transaction a little later this year, and that will bring in $700 million more of gross proceeds that we intend to use to deleverage even further. We do talk to each one of the rating agencies very regularly. Last night, in fact, was the most recent conversation. And I think they do look at our forward forecasts. I think there was a lot of emphasis placed on our 2024 free cash flow, which you can see was slightly negative because of a lot of the restructuring programs that we had in place. And so I think as we look ahead, we would expect more positive outlook and sentiment from the rating agencies just given the progress so far.

Doug Karson (VP and Quantitative Finance Analyst)

That's great. That's well-deserved. I was impressed to see the close to 50% increase in the Goodyear Forward cost savings up to $750 million. And as I look at the environment we're in, there's so much volatility between tariffs and raw material fluctuations. Can you maybe just help us think about some of those big line items you have? $300 million for footprint optimization and $200 million for purchasing. Are some of these categories less at risk, more at risk given the environment? Just trying to be thoughtful about the $750.

Mark Stewart (CEO)

Yeah. Doug, we feel really, really positive about the look ahead, right? We executed very strongly in 2024. We were able to put additional projects and their grassroots projects, right, as well. So really good. It's coming from our associates from around the world. We've got our dedicated weekly session as part of governance across the five key workstreams. And as I mentioned at the start of the call, we've now combined our manufacturing organization into one global organization with our three regional heads reporting to Don Metzler, our new VP there, with a very strong 30-year track record. I spent a lot of time in the space myself last year with the teams as we went through just, again, working on the nuts and bolts of manufacturing basics, right?

Of us really working on our efficiencies, our operating equipment effectiveness, our scrap rates, getting through the material flows, and really upgrading things in terms of just the diligence and the few KPIs that make the most difference in terms of us really getting ourselves to a super strong position there, so we feel very good about our plant optimization. We announced the footprint actions both last year as well as at the start of this year in our commercial truck operation to be in a position where we can compete in the marketplace there at the right cost structure, and we continue to drive those workstreams.

On the purchasing side, we're continuing to go through on looking at our costs in the purchasing arena, working with our supply base, both on current programs as well as future programs, and a strong drive and efficiency improvement in our indirect and MRO activity. So we feel, again, in that area, very strong. We've taken actions throughout last year as well as early this year in our SAG or SG&A, however you want to refer to that, as of making sure that our overhead structure is in the right condition there and continue to look at that on a monthly basis as we take a look to say, "What are things that we can do more efficiently than we've been doing it?" So those activities, along with our R&D, looking at our equipment standards, looking at how we spend, how we negotiate.

And long story short of it, we feel very, very strong that the improved savings rate are going to continue. And it's just really gotten to a point that is embedded in our DNA.

Doug Karson (VP and Quantitative Finance Analyst)

Great, Mark and Christina. Thank you very much for taking my questions. It was very helpful.

Mark Stewart (CEO)

Thank you.

Operator (participant)

Thank you. As a reminder, ladies and gentlemen, that is Star One for a question. We'll go next to Edison Yu with Deutsche Bank. Please go ahead.

Edison Yu (Director)

Hey, good morning. Thanks for taking our questions. I want to ask about the chemical side. I know you said you're still on track for a sale. Has the reception been a bit more muted? We speak to some chemical companies, and obviously, there's some challenges just for the industry there. What are your latest thoughts on that?

Christina Zamarro (CFO)

Edison, we don't have a lot more to say other than that that review remains in process. I think that, generally speaking, I think the interest has been across all sectors, whether you think about strategics or private equity. This one, in fact, was when we got into the market a little bit later. Of course, the focus on OTR and Dunlop in the earlier part of 2024. Thank you.

Edison Yu (Director)

Understood. And then just a quick one on the SOI and APAC. And apologies if I missed it earlier. It was actually a very, very strong margin. Was there anything kind of one-off there, some sort of kind of benefit that doesn't carry over? Just wanted to double-check on that.

Mark Stewart (CEO)

No. We just have a really strong operation in AP. Their manufacturing prowess is very strong. Pricing in the marketplace, very good. New, fresh products going in, winning with the right winners in the marketplace, particularly on the EV front there, and just really, operations doing quite well in AP.

Edison Yu (Director)

Got it. Actually, just one last quick one. I know you know I heard earlier about the expansion in Oklahoma. Is that in any way kind of maybe mitigation in case of the tariffs?

Mark Stewart (CEO)

No. We would like to tell you our crystal ball was good enough to do that, Doug, but that was not the case, right? It's just necessary modernization that we needed to make across our footprint. And that's one of our larger facilities, or one of the largest, actually. And we just were taking all the right actions we needed to take there in terms of moving more into the higher rim sizes, additional volume for the marketplace in that higher profit, higher margin segments.

Edison Yu (Director)

Great. Thank you very much.

Operator (participant)

Thank you. And we have no further questions. I'd like to turn the call back over to Mark for any final or closing remarks.

Mark Stewart (CEO)

Okay. So I'd like to thank you all for taking the time to join us today for the fourth quarter earnings call. We've come a long way here over the last year and still have a lot on our plate to action, but feel very good. We've got the right leadership team. We've got all the right associates around the world. And we're really looking forward to sharing with you all the progress we make on our Goodyear Forward initiatives as we move throughout this year. And thank you all for joining us today. And everybody, have a great day.

Operator (participant)

Thank you. And that does conclude today's conference. We appreciate your participation. You may disconnect at any time.